The California Department of Tax and Fee Administration has amended its sales and use tax regulations on drop shipments to clarify that marketplace sales are generally not considered drop shipment transactions that trigger state sales tax collection and remittance requirements on the drop shipper. Under California law, taxpayers making drop shipments to California consumers on behalf of the "true retailer" are treated as "retailer" and are required to collect and remit sales tax if:
- the sale is on behalf of an out-of-state retailer; and
- the out-of-state retailer does not hold a California seller's permit or certificate of registration-use tax.
The amended regulations clarify that marketplace facilitators are liable for California sales tax collection and remittance requirements triggered by sales from out-of-state marketplace sales that otherwise meet the state's default drop shipment rules. In this instance, the marketplace facilitator, not the drop shipper, is considered the retailer and thus remains liable for tax collection on qualifying marketplace sales.
The amended regulations also clarify that a person may overcome the presumption of being a drop shipper by:
- accepting a timely resale certificate in good faith from the customer or person in California to whom the property is delivered, containing all essential elements, including:
- the customer's valid California seller's permit number; or
- an explanation as to the reason why the customer is not required to hold a California seller's permit and a statement that the customer is:
- registered with the Department for a Certificate of Registration – Use Tax, plus the customer's valid Certificate of Registration; and
- a marketplace seller and purchasing the property pursuant to a sale facilitated by a registered marketplace facilitator that is the retailer for purposes of the sale, plus the marketplace facilitator's name and valid seller's permit number or Certificate of Registration – Use Tax account number;
- establishing that the person's customer was a:
- retailer engaged in business in California at the time of the sale; or
- a marketplace seller and purchased the property through its sale facilitated by a marketplace facilitator-retailer.
The Department adopted the amended rules on 30 November 2021 and published the same in the California Regulatory Notice Register on 10 December 2021.