‘It’s bonkers’: Kalifornia hits Philly-area Amazon seller with $1.6 million sales-tax bill

https://www.msn.com/en-us/news/us/it...Q9Z?li=BBnb7Kz


Brian Freifelder, who sells clothing, shoes, and groceries on Amazon.com out of a small warehouse in Bensalem, is caught in what his tax lawyer called “an interstate commerce speed trap.”
© MICHAEL BRYANT/The Philadelphia Inquirer/TNS Brian Freifelder, checks his inventory from his business, Philadelphia Media Exchange, that are in Amazon warehouses across the country, where he is a third party seller. The 36-year-old Bucks County resident recently received a jaw-dropping notice from California that he could owe as much as $1.6 million for sales tax that he didn’t collect from consumers who bought his goods through Amazon.

That’s just for the first six months of this year.
“It’s absurd. I haven’t sold enough inventory over time to warrant a tax bill like that. You could take every sale I’ve ever done. You could take the biggest sellers on Amazon, and I don’t think they would have a bill like that. They’re trying to scare people,” Freifelder said last week.
Freifelder, who started as a merchant buying and selling CDs on eBay when he was 16, is among what is believed to be hundreds of thousands of third-party merchants on Amazon who were informed by the California Department of Tax and Fee Administration that they should have been collecting taxes on sales to California residents as far back as 2012.
California’s aggressive tax-collection move against Freifelder and other third-party merchants on Amazon is an example of government trying to catch up to new forms of commerce that on the surface at least appear to evade obligations under old laws, whether it’s Amazon declaring it’s not a retailer for third-party merchants, Uber saying it’s not an employer, or Facebook denying it’s a publisher.
© MICHAEL BRYANT/The Philadelphia Inquirer/TNS Brian Freifelder, whose business, Philadelphia Media Exchange, talks about one part of his business, which is retail arbitrage. The large blue containers are for goods that have been bought from retail stores and repackaged to be sent to an Amazon warehouse for selling. When Amazon opened its first warehouse in California in 2013, it escaped the obligation to collect the taxes on sales by third-party merchants on the company’s site, apparently by convincing state officials that it was not the retailer obligated to collect sales tax in those cases — a distinction that has since been undermined by court decisions in South Carolina, Pennsylvania, and elsewhere.
The state says that as soon as Freifelder’s goods showed up at an Amazon warehouse in California, he had the same obligation to collect sales tax as any retailer with a store there — even if he had no idea where Amazon was storing his goods.
Jared Walczak, director of state tax policy at the Tax Foundation in Washington, said the pursuit of Amazon’s third-party merchants for back sales taxes is extreme and violates protections under the U.S. Constitution, even though states a have significant leeway in how they impose taxes.
“Retroactivity is always bad policy, but in this case, it raises serious constitutional due process concerns, because due process requires that you have notice and can anticipate a policy. Here the retailers lacked notice to collect. No one believed they were supposed to be collecting this tax for all of these years,” Walczak said.
California tax officials said Monday that they could not comment on specific tax liabilities.
The question of whether third-party merchants or Amazon should collect sales taxes has since been resolved by the passage in California and many other states of laws that require “marketplace facilitators” to collect sales taxes. In California, that law took effect Oct 1. In New Jersey and Pennsylvania, such laws took effect last year.
