California requires online marketplaces to do more to prevent organized retail crime

Organized retail crime (ORC) is a serious problem, and not just for stores with high rates of retail shrink. Since many stolen goods are eventually sold to unsuspecting customers through online marketplaces, governments are starting to require marketplace facilitators take steps to prevent such illegal sales.

California became one of the first states to impose anti-fraud marketplace regulations and high-volume seller policies on marketplace facilitators in 2022, with Senate Bill 301. The Golden State is breaking ground again with SB 1144, signed into law on August 16, 2024. Read on for more details.

Marketplaces must take steps to prevent ORC

SB 301 is California's version of the federal INFORM Consumers Act. It requires marketplace facilitators to verify the identity of third-party sellers that, in any continuous 12-month period during the previous 24 months, made 200 or more discrete sales of new or unused consumer products through the marketplace or its payment processor. The sales must result in an aggregate total of $5,000 or more in gross revenues in California.

Within 10 days of meeting that threshold, a high-volume seller must provide the marketplace platform a copy of a government-issued identification or tax document, a business tax identification number, a valid email address and phone number for the seller, and certain other identifying information. These requirements are intended to make it more difficult for sellers of stolen goods to evade detection or consequences.

In the event an online marketplace uncovers fraudulent activity on the platform, it must suspend the marketplace seller's ability to sell on the site. Failure to do so could result in resale of stolen goods penalties of up to $10,000 per violation, so effective stolen goods detection is paramount. Read more about SB 301.

As directed by another 2022 law, California Attorney General Rob Bonta created and oversees an online tool for reporting organized retail crime. And in June 2023, the attorney general announced a collaborative agreement with many marketplace facilitators to "better combat organized retail crime." The joint effort includes many big-name retailers and online marketplaces, including Amazon, eBay, and The Home Depot.

2024 law places more mandates on online marketplaces in California

SB 1144 will expand the requirements set by California SB 301.

Currently, the 200 transactions/$5,000 high-volume seller threshold includes only transactions for which payment is processed by the online marketplace - either directly or through its payment processor.

Effective July 1, 2025, the 200 transactions/$5,000 threshold will be based on the seller's aggregate total of gross revenues; it will include payments sent directly to the seller.

State Senator Nancy Skinner, who sponsored Senate Bills 301 and 1144, hopes this will close a loophole: To avoid high-volume seller tracking, some buyers and resellers of stolen goods (aka, fences) apparently advertise stolen goods through marketplaces but then complete the sales transactions separately. This allows them to sidestep a marketplace facilitator's marketplace seller verification procedures.

SB 1144 also requires online marketplaces to inform consumers that high-volume, third-party sellers have been verified and certified on their platforms. And it permits local district attorneys, city attorneys, and county counsels to file civil charges against an individual or online marketplace for selling stolen goods through the online marketplace.

Additionally, to enhance stolen goods detection, SB 1144 requires an online marketplace to:

• Establish and maintain a policy prohibiting the sale of stolen goods on the platform (including but not limited to suspending or terminating the seller's account)
• Provide a mechanism for any individual to notify the online marketplace that a seller is or may be selling stolen goods
• Provide a mechanism that allows the marketplace and law enforcement to communicate in a timely and confidential manner, including by means of a link to a dedicated web page, online portal, or point of contact, and ensure timely replies to law enforcement requests (e.g., subpoenas and warrants)
• Maintain internal written policies, systems, and staff to monitor listings in order to affirmatively prevent and detect organized retail crime

The new law takes effect July 1, 2025. It's part of California's multipronged crackdown on retail crime and property theft.

How will improved marketplace seller verification affect online marketplace compliance?

By some estimates, bad actors sell roughly $500 billion or more worth of counterfeit or stolen goods through online marketplaces each year. When you consider that, it seems reasonable for states to require them to take steps to prevent or at least report such sales.

But what will meeting the new California mandates entail? "This will force marketplaces to increase security and screening responsibilities for all parties," says George Trantas, Senior Director of Global Marketplaces at Avalara. "More government oversight will lead to additional costs and risks."

Trantas wonders whether marketplaces will put the new requirements into effect for California marketplace sellers alone or if they'll apply the same requirements for all sellers across all markets. "Time will tell. The question is, will this slow the bad actors, or merely create more of a burden for the marketplaces and legitimate high-volume sellers?"

California isn't the only state where online marketplaces must take steps to prevent organized retail crime.

Online marketplaces already face a host of compliance challenges, including calculating, collecting, and remitting sales tax in multiple jurisdictions. See how Avalara online marketplace software for tax compliance can help.