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Suit to Force Amazon to Collect Sales Taxes Not Revived
Court of Appeal Justice Chaney Says State Agency Has Discretion in Determining Whether Intermediary Is to Pay Sales and Use Taxes to State or That Duty Is Imposed on Vendor; Taxpayer’s Suit Does Not Lie
By a MetNews Staff Writer
A taxpayer’s action may not be utilized to challenge a determination by an agency of the State of California that the duty of collecting sales taxes is not imposed on Amazon.com when it acts as an intermediary between a vendor and a consumer, Div. One of the Court of Appeal for this district held yesterday.
The opinion by Justice Victoria Chaney affirms a judgment of dismissal that was entered after Los Angeles Superior Court Judge Elaine Lu sustained demurrers without leave to amend to an action filed by taxpayer Stanley Grosz pursuant to Code of Civil Procedure §526a.
Grosz contended that the California Department of Tax and Fee Administration (“DTFA”)—which, under 2017 legislation has taken over from the Board of Equalization (“BOE”) the duty of collecting sales and use taxes—“has a mandatory duty to assess and collect” such taxes from Amazon. Taxes are not collected where Amazon does not directly sell merchandise but acts as a “middle-man” under its “Fulfillment by Amazon” (“FBA”) program, advertising goods on its website, collecting money from the purchaser, conveying payments to the vendor, and delivering the merchandise.
“Because taxpayers have no authority to enjoin discretionary government activity under Section 526a,” Chaney wrote, “…the outcome of Grosz’s appeal turns on whether the DTFA has discretion to determine who the ‘retailer’ is for purposes of a transaction subject to the Sales and Use Tax Law.”
It does have discretion, Chaney concluded, declaring “that the determination of who is a ‘retailer’ under the Sales and Use Tax Law and relevant regulations is one that invokes the discretion of the DTFA; making that designation is not a ministerial task.”
Precedent Cited
Grosz cited County of Sonoma v. State Board of Equalization, decided in 1987 by Div. Four of the First District Court of Appeal. In that case, the appeals court reversed a trial court order to the Board of Equalization to commence collecting Sonoma County’s general retail sales tax on sales of geothermal steam, holding that there is a statutory exemption.
It said the taxpayer who brought the challenge “is not challenging the exercise of the Board’s legitimate discretion, but rather the extent of the Board’s authority” and therefore had standing.
Addressing the decision in Sonoma, Chaney said:
“Either there was, as the BOE argued, an exemption, in which case no taxes were to be collected. Or there was no exemption, and taxes were to be collected. The question was one of statutory interpretation, and there was no BOE discretion to be exercised.”
She continued:
Here, by contrast, the question is not whether the law imposes a tax, but rather on whom, based on language in several interrelated statutes.
The question here, as the trial court pointed out, is not whether the DTFA has discretion, but rather how it must exercise that discretion. That is the critical distinction between this case and Sonoma.
Discretionary Determination
After reviewing the various statutory provisions and regulations that apply, Chaney summed up:
“[T]here is no statute or regulation that conclusively establishes that the DTFA must pursue Amazon for sales and use taxes related to FBA transactions. Indeed, the language of Revenue and Taxation Code section 6015, subdivision (a) makes it clear that there may be multiple ‘persons’ (as that term is statutorily defined) who the DTFA may regard as ‘retailers’ for the purposes of a single transaction. The statutory framework of the Sales and Use Tax Law and the statutes vesting the DTFA with authority to administer that statutory framework also generally lead us to conclude that whether a taxpayer is a retailer for purposes of the Sales and Use Tax Law is a discretionary determination and not a ministerial task. Consistent with those conclusions, we agree with the trial court that Grosz’s lawsuit may not proceed under Section 526a.”
The case is Grosz v. California Department of Tax and Fee Administration, B309418.
Attorneys on appeal were downtown Los Angeles attorney Mardiros H. Dakessian and Ryan H. Wu and Tyler Anderson of the Century City firm of Capstone Law for Grosz; John C. Hueston, Moez M. Kaba, Joseph A. Reiter, and Michael H. Todisco of the downtown Los Angeles firm of Hueston & Hennigan LLP; and Deputy Attorney General for the DTFA.
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