A 2018 U.S. Supreme Court decision did away with the decades-old standard that states could force retailers to collect sales tax only if they had a physical presence in the state, making marketplace facilitator laws possible.
California’s decision to pursue third-party merchants preceded that Supreme Court decision, experts said.
That uncertainty caused by California’s tax strategy has caused Freifelder to hit the brakes on the growth of his business, Philadelphia Media Exchange Corp., which reached $3 million in revenue last year, he said.
The business had been growing steadily since 2000, when Freifelder’s love of rap music, but distaste for the prices of compact discs at Best Buy and Sam Goody, led the teenager to eBay, where he would buy 100 CDs for $200, keep those he wanted, and resell the others.
In 2005 he started selling on Amazon and at flea markets, such as the Tacony Palmyra Flea Market in New Jersey. He opened his first store, Fivedollarcd, in the Tacony section of Northeast Philadelphia in 2010, expanding to the sale of video games and consoles. Another store in Mayfair followed.
But then streaming services eroded those business, so he closed the stores and by 2015 had moved on to what is called “retail arbitrage” of clothing, shoes, and grocery items bought on sale or clearance at Marshalls, TJ Maxx, Ross, Burlington, and other stores, and sold for more on Amazon.
The front room of his warehouse has 14 large recycling bins used to sort and repack Under Armor clothing, Polo shirts, Nicole Miller lunch totes, and other goods before he ships them to Amazon, which then handles every aspect of the sale to the consumer, he said. He controls only what he ships and the price.
At its peak before the sales tax scare, Freifelder had eight employees, three full-time and five part-time in the warehouse, and three contractors who shopped for him. Now he’s down to one employee in the warehouse. He still has the three contractors. Plus, his wife helps a couple days a week.
“I’m drastically cutting things back until the dust settles, just because I don’t want to find out I have a ridiculous bill a year or two down the road,” said Freifelder, who wore a black Phillies cap and a gray Super Mario ’85 T-shirt while showing visitors around his operation, in an industrial park right next to I-95.
Paul Rafelson, a tax lawyer and volunteer executive director of the Online Merchants Guild, said California is hurting not just Freifelder, but thousands of small businesses nationwide.
“These guys are shipping goods off to Amazon. Amazon moves them all around, doesn’t tell them, doesn’t warn them, the State of California doesn’t even warn them, and then years later they’re stuck in this interstate commerce speed trap,” said Rafelson, whose firm, Francissen Rafelson Schick LLP, is based in Boca Raton, Fla.
California’s elected treasurer, Fiona Ma, in March sent a letter to Gov. Gavin Newsom urging him to block the tax collectors from going after third-party sellers.
“They are not the ones responsible for uncollected taxes under state law, nor is it constitutionally permissible to impose such burdens on these businesses,” Ma’s letter said.
Freifelder maintained a supremely calm demeanor for someone who just received a $1.6 million tax bill, perhaps because he considers the numbers “bonkers.”
“I would have had to have done at least $15 [million] to $20 million in sales to get a bill like this. That would be in California alone. I would have had to have done $150 million to $200 million in sales in the United States.”
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©2019 The Philadelphia Inquirer


