Tax Guide for
Marketplace Facilitator Act

Tax Guide for Marketplace Facilitator Act

Beginning October 1, 2019, a new California law generally provides that a marketplace facilitator is responsible for collecting and paying the tax on retail sales made through their marketplace for delivery to California customers. A marketplace includes a physical or online place where marketplace sellers sell or offer for sale tangible merchandise for delivery in California. A marketplace facilitator is generally the operator of the marketplace. This new law is referred to as the Marketplace Facilitator Act, added by Assembly Bill 147 (Stats. 2019, ch. 5) and amended by Senate Bill 92 (Stats. 2019, ch. 34).

If you operate a marketplace or sell tangible merchandise through a marketplace, this guide will help you understand the new law and how it affects your sales and use tax registration, collection, and payment responsibilities.

General Definitions of Terms

The following are the general definitions for terms used in the Marketplace Facilitator Act:

Marketplace
a physical or electronic place where a marketplace seller sells or offers for sale tangible merchandise for delivery in this state.
Marketplace facilitator
in general, a person who contracts with marketplace sellers to facilitate the sale of the marketplace sellers' products through a marketplace operated by the person or a related person when other statutory requirements are met.
Marketplace seller
a person who has an agreement with a marketplace facilitator and makes retail sales of tangible merchandise through a marketplace owned, operated, or controlled by a marketplace facilitator.
Delivery network company
a business entity that maintains an internet website or mobile application used to facilitate delivery services for the sale of local products. A delivery network company, as defined in the Marketplace Facilitator Act, is not a marketplace facilitator unless it elects to be a marketplace facilitator.

The above terms are defined in the Marketplace Facilitator Act in Revenue and Taxation Code sections 6041-6041.5.

Note: *A person is related to a retailer if they have a relationship with the retailer described in Internal Revenue Code section 267 (b) and the related regulations.

A person, including a marketplace facilitator or a marketplace seller that is actively engaged in selling tangible personal property in this state is required to register with the California Department of Tax and Fee Administration (CDTFA) for a seller's permit. Additionally, a person who is engaged in business in this state under Revenue and Taxation Code section 6203 because they have a sufficient physical presence in California or economic nexus with California is required to register with the CDTFA for a Certificate of Registration – Use Tax, collect use tax from their purchasers, and file regular sales and use tax returns.

Actively engaged in selling tangible personal property (tangible merchandise) in this state includes direct sales to California customers that are not facilitated through a marketplace. In general, marketplace sellers whose tangible merchandise is sold at retail exclusively through a marketplace owned, operated or controlled by a marketplace facilitator are not required to register (see Marketplace Sellers' Requirements heading)

Seller's Permit

A retailer that is actively engaged in selling tangible personal property in this state is required to register for a seller's permit for each place of business in California at which the retailer customarily negotiates transactions relating to sales with his or her customers. In general, no additional permits are required for a registered retailer's warehouse or other location where merchandise is merely stored and customers do not customarily visit to make purchases.

However, at least one permit must be held by every person actively engaged as a seller that maintains stocks of merchandise in this state for sale. If sales are not negotiated from a place of business in California, but instead, from an out of state location, a seller's permit is required for warehouses or other places of business where merchandise is stored and from which retail sales to California customers of such merchandise is delivered or fulfilled. Also, a third-party's California location, such as a warehouse or fulfillment center, may be considered a person's in-state warehouse or place of business if there is dedicated storage for the person's merchandise at that location and the merchandise is not commingled with other persons' merchandise.

Certificate of Registration – Use Tax

A retailer selling merchandise to customers for storage, use, or other consumption in California who is engaged in business in this state because they have a sufficient physical presence in California or economic nexus with California is required to register for a Certificate of Registration – Use Tax.

Physical Presence

A sufficient physical presence in this state includes, but is not limited to:

  • Maintaining inventory or a place of business in California.
  • Having representatives in California for purposes of selling, delivering, installing or assembling, or taking of orders of tangible personal property.
  • Owning or leasing any real or tangible personal property, such as, machinery, equipment or computer server, in California.

Economic Nexus

Economic nexus means that the retailer's total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer exceed $500,000 in the preceding or current calendar year. To determine if your sales exceed the $500,000 sales threshold, you must include all sales of tangible merchandise for delivery in this state, including sales made on your own behalf and those of related persons, as well as sales facilitated through a marketplace facilitator's marketplace as defined above.

You may use our online services to register for a seller's permit or Certificate of Registration – Use Tax. To get started, please visit our Register a Business Activity page.

