E-commerce giants like Amazon and eBay will have to collect California sales tax on behalf of small online retailers that sell products through their platforms under a law Gov. Gavin Newsom signed on Thursday.
The law helps small online retailers in two ways.
First, it clarifies that platforms like Amazon must collect tax for products sold on their websites even if they come from so-called third-party retailers.
The largest online retail companies have collected California tax since 2012, but smaller operations that use the sites for business have not paid state taxes until recently. That gave the small out-of-state retailers a price advantage over California companies.
Some out-of-state online retailers were surprised over the past year when California began demanding that they pay use taxes for products they sold through Amazon in the past. Several wrote to Treasurer Fiona Ma that they feared bankruptcy.
“This new law will close this major loophole by mandating that all online retailers collect and remit all the state and local sales taxes due and level the playing field between our brick and mortar businesses in our state,” Ma said in a written statement.
Second, the law raises the threshold for when out-of-state online retailers must pay California tax. Out-of-state businesses that make less than $500,000 per year in California won’t have to collect sales taxes from online purchases by California customers.
The change comes less than a month after California started requiring out-of-state retailers to register with the state and begin charging customers sales tax. The California Department of Tax and Fee Administration made the change after the U.S. Supreme Court ruled that states can tax purchases from out-of-state sellers.
That policy took effect April 1 and applied to retailers making more than 200 transactions or $100,000 in California sales. Worried that would harm small businesses, state lawmakers fast-tracked a bill to raise the cap to $500,000 and Newsom signed it into law Thursday.
The new law, AB147, also codifies California’s new policies for larger online retailers like Amazon, which state lawmakers argued had an unfair advantage over in-state businesses who already had to tax California customers.
“AB 147 will level the playing field between California retailers and their out-of-state competitors,” the bill’s author Assemblywoman Autumn Burke, D-Inglewood, said in a statement. “It also reduces administrative burdens for small online retailers, so they can spend time and resources to focus on their business and not tax compliance.”
The new law takes effect immediately.