The California Department of Tax and Fee Administration says it miscalculated when it sent a $1.6 million tax bill to a Pennsylvania man who works as a third-party seller on Amazon.com.
The tax department sent a letter to Brian Freifelder in October informing him that he owed more than $1.6 million in sales tax, interest and penalties, as first reported by The Philadelphia Inquirer.
“It’s absurd. I haven’t sold enough inventory over time to warrant a tax bill like that. You could take every sale I’ve ever done. You could take the biggest sellers on Amazon, and I don’t think they would have a bill like that. They’re trying to scare people,” Freifelder said, according to the Inquirer.
The tax department told Freifelder that he should have been collecting sales tax from his clients “as far back as 2012,” the Inquirer reports.
That year, California began forcing online retailers to collect sales tax if the business had any physical presence in the state, such as a warehouse.
Amazon, which Freifelder sells his products through, maintains several “fulfillment center” warehouses in California, according to Avalara, a small business support site.
California for the past two years has pressed online merchants whose products move through those Amazon fulfillment centers to collect California tax.
The tax department reconsidered Freifelder’s bill after hearing from news organizations.
“Upon further review, it appears the calculation was higher than it should have been. We have reached out to the seller and are putting additional processes in place to ensure that potential tax liabilities are calculated accurately,” a spokesperson for the tax department told The Sacramento Bee in a statement.
Gov. Gavin Newsom earlier this year signed a law instructing Amazon to collect sales tax on behalf of the so-called third party retailers that sell products on its platform. It closed a loophole that for years had allowed Californians to avoid paying sales and use taxes by buying products from certain retailers with out-of-state headquarters.
The tax department can still pursue penalties and up to three years of back taxes from out-of-state online retailers that the state believes should have known were subject to California tax.
According to the CDTFA, “if you are making sales of merchandise in California or you are engaged in business in this state, you must register with the CDTFA and report and pay tax on your retail internet sales to California consumers, the same as any other retailer.”
The spokesperson for the CDTFA encouraged sellers who believe they received an inaccurate proposed liability to contact the office “so we can review any records and resolve the discrepancies.”
“Our only interest is in collecting the correct amount of tax due under California law,” the spokesperson said.