Socialist venezuela-like state of kalifornia strikes again - the socialist tax and spend on condos for the homeless in la are sending tax bills to Amazone merchants - who had no otice or control over the sales.

Typical Kalifornia - the hatred for free enterprise and happiness at taxing business out of existence for their socialist ideology will destroy the economy. People are leaving the socidalist state that cares more for illegals and homeless than its tax-burdened citizens.

I would boycot making any sles in kalifornia if i had that type of business.

Moneygrubbing socialists parasites.

Don't make the sles

DPST attention span is not long enough to read more than 2 sentences before posting something foolish and unrelated.

I supported POS systems across the USA for years. California is ridiculous. We seemingly moved modifications for them every month. CA had different taxing, accounting and environmental rules and consumer rights then anyone else in the country.

I also supported state taxing systems. Systems that if a state wanted to, they could send the accountant to jail. It happened more than once. The dirty secret is that the state and the corporation have to come to an agreement as to the tax owed.

This guy better have a good IT guy.

I would boycot making any sles in kalifornia if i had that type of business. Originally Posted by oeb11

but as your story says, the product could work its way through Cali, and you would still pay tax.

I was almost on California's side, when I saw the guy had marked up Rap CD's for re-sale. that's as bad as narcotics.

I learned just a couple of weeks ago, that Amazon is charging tax on all used goods now, no matter the State. that will cause a 90% reduction in purchases from my end.

Good point - CT

the internet sales tax ruling was a bad ruling.


don't know what point was made in the ruling. the brick/mortar rule was a good valid reason.


there's another good valid reason.. common sense. it appears that flown the coup for money. greedy states.


the common sense part.


a new orleans citizen drives to Florida and buys some beverages. He pays taxes on those goods. FL collects those taxes. LA doesn't.


that principle should extend to internet sales. the buyer is essentially visiting the server located in another state. there again, only the state where the serve is located should collect taxes.

Cali gotto pay for the fire s illegal and free to all somehow

a new orleans citizen drives to Florida and buys some beverages. He pays taxes on those goods. FL collects those taxes. LA doesn't.


that principle should extend to internet sales. the buyer is essentially visiting the server located in another state. there again, only the state where the serve is located should collect taxes. Originally Posted by dilbert firestorm

sales tax used to be due in the jurisdiction where the "sale took place"

and normally in the old days that was where the salesman was; where the exchange took place

and then there was or is the use tax, which is a tax to take the place of a sales tax when someone buys an otherwise taxable item from out of the state of residence

it was incumbent on the individual or the company who purchases something to file and pay the use tax

the retailer collects and remits a sales tax, the user or purchaser pays the use tax in cases where the item was shipped from out of state sans sales tax

the problem was, the state had to chase thousands or millions of purchaser, businesses and individuals, to collect the use tax

its much easier to collect from large businesses than from millions of individuals

there are two cases that are instructive

the quill case and the wayfair case

and I've bought things from both, office supplies for years from quill and outdoor furniture from wayfair

an issue under quill was the due process clause had been seen to require a physical presence in a jurisdiction before the jurisdiction could impose a tax, but quill said if 'activities were sufficient within a state" then that state could impose an obligation on the retailer

but then came the commerce clause where a state cannot unduly burden interstate commerce

so under quill the court set a bright line physical presence requirement, a type of compromise

under wayfair, the court said the decision under quill was flawed and a physical presence was not necessary

justice kennedy wrote

First, the physical presence rule is not a necessary interpretation of the requirement that a state tax must be “applied to an activ­ity with a substantial nexus with the taxing State.” Second, Quill creates rather than resolves market distortions. And third, Quill imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow.

the dissenting supreme court justices said congress, not the court should resolve the issue

so there you have it, states, like everything else, seek the path of least resistance, and retailers are the easiest to pursue

I supported POS systems across the USA for years. California is ridiculous. We seemingly moved modifications for them every month. CA had different taxing, accounting and environmental rules and consumer rights then anyone else in the country.

I also supported state taxing systems. Systems that if a state wanted to, they could send the accountant to jail. It happened more than once. The dirty secret is that the state and the corporation have to come to an agreement as to the tax owed.

This guy better have a good IT guy. Originally Posted by gnadfly

Hey, gnadfly. You might want to make clear that you're referring to "point-of-sale" systems, lest any of the forum's lower-IQ progressives (please don't point out any qualifying usernames) misinterpret the abbreviation used. LOL!

NGIT - thanks for a thoughtful post.

NGIT - thanks for a thoughtful post. Originally Posted by oeb11

Agree. Good post. He hit a lot of the key points very concisely.

https://www.bdo.com/insights/tax/sta...-supreme-court

Btw,
It's not just California.
Numourous states are going after same. Califukna is just a bit ahead of most states.
And, not just states, City of Chicago was issuing notices fishing for sales taxes from non-local vendors summer 2018.

NGIT provides excellent background in his post.
The whole issue is that the use tax mechanism has totally failed as it's not paid to whichever state (as NGIT also mentions). Thus, the states are looking out for themselves. The Wayfair decision makes it quite clear that major vendors must collect sales tax, for the customers location, regardless. More of this (from other states) is coming down the road quickly.