The California Dept. of Tax and Fee Administration [“CDTFA”] just issued a set of regulations that apply to the “Marketplace Facilitator Act”.
This new law which has been unnoticed by most in California’s cannabis industry could be applied to Weedmaps and others who facilitate sales of cannabis to California residents.
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., It was added to California law by Assembly Bill 147 (Stats. 2019, ch. 5) and amended by Senate Bill 92 (Stats. 2019, ch. 34).
CDTFA’s announcement states,
“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. Delivery network companies are not marketplace facilitators for purposes of the Marketplace Facilitator Act. However, a delivery network company may elect to be deemed a marketplace facilitator.”
This bill, on and after October 1, 2019, would provide that a marketplace facilitator, as defined, is considered the seller and retailer for each sale facilitated through its marketplace, as defined, for purposes of determining whether that marketplace facilitator is required to register with the department under the Sales and Use Tax Law. The bill would provide that any marketplace facilitator that is registered or required to register with the department under the Sales and Use Tax law and who facilitates a retail sale of tangible personal property by a marketplace seller, as defined, is the retailer selling or making the sale of the tangible personal property sold through its marketplace for purposes of paying any sales taxes and collecting any use taxes.
The bill, for purposes of determining whether a marketplace facilitator has total combined sales of tangible personal property for delivery in this state that would make it a retailer engaged in business in this state, would require the marketplace facilitator to include all sales made on its own behalf and by all related persons and sales facilitated on behalf of marketplace sellers. The bill would provide a marketplace facilitator relief from liability for the tax on a retail sale in specified circumstances.
“Marketplace” means a physical or electronic place, including, but not limited to, a store, booth, internet website, catalog, television or radio broadcast, or a dedicated sales software application, where a marketplace seller sells or offers for sale tangible personal property for delivery in this state regardless of whether the tangible personal property, marketplace seller, or marketplace has a physical presence in this state.
“Marketplace facilitator” means a person who contracts with marketplace sellers to facilitate for consideration, regardless of whether deducted as fees from the transaction, the sale of the marketplace seller’s products through a marketplace operated by the person or a related person and who does both of the following:
- Directly or indirectly, through one or more related persons, engages in any of the following:
(A) Transmitting or otherwise communicating the offer or acceptance between the buyer and seller.
(B) Owning or operating the infrastructure, electronic or physical, or technology that brings buyers and sellers together.
(C) Providing a virtual currency that buyers are allowed or required to use to purchase products from the seller.
(D) Software development or research and development activities related to any of the activities described in paragraph (2), if such activities are directly related to a marketplace operated by the person or a related person.
- Directly or indirectly, through one or more related persons, engages in any of the following activities with respect to the marketplace seller’s products:
(A) Payment processing services.
(B) Fulfillment or storage services.
(C) Listing products for sale.
(D) Setting prices.
(E) Branding sales as those of the marketplace facilitator.
(F) Order taking.
(G) Providing customer service or accepting or assisting with returns or exchanges.
“Marketplace seller” means a person who has an agreement with a marketplace facilitator and makes retail sales of tangible personal property through a marketplace owned, operated, or controlled by a marketplace facilitator, even if that person would not have been required to hold a seller’s permit or permits, or required to collect the tax imposed pursuant to Chapter 3 (commencing with Section 6201), had the sale not been made through that marketplace.
The Marketplace Facilitator Act was enacted to apply to the Wayfair decision by SCOTUS 585 US ____ to sales to California residents. This legislation obviously applies to sales of cannabis to California residents. We wonder whether CDTFA will be clever enough to utilize this new law creatively to rein in the use of the Weedmaps platform and comparable platforms and distributors that facilitate cannabis delivery service operations. Why should CDTFA pursue individual delivery service operators when it can make the distributor or the platform collect the taxes for the agency? Did we get your attention yet? Which major players should be thinking about the ramifications of California’s new Marketplace Facilitators Act?
More Info From The CDTFA – Click On The Image