Note: *A person is related to a retailer if they have a relationship with the retailer described in Internal Revenue Code section 267 (b) and the related regulations.

Beginning October 1, 2019, a marketplace facilitator is considered the seller and retailer for each sale facilitated through its marketplace, for example, an Internet shopping website, to determine whether the marketplace facilitator is required to register with the CDTFA for a seller's permit or Certificate of Registration – Use Tax (see General Registration Requirements heading).

Also, a marketplace facilitator that is registered or required to be registered with the CDTFA as a retailer and facilitates a retail sale of tangible personal property by a marketplace seller is the retailer selling or making the sale of the tangible personal property sold through its marketplace. As such, the marketplace facilitator will generally be required to pay sales tax or collect and remit use tax on all retail sales of tangible merchandise for delivery to California purchasers facilitated through its marketplace for marketplace sellers.

This new requirement is in addition to any other sales or use tax liability a marketplace facilitator may have. For example, a marketplace facilitator is responsible for reporting and paying the tax on the retail sales of its own tangible merchandise made through its marketplace. If you are a marketplace facilitator, we recommend that you provide documentation to all your marketplace sellers that states you are registered with the CDTFA and will be paying the sales tax and collecting the use tax on their sales of tangible merchandise facilitated through your marketplace as of October 1, 2019.

If you are a marketplace seller, beginning October 1, 2019, you will no longer be considered the retailer of your sales of tangible merchandise facilitated through a marketplace, as defined by statute, provided the marketplace facilitator is registered or required to be registered for a seller's permit or Certificate of Registration – Use Tax.

In addition, beginning October 1, 2019, you as a marketplace seller are not required to be registered with the CDTFA for a seller's permit or a Certificate of Registration – Use Tax if all of your retail sales of merchandise will be facilitated by a marketplace facilitator that is registered as a retailer with the CDTFA.

Beginning October 1, 2019, the marketplace facilitator will be the retailer responsible for collecting and paying the tax to the CDTFA on those facilitated sales for delivery in California. However, a marketplace seller that makes any sales of tangible merchandise in California or for delivery in California that are not facilitated by a registered marketplace facilitator may have a registration requirement with the CDTFA (see General Registration Requirements heading). That is, a marketplace seller is generally required to be registered with the CDTFA if they make direct sales of tangible merchandise to California customers that are not facilitated through a marketplace or are a retailer engaged in business in this state because they have a sufficient physical presence in this state or an economic nexus with California.

To determine if you as the marketplace seller, have an economic nexus in California, you must include all sales of tangible merchandise for delivery in this state, including sales made on your own behalf and those of related persons, as well as your sales facilitated through a marketplace facilitator's marketplace as defined above.

Reporting Requirements

If you are a marketplace seller that is required to be registered, you are required to continue to report your total sales on your sales and use tax returns, including those sales facilitated through a marketplace that is owned, operated, or controlled by a marketplace facilitator that is registered or required to be registered with the CDTFA. However, on and after October 1, 2019, you may claim a deduction from sales or use tax as “other” on your sales and use tax return for sales facilitated by marketplace facilitators.

Record Keeping

As a retailer registered with the CDTFA, you are generally responsible for collecting the sales or use tax on your retail sales in California or for delivery in California, unless a statutory exemption or exclusion applies. When your sales of merchandise are facilitated through a marketplace, you should obtain and keep documentation to show that the marketplace facilitator is responsible for collecting and paying the tax to the CDTFA.

Documentation to support that your sales are facilitated by a marketplace facilitator responsible for the tax may include, but is not limited to:

  • An agreement with the marketplace facilitator that indicates the marketplace facilitator is registered with the CDTFA as a retailer and responsible for the collection and payment of tax to the CDTFA on your sales made through its marketplace.
  • In lieu of an agreement or other written document, other documentation showing that the marketplace facilitator is registered with the CDTFA as a retailer (see General Registration Requirements heading).

You should also obtain the marketplace facilitator's seller's permit or account number. You can verify that it is a valid account number on our Verify a Permit, License, or Account Now webpage.

In addition, the CDTFA will not hold a marketplace seller liable for tax on a transaction facilitated through a marketplace if the CDTFA can verify that the marketplace facilitator in fact collected the correct amount of tax or tax reimbursement from the purchaser on that transaction and paid it to the CDTFA.

Note: *A person is related to a retailer if they have a relationship with the retailer described in Internal Revenue Code section 267 (b) and the related regulations.

