Mark Pestronk
Mark Pestronk

Q: My agency just received a scary letter from the California Department of Justice telling us that we are in violation of the California Seller of Travel law by not having a seller of travel registration and that we must stop selling to Californians until we are registered. Do we really need to register, considering that our agency is not in California and we have very few sales to Californians? What are the steps to registering, and how much does it cost? Do you know of any ways to expedite the process?

A: You have to register as a seller of travel in California if you meet the test of "doing business" in California. What constitutes "doing business" in California is exceptionally broad:

"A seller of travel shall be deemed to do business in this state if the seller of travel ... solicits prospective purchasers who are located in this state." In other words, it doesn't matter where on Earth you are located; if you solicit Californians, you must register.

It doesn't even matter if your solicitation is successful; you are subject to the jurisdiction of California just for soliciting. Nor is there an exception for minimal solicitation of just a few clients per year.

Conversely, you could make sales to Californians without soliciting them. For example, if a family member outside California gets California relatives to sign up for a family reunion cruise, you haven't solicited them. In corporate travel, if your client corporation is outside California but has travelers in California who contact you to join the group, you probably haven't solicited them, either.

Once you know that you need to register, there are several hoops to jump through.

First, you need to have a "registered agent" in California. This is a person or company in California that agrees to accept service of lawsuits and official notices. If you don't know anyone in California who can be your registered agent, there are many companies that can perform that service for $35 to about $150 per year.

Second, before you can file your Seller of Travel application, you must register as an out-of-state business with the California secretary of state's Business Programs Division. Filing fees are about $100, and, incredibly, there is a minimum annual tax of $800. This application for registration with the secretary of state must list your registered agent.

Third, you have to arrange for protection of client deposits by obtaining a surety bond or opening a trust account. Most agencies use the trust account option because it costs almost nothing, whereas a surety bond has an annual premium and may require you to post collateral such as a cash deposit or letter of credit.

A trust account is just a regular checking or savings account that you keep separately from your other business accounts. You have to put customer deposits into the account, and you have to keep them there until you pay the supplier. If you only do business using suppliers' credit card merchant accounts and never take checks, you can be exempt from the bond or a trust account requirement.

Fourth, you file the six-page Seller of Travel application, which you can find here. In the application, you have to show that you are registered with the secretary of state and that you have a bond or a trust account or are exempt. The filing fee is $100 per location.

Companies that serve as your registered agent can probably expedite the first two steps. Bonding company agents and at least one paralegal I know can help with the next two.

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