When Isabel Rubinas launched Lollipop Seeds in 2012, the upscale children’s boutique was a small storefront in Chicago’s Lincoln Square neighborhood, and the fulfillment of a lifelong entrepreneurial dream.
The venture has since morphed into a virtual storefront on Amazon and a battle with the taxman 2,000 miles away.
Rubinas, who now runs Lollipop Seeds from the kitchen table of her Glen Ellyn, Ill., home, is suing California after the state froze her bank account and seized more than $2,300 last month in a dispute over unpaid Amazon sales tax.
The lawsuit, filed Thursday in Chicago federal court, alleges the California Department of Tax and Fee Administration is unfairly pursuing Rubinas and other third-party Amazon merchants for sales tax incurred before the e-commerce giant began collecting it in 2019.
“It’s basically going to be the end of my business,” Rubinas, 42, told the Tribune.
Last year, Lollipop Seeds received a $10,000 tax bill from California based on purchases dating back to 2017, when the store began selling everything from footie pajamas to quilted throw blankets through the Fulfillment by Amazon program.
An integral part of the Amazon retail model, the program stores third-party merchandise at warehouses across the country, including California, handling the payment and shipping, and then reimbursing the seller for a percentage of the proceeds.
For years, however, state sales tax was not part of the third-party Amazon transaction, leaving billions of dollars in uncollected revenue on the table.
That changed with a 2018 U.S. Supreme Court decision in the South Dakota v. Wayfair case, which found that online retailers meeting a minimum sales threshold were required to collect state sales tax, even if they don’t have a physical presence in that state.
The decision precipitated a wave of new tax laws, and Amazon now collects sales tax on third-party sales in every state but Florida, Kansas and Missouri.