By Paul Treinen, Tax Partner
On June 29, 2011, Governor Brown signed ABX1 28 (Ch. 11-7), which expanded the definition of a “retailer engaged in business.” The bill was designed to require online retailers to charge use tax on purchases shipped to California addresses. Although the legislation is informally referred to as the “Amazon bill,” the concept applies to all online retailers that meet the criteria.
The bill, which is a result of a deal between Amazon.com and California lawmakers, allowed online retailers to wait until at least September 15, 2012, to collect use tax from their California customers.
What does the Amazon bill do?
The bill was designed to require larger, out-of-state online retailers to collect use tax on taxable purchases shipped to California consumers.
Two requirements must be met in order to be considered to be engaged in business in California:
• Sales (previous 12 months) of tangible personal property to purchasers in California that are referred as part of affiliate agreements are in excess of $10,000; and
• Total sales of tangible personal property to all California purchasers are in excess of $1 million.
The tests are applied at the retailer level. Because of this, Amazon.com is now deemed to have nexus in California if it meets the $10,000 test and $1 million test for all sales, even if an individual affiliate does not meet the test.
This bill only applies to purchases directly from Amazon.com and not on items offered by third-party sellers that utilize the Amazon website to sell their goods.