Confirmed: Cettire are not registered for state taxes in California or Texas
Where is the sales tax customers are paying going?
Housekeeping
For the avoidance of doubt I am making no suggestion of any deliberate tax evasion by Cettire or any of its officers. Whilst every care has been taken to ensure accuracy I make no warranty that there are no errors. Nothing in this article is to be taken as advice or an inducement to deal in securities. I’m a trader and you should assume I have positions in stocks mentioned, and will actively deal in these stocks.
No active registrations for sales taxes in two largest US states
California and Texas are the two largest states in the US by both population and economy and no disclosed Cettire entities are actively registered for state Sales Taxes in either of them.
The CDTFA have confirmed this to us:
And the Texan Comptroller’s office has also confirmed that the only entity registered in this state is “not in good standing” and therefore not able to collect Use Tax.
The Texas public search function returns no Cettire entities:
This is very difficult to reconcile with Cettire’s response to the AFR when asked “Is Cettire registered to pay sales tax in all US states?”
Cettire is registered for sales tax and remits sales taxes in the states where it believes it has registration obligations. Currently this represents the vast majority of states that have a sales tax regime.
It is also difficult to reconcile this with the verbiage in Cettire’s terms and conditions which state:
Does this reflect a recent change in sales/use tax policy?
What’s the scale of the state tax exposure?
If we make the reasonable assumption that we can apportion Cettire’s US sales to states using the state share of the US population, under the Wayfair ruling Cettire could have been obliged to collect taxes in each of these states since as early as FY2020 (before listing!)
Ark International Pty Ltd - which was once registered for Sales tax in Texas - was not incorporated until October 2021 - well into FY22 - however as we have learned from the Comptroller’s office, they are not in good standing and have outstanding collections.
If these taxes have not been paid to the states, then taxes unpaid in these two states alone would form a material percentage of pre-tax profit in every period since CTT listed. If there are other states where taxes are not being collected and/or paid across then this has the potential to tip CTT into losses.
So where does this leave us? The circumstances I can think of that are compatible with what we have learned here are limited to some combination of:
Cettire previously collected sales tax but did not pay all of this to the states as it is not registered in California and not in good standing in Texas
Cettire previously did not collect sales tax despite being required to after the Wayfair ruling
Cettire has a subsidiary that pays the appropriate taxes but it is not listed in the company’s accounts breaching disclosure requirements
Cettire is now collecting sales taxes but as it is not registered correctly in these states it is unable to pay them to the authorities, artificially boosting their profit margin
Cettire is now collecting taxes and is about to register correctly to pay these to the state authorities1.
If anyone can think of any other possibilities then please do get in touch with me here or on the bird.
Given the materiality of the sales tax issue, I hope that the company will make appropriate disclosures to make sure the market is fully informed. The ASX also has significant information gathering powers which could - and in my view should - be brought to bear in order to clear up whether CTT has been historically compliant with its US tax and duty obligations, and that it is now fully compliant.
Assuming the issues surrounding sales tax registration is an accidental oversight from Cettire (and I do not allege otherwise) and they are about to register correctly in both of these states - then we are still left with items being more expensive than previously, impacting demand. As Cettire stated in their prospectus, customers are price sensitive: