In a recent case focusing on statutory interpretation, the California Office of Tax Appeals (“OTA”) held that a Delaware LLC using Amazon’s Fulfillment by Amazon (“FBA”) program was “doing business” in California and subject to the state’s annual $800 LLC tax. In the Matter of the Appeal of Diet Standards LLC, OTA Case No. 230613542 (Oct. 7, 2025). The OTA reached this conclusion despite the fact that the company’s California sales, property, and payroll were all below the bright-line nexus thresholds set forth in the statute.
The Facts:Diet Standards LLC (“Diet Standards”), a Delaware LLC based in Florida, sold products through Amazon and, during 2019, participated in Amazon’s FBA program. As part of the program, the company owned inventory stored in Amazon fulfillment centers located in California, from which Amazon shipped orders to the company’s customers.
After receiving sales data from the California Department of Tax and Fee Administration (“CDTFA”), the Franchise Tax Board (“FTB”) demanded a 2019 tax return. When Diet Standards did not respond, the FTB assessed the $800 annual LLC tax, plus penalties and interest. Diet Standards protested, arguing that it was not “doing business” in California because it did not meet the State’s bright-line nexus thresholds. It ultimately paid the amounts due and appealed the FTB’s denial of its refund claim.
The Decision: The OTA held that Diet Standards was “doing business” in California under the general definition in Revenue and Tax Code (“R&TC”) section 23101(a) and was subject to the annual LLC tax. Under R&TC section 23101(a), “‘[d]oing business’ means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” As relevant here, R&TC section 23101(b)(2)-(4) provides: “a taxpayer is doing business in this state” if it satisfies certain bright-line nexus threshold amounts of sales, property, or payroll.
Diet Standards argued that R&TC section 23101(b)(2)-(4) essentially provided a safe harbor, and because Diet Standards did not satisfy the nexus thresholds, it was not liable for the LLC tax. The OTA rejected Diet Standard’s argument, finding that satisfaction of the general definition of subdivision (a) suffices, and that subdivision (b) provides an alternative, independent path to a “doing business” outcome. The OTA concluded that a taxpayer may be subject to California’s LLC tax under either provision, even if the quantitative thresholds in subdivision (b) are not met. Because Diet Standards owned inventory in California and made sales to California customers, the OTA found that Diet Standards satisfied section 23101(a) and was subject to the annual $800 LLC tax.
The Takeaway: The OTA’s decision begs the question of why R&TC section 23101 contains economic nexus thresholds if, as it appears the OTA found, any level of business activity for financial gain is sufficient to create a tax obligation. The decision serves as an important warning for businesses with an e-commerce footprint. Perhaps a taxpayer not meeting the economic thresholds would have more success arguing that it is not “actively” engaged in business activity, if its facts support such an argument. Taxpayers should conduct periodic nexus reviews to help identify where physical or economic presence may have arisen through third-party logistics. Finally, taxpayers should be aware that state tax agencies share data. As was the case here, information from sales tax filings may be used by other agencies as a basis for imposing income or franchise taxes.