California's Tax Net Casts Wider Than Expected

California's tax authorities have expanded their reach, catching a Delaware-based LLC in their net. The company, Diet Standards LLC, uses Amazon's Fulfillment by Amazon (FBA) program. They store inventory in Amazon's California warehouses. From there, Amazon ships orders to customers. The California Office of Tax Appeals (OTA) ruled that this activity counts as "doing business" in California. This decision applies even if the company's sales, property, and payroll in California are below certain thresholds. Diet Standards LLC argued that they did not meet California's "bright-line" nexus thresholds. These thresholds are specific amounts of sales, property, or payroll that determine if a business is subject to California's $800 annual LLC tax. However, the OTA disagreed. They said that the general definition of "doing business" is enough to impose the tax. This definition includes any activity done for financial gain.The OTA's decision raises questions. Why have economic nexus thresholds if any business activity for profit can trigger a tax obligation? This ruling is a wake-up call for e-commerce businesses. They should review their operations to see if they might be "doing business" in California or other states. It's also a reminder that tax agencies share data. Information from sales tax filings can be used to impose other taxes. Businesses should stay vigilant. They should monitor their activities in different states. This is especially important for those using third-party logistics services like Amazon's FBA. The OTA's decision shows that even small-scale operations can lead to tax liabilities. It's crucial for businesses to understand the rules and plan accordingly.