Let the Seller Beware: Online Sales of Pesticides to California Can Trigger Significant Regulatory Requirements, Tax Obligation
Last week, the California Department of Pesticide Regulation (DPR) announced it had reached an agreement with an entity to settle multiple violations related to the illegal sale of pesticides in California. What made this settlement noteworthy was not merely the penalty assessed—$4.97 million—but the entity found in violation—Amazon.com Services, LLC. This settlement agreement should make any retailer with an online presence take notice.
California Pesticide Law
All pesticides must be registered (or licensed) with the state before they can be used, possessed or offered for sale in California. Pesticide products include insecticides, herbicides, algicides (such as swimming pool products like chlorine), disinfectants and sanitizers, repellants, rodenticides, and fungicides. The rules apply to both agricultural pesticides and pesticides sold for use in residential, industrial and institutional settings. Consequently, selling a pesticide in California that is not registered in California is a violation of California law.
Even once a product is registered, California law does not simply permit its immediate and unlimited sale into the state. If an entity is the first to sell, offer to sell, distribute into, or bring into California for sale any pesticide product, and the entity is not a licensed pest control dealer or the company that actually registered the pesticide (the “registrant’), that entity must obtain a pesticide “broker’s” license. In general, a retail store would not need a broker’s license unless it delivers pesticide products from its own out-of-state facility into California. Once the license is obtained, brokers must report quarterly to DPR the total dollars of pesticide sales and the total pounds or gallons of each product it has sold into or within California of each pesticide product. Brokers must also keep records of all purchases, sales and distributions of pesticide products into and within California for four years. Lastly, if a broker is responsible for the first sale of a pesticide into California, the broker must pay the “mill assessment.”
The “mill assessment” is a fee on all pesticide sales. A mill is equal to one-tenth of a cent. The general assessment rate is currently 21 mills, or 2.1 cents, on each dollar of sales. Mill assessment revenues are placed in a special fund used to pay for California’s pesticide regulatory program administered by DPR. If the first sale of a pesticide into California is made not by the registrant but by a pesticide broker, the broker must report and pay the mill assessment. The mill assessment program is a self-reporting system, and DPR uses the licensure system to track those entities who should be paying the mill assessments.
Amazon—on line retailer or pesticide broker?
DPR stated that they uncovered multiple violations by Amazon through its online sales of pesticide products. This included unregistered pesticides sold into California. (Amazon settled similar allegations of selling unregistered pesticide products in the United States with the US Environmental Protection Agency in 2018.) Of greater significance is that DPR found that Amazon was the entity that was the first to sell certain pesticide products into the state of California. Consequently, it was required to obtain a broker’s license and pay mill assessments for doing so. Amazon apparently never held a broker’s license and never paid mill assessments; the company was found in violation of those requirements as well.
With this penalty announcement, the State of California is making clear its view of entities who sell pesticide products online, that is, California views both online and mail order retailers’ businesses to be among those that must have a pesticide broker’s license to sell pesticide products in California. Despite a lack of any physical retail sales presence for making pesticide sales in the state, California intends to enforce these provisions against such businesses. Accordingly, any online retailer that might sell a product that could conceivably be considered a pesticide should carefully review their product inventory and sales practices to ensure they meet California DPR requirements.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.