Wednesday, April 14, 2010

California Follows Colorado Down the Rabbit Hole

As we wrote last month, Colorado recently enacted legislation requiring retailers that do not collect Colorado sales tax to provide a list of their Colorado customers and the amount of Colorado purchases to the State Department of Revenue on an annual basis. Retailers must also inform purchasers of their duty to remit use tax and provide purchasers an annual statement of their purchases.

In that entry, Matt Schaefer wrote, “Voters in other states beware.” In fact, just days before Colorado’s bill was signed into law, the California Assembly introduced its own, similar legislation: AB 2078, as amended April 5, 2010. The bill is currently before the Assembly’s Committee on Revenue and Taxation. If passed in its current form, California would institute Colorado-type reporting requirements which, like Colorado’s law, are potentially in violation of Quill, discriminate against interstate commerce, and certainly invade consumers’ privacy.

The California rules are quite similar to Colorado’s, but the proposed California law requires quarterly, instead of annual, reports and provides an exemption based on sales volume. The bill provides that:
  • Any retailer making sales subject to tax, that is not required to collect use tax, “shall provide notification on its Internet Web site or retail catalogue that tax is imposed…and is required to be paid by the purchaser.” Cal. Rev. & Tax Code § 6208(2) (as proposed).
  • Such retailers must file on a quarterly basis “a report that sets forth the names and addresses of purchasers of tangible personal property, the sales price of the property, the date of the sale, and such other information as the board may require.” This requirement does not apply to retailers with qualified receipts of less than $100,000 in the prior year if the retailer’s qualified receipts are “reasonably expected” to be less than $100,000 in the current year, as well. Cal. Rev & Tax Code §§ 7055(7)(b)(1), (2) (as proposed).
Also similar to Colorado’s law, AB 2078 creates a rebuttable presumption that if a “controlled group of corporations has a component member that is a retailer engaged in business in [California],…[any retailer that is a part of the controlled group] shall be presumed to be a retailer engaged in business in” California. Cal. Rev. & Tax Code § 6203(1)(f) (as proposed). The bill does not provide any information about how a retailer can rebut this presumption.

Obviously, although similar in nature to Colorado’s law, the California bill potentially imposes even more onerous reporting obligations for out-of-state retailers, based on the sheer number of customers located in California and the quarterly filing requirements. Retailers also should be concerned about a legislation domino-effect. As we wrote previously, South Dakota is already informally demanding that out-of-state companies provide the State a list of in-state purchasers who may owe use tax. Which states will be next to attempt to regulate interstate commerce?

UPDATE, Aug. 31, 2010:  Please see our most recent post concerning the status of the California Bill here.

UPDATE, Jul. 5, 2011: California has enacted a new nexus law

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