Current Events > California hits Philly-area Amazon seller with $1.6 million sales-tax bill

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Caution998
11/05/19 8:59:39 AM
#1:


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.

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 didnt collect from consumers who bought his goods through Amazon.

Thats just for the first six months of this year.

Its absurd. I havent sold enough inventory over time to warrant a tax bill like that. You could take every sale Ive ever done. You could take the biggest sellers on Amazon, and I dont think they would have a bill like that. Theyre 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.

Californias 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 its Amazon declaring its not a retailer for third-party merchants, Uber saying its not an employer, or Facebook denying its a publisher.

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 companys 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 Freifelders 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 Amazons 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.

Californias decision to pursue third-party merchants preceded that Supreme Court decision, experts said.

That uncertainty caused by Californias 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.


https://www.msn.com/en-us/money/companies/its-bonkers-california-hits-philly-area-amazon-seller-with-dollar16-million-sales-tax-bill/ar-AAJSQ9Z
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Caution998
11/05/19 8:59:47 AM
#2:


The business had been growing steadily since 2000, when Freifelders 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 hes down to one employee in the warehouse. He still has the three contractors. Plus, his wife helps a couple days a week.

Im drastically cutting things back until the dust settles, just because I dont 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, doesnt tell them, doesnt warn them, the State of California doesnt even warn them, and then years later theyre stuck in this interstate commerce speed trap, said Rafelson, whose firm, Francissen Rafelson Schick LLP, is based in Boca Raton, Fla.

Californias 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, Mas 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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Wii_Shaker
11/05/19 9:01:35 AM
#3:


Gawd. California is so goddamn broke. How long until they start taxing people for the air they breathe?
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DarkChozoGhost
11/05/19 9:03:47 AM
#4:


Look what the shitty republican supreme court did
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DevsBro
11/05/19 9:04:16 AM
#5:


Remember when they tried to charge $75T to limewire based on the number of downloads and the price of music purchases, and the courts threw it out on grounds that that was more money than the entire music industry has ever made?
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Jagr_68
11/05/19 9:17:00 AM
#6:


All the guy did was use his business via Amazon and they handled the logistics from there.

There's no way this will go anywhere since it's an enormous amount of money not to mention unconstitutional to begin with.
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Caution998
11/05/19 9:27:03 AM
#7:


Wii_Shaker posted...
Gawd. California is so goddamn broke. How long until they start taxing people for the air they breathe?


It's ridiculous. These numbers also pretty much have to be hyper inflated. He did selling in every state; not just California. How is he supposed to collect sales tax when California never told him to do so, and Amazon doesn't tell him where these goods were being stored. Furthermore, why is the merchant responsible for the sales tax?

This guy has paid his taxes for his business on a federal, state and local level. And he gets hit more with this?

It doesn't even make sense.
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Doom_Art
11/05/19 9:29:20 AM
#8:


DarkChozoGhost posted...
Look what the shitty republican supreme court did



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glitteringfairy
11/05/19 9:30:19 AM
#9:


DarkChozoGhost posted...
Look what the shitty republican supreme court did

You are fucking clueless

Anyway, dude lives in Philly, can't he just tell California to suck it?
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DarkChozoGhost
11/05/19 9:31:13 AM
#10:


glitteringfairy posted...
DarkChozoGhost posted...
Look what the shitty republican supreme court did

You are fucking clueless

Anyway, dude lives in Philly, can't he just tell California to suck it?

Caution998 posted...
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.

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Doom_Art
11/05/19 9:31:29 AM
#11:


Hoping this was gonna be a moment of clarity for the resident conservatives but I suppose my flaw is I expect too much of people.

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glitteringfairy
11/05/19 9:34:10 AM
#12:


DarkChozoGhost posted...
glitteringfairy posted...
DarkChozoGhost posted...
Look what the shitty republican supreme court did

You are fucking clueless

Anyway, dude lives in Philly, can't he just tell California to suck it?

Caution998 posted...
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.

So then tell me, why would your holy grail one party blue state do something like this?
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Doom_Art
11/05/19 9:35:36 AM
#13:


Uh oh he's lashing out

Also rather rich to see a conservative accusing a state of being "one party"

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glitteringfairy
11/05/19 9:36:51 AM
#14:


Doom_Art posted...
Uh oh he's lashing out

Also rather rich to see a conservative accusing a state of being "one party"

California is literally a one party state

Now answer my question. Why would California do this?
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Doom_Art
11/05/19 9:37:30 AM
#15:


glitteringfairy posted...
California is literally a one party state
Last I checked there's several political parties and independent candidates active in the state

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s0nicfan
11/05/19 9:55:17 AM
#16:


Ah, the only RIAA/MPAA trick from back when they were arresting children and the elderly to make a point about mp3s.

A bold move, cotton. Let's see how it pays off.
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L0Z
11/05/19 10:03:54 AM
#17:


Fortunately California doesnt have the powers the irs does with tax evasion. Ive had a state try to come after me and I told them to fuck off and that I dont owe them shit because I paid the state I call home taxes already not the state where I worked. They cant even go to collections without your ssn
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spudger
11/05/19 10:05:21 AM
#18:


DarkChozoGhost posted...
glitteringfairy posted...
DarkChozoGhost posted...
Look what the shitty republican supreme court did

You are fucking clueless

Anyway, dude lives in Philly, can't he just tell California to suck it?

Caution998 posted...
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.

@glitteringfairy response?
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DarkChozoGhost
11/05/19 10:12:11 AM
#19:


Lmao he blocked me.
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Questionmarktarius
11/05/19 10:17:36 AM
#20:


Doom_Art posted...
Hoping this was gonna be a moment of clarity for the resident conservatives but I suppose my flaw is I expect too much of people.

This is why a seller-sourced policy should be adopted.
The tax liability should rest wherever the money becomes the seller's, regardless of where the sold object actually is or where it goes along the way to the buyer.
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justaguy3492
11/05/19 10:18:54 AM
#21:


The $1.6 mil is ridiculous, but what's wrong with requiring online vendors to collect sales tax?
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Questionmarktarius
11/05/19 10:20:33 AM
#22:


justaguy3492 posted...
The $1.6 mil is ridiculous, but what's wrong with requiring online vendors to collect sales tax?

Someone selling knitted potholders on etsy is not going to really have the means to comply with ten thousand different tax jurisdictions.
https://taxfoundation.org/state-sales-tax-jurisdictions-approach-10000/
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#23
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HBOSS
11/05/19 10:52:55 AM
#24:


wow. wonder why now out of all times they decide to collect on this tax?

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Questionmarktarius
11/05/19 10:54:08 AM
#25:


HBOSS posted...
wow. wonder why now out of all times they decide to collect on this tax?

"make an example"
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DarkChozoGhost
11/05/19 10:57:42 AM
#26:


HBOSS posted...
wow. wonder why now out of all times they decide to collect on this tax?

Caution998 posted...
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.

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My sister's dog bit a hole in my Super Mario Land cartridge. It still works though - Skye Reynolds
3DS FC: 3239-5612-0115
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Questionmarktarius
11/05/19 10:58:48 AM
#27:


Soon:
"Cannot sell to CA addresses"
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