ONLINE MERCHANTS GUILD V. NICOLAS MADUROS, No. 21-16911 (9th Cir. 2022)
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Plaintiffs sell products as third-party merchants through Amazon’s “Fulfilled by Amazon” (“FBA”) program. Prior to October 2019, California required FBA merchants to collect and pay sales tax on sales to California residents. California’s Marketplace Facilitator Act altered that requirement. However, the Marketplace Facilitator Act is not retroactive and the Department continued to seek sales tax remittances from third-party FBA merchants for pre-October 2019 sales.
Plaintiffs claimed that the California Department of Tax and Fee Administration’s tax collection efforts against Guild members violated the Due
Process, Equal Protection, Privileges and Immunities, and Commerce Clauses of the United States Constitution, as well as the Internet Tax Freedom Act, 47 U.S.C. Sec. 151. The district court granted the Department’s motion to dismiss, holding that the Guild’s claims were barred by the Tax Injunction Act (“TIA”), 28 U.S.C. Sec. 1341.
The Ninth Circuit affirmed, finding that the district cour properly dismissed the action pursuant to the TIA, which bars federal jurisdiction over the Guild’s claims because the Guild seeks an injunction that would to some degree stop the assessment or collection of a state tax and an adequate state law remedy exists.
Court Description: Tax Injunction Act. The panel affirmed the district court’s dismissal of a federal lawsuit in which the Online Merchants Guild, a trade association for e-commerce merchants, sought to enjoin California’s requirement that its members obtain seller’s permits from the state to facilitate sales tax collection. Guild members sell products as third-party merchants through Amazon’s “Fulfilled by Amazon” (“FBA”) program. Before October 2019, California required FBA merchants to collect and pay sales tax on sales to California residents. California’s Marketplace Facilitator Act altered that requirement. Since October 2019, “marketplace facilitators” like Amazon have had the burden of collecting and remitting the sales and use taxes on sales facilitated through programs like FBA. However, the Marketplace Facilitator Act is not retroactive and the Department continued to seek sales tax remittances from third-party FBA merchants for pre-October 2019 sales. The Guild’s lawsuit claimed that the California Department of Tax and Fee Administration’s tax collection efforts against Guild members violated the Due Process, Equal Protection, Privileges and Immunities, and Commerce Clauses of the United States Constitution, as well as the Internet Tax Freedom Act, 47 U.S.C. § 151. The district court granted the Department’s motion to dismiss, holding that the Guild’s claims were barred by the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341. The district court also noted that it should abstain from addressing the Guild’s claims under comity. The panel held that the district court properly dismissed the action pursuant to the TIA, which bars federal jurisdiction over the Guild’s claims because the Guild seeks an injunction that would to some degree stop the assessment or collection of a state tax and an adequate state law remedy exists.
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