Mark Pestronk
Q: I have heard that independent contractors have to register as sellers of travel in California if they have their own corporations or limited liability company. Is that true? Also, if my business is in California but I sell only to non-Californians, such as foreigners visiting America, do I have to register as a seller of travel?
A: On Sept. 9, the governor of California signed a bill that makes two changes to the seller of travel law that has been in effect for 22 years. The law takes effect Jan. 1 and addresses both of your questions.
Until now, independent contractors (ICs) that have California clients have needed to register as sellers of travel unless they met all seven of the criteria for exemption listed in the statute. The first of those criteria was that the IC must be an "individual, natural person."
In other words, if the IC had his or her own corporation or limited liability company (LLC) and solicited Californians, the IC could not be exempt from registration. Registration is not an easy, inexpensive process and usually requires a bond or trust account.
The statute's distinction between "individual, natural persons" and corporations and LLCs never made much sense. It discouraged ICs from getting the legal protections and other advantages of doing business as a corporation or LLC.
A coalition of California travel agencies successfully lobbied to include S corporations (also known as Subchapter S corporations) or LLCs if they are owned by one person. So if you have a partnership, corporation with two or more stockholders or an LLC with two or more members, you cannot be exempt.
Although I covered all seven criteria for exemption in a column a few years ago, it is worth revisiting because they are hard to remember. To be exempt, the IC must:
- Be an individual, a single-member limited liability company whose sole member is an individual or a single-shareholder S corporation whose sole shareholder is an individual.
- Have a written contract with a host registered in California.
- Refrain from selling any travel except through the registered host.
- Use the registered host's supplier appointments in all sales.
- Refrain from keeping fees paid by the traveler. If you charge fees, you must turn them over to the host, which would normally add them to the commission split.
- Require clients to pay either the registered host or the suppliers directly instead of paying you.
- Disclose, during each sale, that you are acting on behalf of a registered seller of travel and disclose the host's name, address, phone and registration numbers.
Incidentally, in California you are also exempt if you sell no air travel, sea travel or over-$300 land or other water transportation. So if you sell just hotels, resorts or lower-priced bus trips, you do not need to register.
If your business is located in California but you sell only to non-Californians, the statute was unclear about whether you had to register. Under the new law, you will have to register "regardless of the geographic location of the prospective purchaser, including persons located outside of this state or the country."