Avalara > Blog > Ecommerce > California may require marketplace facilitators to collect tax for sellers, increase small seller exception

California may require marketplace facilitators to collect tax for sellers, increase small seller exception


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Update 3.6.2019: AB 147 sailed through today's Appropriations Committee hearing. Several people praised the bill and no one opposed it. 

California is on track to enforce remote sales tax collection starting April 1, 2019, as required by a California Department of Tax and Fee Administration rule. However, state lawmakers are working to amend the rule and impose a collection requirement on marketplace facilitators. If they’re successful, businesses will have a bit more time to adapt to the changes, as the new requirements would take effect October 1, 2019.

Not so long ago, states couldn’t require an out-of-state seller to obtain a sales tax license and comply with sales tax laws unless that seller had a physical presence in the state. That changed on June 21, 2018, when the Supreme Court of the United States overruled the physical presence rule in South Dakota v. Wayfair, Inc.

Although the court didn’t replace the physical presence rule with another bright-line test, it did highlight three aspects of South Dakota’s law that reduce the burden and costs of remote sales tax compliance: the prospective enforcement of the remote sales tax law; the small seller exception; and the fact that South Dakota is a member of the Streamlined Sales and Use Tax Agreement (or SST).

A version of the South Dakota economic nexus law that triggered the demise of the physical presence rule has been adopted by more than 30 states since the Wayfair ruling. All include an exception for small sellers, and most prohibit retroactive enforcement. Some of the states, but not all, are SST members; California is not.

After months of deliberation, the California Department of Taxation and Fee Administration (CDTFA) adopted an economic nexus rule similar to South Dakota’s. Starting April 1, remote businesses with more than $100,000 in taxable sales in California in the current or preceding calendar year, or at least 200 separate transactions for delivery into the state, are required to register with the state and collect and remit all applicable taxes. Likewise, in-state businesses meeting the economic nexus threshold in California districts where they don’t have a physical presence must collect and remit sales tax in those districts.

Even though close to 40 million people live in California and the state has the fifth largest economy in the world, the CDTFA was reluctant to adopt a higher threshold for the small seller exception. During a public hearing on the matter, representatives from the CDTFA insisted they lacked the authority to establish a threshold different from the one the Supreme Court allowed to stand in Wayfair. However, CDTFA director Nicolas Maduros said the department “would be interested if the Legislature and the governor were interested in making those policy determinations.”

That’s precisely what’s happening now. With Assembly Bill 147, the Legislature is working to “modernize California law consistent with the holding of Wayfair,” and “ensure that small businesses are not unduly burdened.” It would also eliminate in-state economic nexus requirements for in-state businesses.

AB 147 seeks to:

  • “Increase the level of economic activity a retailer must have in California for the state to impose a use tax collection obligation on the retailer;
  • Define the term ‘retailer’ to include marketplace facilitators and require marketplace facilitators that meet the higher economic activity threshold to collect and remit the use tax on behalf of their marketplace sellers; and
  • Alleviate the burden of tracking economic activity in each individual district that imposes a district tax.”

Increase the small seller exception

If AB 147 is approved as written, the current $100,000 sales/200 transactions small seller exception will be changed to $500,000 from the sale of tangible personal property for delivery in California in the current or preceding calendar year. This $500,000 would apply to all remote retailers, including marketplace facilitators.

It would also change the threshold of California’s existing click-through nexus law. Currently, a remote retailer with an agreement to reward a person in California for referrals must collect and remit California sales tax if total cumulative sales from such referrals within the 12 preceding months is more than $10,000, and the retailer’s total cumulative sales of tangible personal property to purchasers in California within the 12 previous months exceeds $1 million.

AB 147 would eliminate the $10,000 referrals component and reduce the $1 million threshold to $500,000.

Collection requirement for marketplace facilitators

The measure also considers a marketplace facilitator to be “the seller and retailer for each sale facilitated through its marketplace,” including sales by third-party or marketplace sellers. California is one of more than 20 states currently seeking to require marketplace facilitators to collect and remit sales tax on behalf of their marketplace sellers.

To determine the threshold, a marketplace facilitator would include all sales of tangible personal property made through the marketplace for delivery in the state. Likewise, if a marketplace seller makes sales into California through different channels, that seller should include all sales of tangible personal property for delivery into California when calculating the threshold — those made on the seller’s own behalf and those facilitated through a marketplace.

AB 147 is currently being reviewed by the Committee on Appropriations and is scheduled for a hearing on March 6, 2019.

Are you collecting and remitting sales tax in all states where you should? This state-by-state guide to remote sales tax laws can help you determine where you have nexus and an obligation to collect.


Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Gail Cole
Avalara Author Gail Cole
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.

Huntington Beach, California
May 8–10, 2019