Will California Freeze Your Bank Account for Past Sales Tax Due?
The California Department of Tax and Fee Administrations (CDTFA) attempts to go after past e-commerce sellers, not in compliance.
Unfortunately, now they are going after sellers who are not in compliance with sales tax prior to October 2019, when California enacted marketplace nexus legislation.
That means from October 2019, the marketplace facilitators, Amazon, eBay, Walmart, and others were responsible for collecting and remit your sales tax.
If you had prior physical nexus, California is going after sales for past sales tax due. California will send out nexus questionnaires, which are required to be required. If you changed your address with your Amazon account over the last few years, that might be a reason why you have not received such a letter.
If you were registered for sales tax prior to October 2019, and has a past liability, and did not file a return and pay the sales tax, California has the ability to pull the past sales tax due out of your U.S. bank account in some cases. If you were registered prior to October 2019, and are in compliance and ONLY selling on a marketplace facilitator such as Amazon, you may close out your sales tax account. If you sell on Amazon, and your website or a Shopify store, California requires you to keep your account opened.
According to the once tax attorney we interviewed on this subject, if you have a bank account with a branch or affiliation in California, they can seize funds from your bank account or even freeze them as this did to this business owner from Illinois.
See the article from the Los Angeles Times on 12-28-20.
What else can California do if you are behind on sales tax?
The CDFTA has the ability and will revoke your seller’s permit. Remember, they already have a list of Amazon FBA sellers. If your seller’s permit is revoked, you cannot sell your goods. As a corporate director, officer, member, manager, or other person having control or supervision of the filing of returns or payments of taxes, you may become personally liable for any unpaid sales and use taxes, interest, and penalties.
What are your options in California if you are behind on sales?
1. Get into compliance. Sales tax compliance requires determining when you first had nexus (physical FBA stock if an Amazon seller). California is not likely the only state that will check on past sellers going into 2021, so we recommend a sales tax nexus analysis to determine your exposure. We have new services where we can support you with this step. Learn more here.
2. Set up a second bank account, not linked to California. This is not instead of compliance but in addition to it. The rule here is don’t have all your eggs in one basket. Why risk having your main e-commerce bank account frozen?
If you are in the U.S., you can set up a bank account with a local community bank is a good option. If you are outside the U.S., our sister brand, NCP, has an online banking option with a Midwest bank that is not connected to California. Learn more here.
I know some of you will wait for California’s pending lawsuit and hope California will back off. That may be possible, but what if that does not happen, or it happens after California freezes your bank account?
If you comply with California sales tax, you should be in good shape. Should you consider a second bank account for your company? Yes.
Why risk having an issue with California or another state. This is about protecting your business and taking the necessary steps.
Remember, asset protection and keeping things similar are inversely related. The more assets you have, the more complex your structure should be if you want to keep them long term. In the end, compliance is your best approach to protect your brand.