A Fresno business owner is suing the state’s sales tax department arguing it gave Amazon an unfair advantage over California businesses by failing to collect adequate taxes from the online retail giant.
Stan Grosz, president of Fresno-based camera shop Horn Photo, filed the lawsuit Tuesday in Los Angeles Superior Court arguing the California Department of Tax and Fee Administration failed to carry out its duties by not compelling Amazon to collect tax on sales made through its platform by other vendors for the last three to eight years.
Grosz argues businesses like his have been harmed by the department’s failure and that Amazon should be forced to pay billions of dollars in back taxes.
“Instead of following the law and playing by the rules, Amazon tried to work-around them so they could sell stuff cheaper than local businesses, falsely labeling themselves as a marketplace, not a retailer,” Grosz said in a statement. “This has cost California taxpayers billions, and it’s all because, when it came to Amazon, CDTFA refused to enforce the law.”
California has been collecting taxes on Amazon’s direct sales since 2012, when it began enforcing a law that allowed it to collect sales tax from any online business with a physical footprint in the state.
The dispute centers on Amazon’s so-called third-party retailers. They’re independent businesses who sell products through larger platforms, such as Amazon.
In many cases, out-of-state online retailers did not collect California tax on products they sold through Amazon, a loophole that Grosz contends put him at a competitive disadvantage.
“It’s a camera store. Camera stores are sensitive to sales tax,” said Paul Rafelson, one of the attorneys representing Grosz. “To add insult to injury, it’s not like the state doesn’t need the money.”
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Collectively, the third-party vendors generate billions of dollars in sales. In 2018, Amazon reported to the SEC that 58 percent of sales on the website were by made third-party retailers.
Grosz’s lawsuit contends Amazon meets the definition of a “retailer” in California law, and the state’s failure to collect tax on the company’s third-party sales deprived the state of revenue.
The California Department of Tax and Fee Administration declined to comment on the lawsuit. Amazon did not comment by the deadline for this story.
California for the past two years has been working to collect back taxes that it says Amazon’s so-called third-party retailers owe, arguing the vendors enrolled in the Fulfillment by Amazon program should have known they were subject to state taxes because their products moved through Amazon warehouses on their way to customers.
Some retailers have been fighting the state’s demand that they pay back taxes, claiming they did not know they were obligated to do so. Grosz’s lawsuit would shift the burden of paying back taxes from third-party retailers to Amazon.
Gov. Gavin Newsom and the state Legislature approved a law this spring that requires e-commerce companies like Amazon and eBay to collect California sales tax on behalf of small online retailers that sell products through their platforms.
That new law is aimed at evening the playing field for California businesses, who have been charging California customers sales taxes all along.
Under the state budget enacted last month, out-of-state businesses are on the hook for up to three years of back taxes on sales they made through Amazon.