New California Law Requires Online Retailers to Collect Sales Taxes

(CN) – California Governor Gavin Newsom “leveled the playing field” for California brick-and-mortar businesses on Thursday when he signed into law a new requirement for out-of-state online retailers like Etsy, Amazon and eBay to collect sales taxes from their customers.

Online sellers who sell trinkets for Etsy or weathered memorabilia on eBay do not collect sales taxes, giving them an advantage over small retail stores by as much as 7-10%, according to the authors of the bill signed into law.

The new requirement eliminates an advantage online retailers have enjoyed for years.

State Treasurer Fiona Ma said she has been working on some type of reform since 2007 and that the new requirement was a long time coming.

“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 statement.

In June 2018, the Supreme Court held in South Dakota v. Wayfair that states can enforce the collection of sales taxes from out-of-state businesses. Assemblywoman Autumn Burke (D-Inglewood) authored Assembly Bill 147 and said the new requirement will cut down on the amount of paperwork small online businesses need to fill out.

“Local mom and pop businesses across California have been clamoring for relief for years and this legislation levels the playing field and not only implements Wayfair effectively, but also fairly,” Burke said in a statement.

In the absence of out-of-state retailers collecting state sales tax on their own, which Amazon and other large online sellers now do, customers are supposed to pay the tax themselves. Because few consumers do this, states lose anywhere between $8 billion and $33 billion every year, according to a study cited in Justice Anthony Kennedy’s opinion.

Since that decision, 33 states have implemented their own collection of sales taxes from out-of-state online retailers.

California has pursued collection of sales taxes from online marketplace sellers like Amazon. In September 2018, the state’s Department of Tax and Fee Administration began sending notices to sellers who peddle their wares on Amazon to make sure they provide proof they are collecting and filing them.

The new law will take effect immediately and online marketplaces will need to collect taxes on all of their sales by Oct. 1.

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