Agent of Payee Exemption

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IN REPLY REFER TO: _________

FILE NO: _________

September 24, 2021

Re: ____________ Request for Interpretive Opinion

Dear ­­­________:

Thank you for your letter dated June 17, 2021, requesting an interpretive opinion from the Department of Financial Protection and Innovation (“Department”) as to whether the contemplated transaction service by your client,__________., meets the agent of payee exemption in the Money Transmission Act, Financial Code section 2000, et seq. (“MTA”).¹

I. Background

 __________., a U.S. company headquartered in ________________, and its global affiliates (collectively, “___________”) provide a global, fully integrated suite of back-end service, including sales compliance management, fraud prevention, risk management, tax and regulatory fee calculation, billing optimization, and remittance services to manufacturers, merchants, and retailers (collectively, “Brands”) that desire to sell or license products and services (collectively, “Products”) to end-users, businesses and consumers (collectively, “Shoppers”).

a. Existing _____________ Service

__________ currently offers a “_______________,” not the subject of its opinion request, where ________ takes title to Products offered by Brands and sells the Products to    Shoppers. First, __________ takes title to products pursuant to contractual terms between ________ and Brands. Second, Shoppers purchase the products from __________ directly. For the sale of Products from a Brand to ________, the Brand keeps the responsibility for collection and remittance of the any applicable taxes. However, ________ calculates and collects proper taxes from the sale of Products from __________ to the Shopper and makes payments of those taxes to the proper authority.

b. Future________________ Service

_________ is launching a new service called the “_______________” Certain Brands          want direct relationship with Shoppers, but also want to keep the benefit of _________ fully integrated suite of back-end services for selling their Products to Shoppers, including tax and regulatory fee calculation and processing refunds.

Under this service, Products transfer directly from Brands to the Shoppers without title first passing to ________ as it does in the_________________. _______ will enter into a contract with a Brand for the ________________. This contract expressly appoints _______ as the agent of the Brand for the purposes of facilitating the sale of Products, including receiving payments and settlement funds from Shoppers. ________ will also enter into a Terms of Use agreement with the Shopper. This agreement states the Shopper’s payment to________ is considered payment to the Brand, thereby extinguishing Shopper’s payment obligation to the Brand.

The flow of funds involves ________ accepting funds from a Shopper on behalf of the Brand who sells the Product directly to the Shopper. The conclusion of the sale of the Products to a Shopper includes settlement of funds to the Brand and remitting proper sales taxes to the authorities. _________, as the entity responsible for remitting and reporting taxes stemming from the sales to Shoppers, has contractually agreed to handle tax compliance, such as audits.

II. Money Transmission Act

 Financial Code section 2003, subdivision (q), defines “money transmission” to include receiving money for transmission. Financial Code section 2003, subdivision (u), defines “receiving money for transmission” as “receiving money or monetary value in the United States for transmission… by electronic or other means…”

Financial Code section 2030 prohibits a person from engaging in the business of money transmission in California unless the person is licensed or exempt from licensure or is an agent of a person licensed or exempt from licensure. Financial Code section 2010 provides certain exemptions from licensure in California.

III.  Exemptions from Licensure – Agent of Payee

 Financial Code section 2010, subdivision (l), exempts from the MTA transactions in which the recipient of the money is an agent of the payee (“Agent of Payee”), pursuant to a preexisting written contract, and delivery of the money to the agent satisfies the payor’s obligation to the payee.² “Agent” is defined as one who represents another, called the principal, in dealings with third persons.³ “Payee” means the provider of goods or services, who is owed payment of money from the payor for the goods or services.⁴ “Payor” means the recipient of the goods or services, who owes payment of money to the payee for the goods or services.⁵

IV. Analysis

The sales transactions stemming from the ________________ constitute “receiving money for transmission” because ________ receives money from the Shopper for transfer to the Brand in conjunction with the Brand selling Products directly to the Shopper. Thus, _______ is subject to licensure under the MTA for its ________________.

However, based on the information provided, ____________ ____________ qualifies for the Agent of Payee exemption. For each sales transaction, the Brand is the Payee, the Shopper is the Payor, and _________is the Agent of the Brand based on the proposed contractual language in the ______________ agreement. The__________________ agreement stipulates that the Brand appoints __________ as its authorized agent and payment    to _______is considered a payment to the Brand, extinguishing the Shopper’s payment obligation to the Brand. Furthermore, the Terms of Use agreement between _______ and the Shopper makes it clear that a Shopper’s payment to ________ for an order extinguishes that Shopper’s payment obligation to the Brand.

a. Refund of Transaction

Based on the _____________________ agreement, _________ receives payment from Shoppers on a Brand’s behalf as the Brand’s agent, extinguishing the Shopper’s payment obligation to the Brand. When a refund is needed, ________ facilitates a Brand-generated refund. Because a refund is a reversal of the original transaction, a refund of an exempt transaction does not require licensure.

b. Taxes from Transaction

As part of the ____________________, ________ functions as the Brand’s agent to conclude the sale transaction of a Brand’s Products with the features offered in the agreement.

Conclusion of the sale includes settlement of funds to the Brand and remitting proper taxes to the taxing authority. _________computes the payment transmitted to the Brand by taking the amounts collected, net of the “transaction costs.” The ______________ agreement defines “transaction costs” in part as “…amounts assessed or charged by third parties, including governments or other regulatory bodies, in connection with a transaction, such as any shipping charges and tax or regulatory charges we are obligated to pay, including any tax or other fee assessed against the value of individual transactions or assessed on a per item or per order basis…” Therefore, by contract, _________ is the party who is legally responsible for paying the local sales tax on the transaction. Since_________ is paying taxes on its own behalf, and not transmitting taxes owed by the Shopper, its payment of taxes to the tax authorities does not constitute money transmission.

V. Conclusion

The Department concludes __________ service remitting the net proceeds to Brands for Product sales to Shoppers falls within the definition of “money transmission” but is exempt under the Agent of Payee exemption. __________ payment of local taxes due for the sale of Products and refunds of exempt transactions do not constitute money transmission under the MTA.

This opinion is based solely on the facts presented in your communication. Any changes in the facts or circumstances, as we understand them, could lead to a different conclusion. If you have any questions, please feel free to contact me at _____________________.

Sincerely,

Christopher S. Shultz

Acting Commissioner

Department of Financial Protection and Innovation

By    ________________