The total sales and use tax rate is not the same throughout California. Total sales and use tax rates may be higher than the 7.25 percent statewide base rate in areas where there are voter-approved district taxes. All retailers that are registered or required to be registered with the CDTFA are responsible for collecting and paying the use tax at the statewide rate, on their taxable retail sales of tangible merchandise for delivery in California. Retailers engaged in business in a taxing district are also required to collect that district's use tax on their sales for delivery into the district and remit it to the CDTFA so it can be distributed to the taxing districts.

For more information about district tax and collection requirements, see our publication 44, District Taxes (Sales and Use Taxes).

FAQs (Frequently Asked Questions)

I sell tangible merchandise exclusively online through a marketplace facilitator who is registered with the CDTFA and will be collecting and paying the tax on my facilitated sales beginning October 1, 2019. Can I close my account with the CDTFA?

Yes, beginning October 1, 2019, you are not required to be registered as a retailer with the CDTFA if all of your sales of tangible merchandise are facilitated by marketplace facilitators who are the retailers for purposes of those sales. However, if you make any sales other than those facilitated by a marketplace facilitator, for example, through your own website, you may be required to be registered (see General Registration Requirements heading).

I am located outside of California and beginning October 1, 2019, most of my sales will be facilitated by a marketplace facilitator who is registered as a retailer with the CDTFA. However, I also make a few sales of tangible merchandise for delivery in California through my own website. I am registered with the CDTFA because some of my inventory is stored in a third-party's fulfillment center in California that is commingled with other seller's merchandise. Can I close my account?

No, you are engaged in business in California because you have a physical presence in this state (inventory) and you are making retail sales of tangible merchandise that are not facilitated by a marketplace facilitator. Retailers that are engaged in business in this state are required to register with the CDTFA and file their sales and use tax returns. You should report your total sales on your sales and use tax return, including those sales made through a marketplace facilitator. However, for reporting periods on and after October 1, 2019, you may claim a deduction as “other” on your sales and use tax return for sales made through a marketplace for which the marketplace facilitator is responsible for collection and payment of the tax.

I am located outside of California and do not have any physical presence, including any inventory, in California. Beginning October 1, 2019, most of my sales will be facilitated by a marketplace facilitator who is a registered retailer with the CDTFA. However, I will continue to make sales of tangible merchandise for delivery to California customers through my own website. I am registered with the CDTFA because in 2018, I made more than $500,000 in total sales of tangible merchandise for delivery in California. I have already exceeded $500,000 in sales for delivery in California in 2019. Since most of my sales will be facilitated by a marketplace facilitator, can I close-out my account with the CDTFA beginning October 1?

No, you are required to stay registered with the CDTFA because you are a retailer engaged in business in California due to your economic nexus with the state and you are making retail sales for delivery to California that are not facilitated by a marketplace facilitator. That is, you have an economic nexus with this state because your total sales of tangible merchandise for delivery in California, including those sales facilitated by a marketplace facilitator will exceed $500,000 in 2019. You are required to maintain your account with the CDTFA and file and report your total sales on your sales and use tax returns. However, for reporting periods on and after October 1, 2019, you may claim a deduction for sales made through a marketplace for which the marketplace facilitator is responsible for collection and payment of the tax on those sales.

I am a marketplace seller and sell merchandise to California purchasers through a variety of online marketplaces. How do I know if the persons operating the marketplaces I use are responsible for collecting and paying the California tax to the CDTFA?

You should contact the persons operating the marketplaces where you sell tangible merchandise and ask them to provide documentation to you that states they are marketplace facilitators that are registered with the CDTFA and they will be responsible for the tax on sales of tangible merchandise facilitated through their marketplace as of October 1, 2019. You should also obtain their seller's permits or account numbers and verify that they are properly registered with the CDTFA through our account verification page; Verify a Permit, License, or Account.

If a person operating a marketplace does not provide you with such documentation, you will need other documentation or evidence showing that the person is in fact a marketplace facilitator that is registered with the CDTFA or required to be registered with the CDTFA.

The CDTFA will not hold a marketplace seller liable for tax on a transaction facilitated through a marketplace if the CDTFA can verify that the marketplace facilitator in fact collected the correct amount of tax or tax reimbursement from the purchaser on that transaction and paid it to the CDTFA.

Resources

Laws and Regulations

Other Resources

Please Note: The general information provided is not intended to replace any law or regulation. This website summarizes the law and applicable regulations in effect when it was published. However, changes in the law or regulations may have occurred. If there is a conflict between this document and the law, decisions will be based on the law.