Sep
10
2011

California caves on Amazon tax. For now.

The can has been kicked for another year.

Lawmakers on Friday sent Gov. Jerry Brown a compromise bill that delays California’s effort to force online retailers such as Amazon.com to collect the state’s sales taxes while retailers lobby Congress for national rules governing online sales taxes.

Essentially, California legislators passed a bill earlier this year that ‘exploited’ a loophole in federal case law that would have required Amazon.com (and others) to collect sales tax on purchases made by California residents.  Amazon.com (and others) promptly ended the affiliate program that provided the loophole.  California legislators blinked with surprise, because apparently they completely missed noticing that Amazon.com always does this (except in New York, where they’re fighting the law in court).  Shockingly, California legislators have now apparently gotten a rush of oxygen to the brain and delayed ‘implementation’ of the tax until September of 2012; this time is supposedly to allow Amazon.com and other online retailers to petition Congress to straighten out national sales tax guidelines (something that Amazon.com has been pushing for, actually). Assuming that Governor Brown signs off on this – and, given that the original bill has pretty conclusively been already shown to be wildly if not insanely optimistic in its estimated revenue*, he’d have to be extremely dumb not to** – Amazon.com will turn its affiliate program back on.

Background on the whole sorry mess that is the Amazon tax here***: suffice it to say that there are a lot of state governments – typically Democratic ones – that cannot seem to grasp the notion that online companies with no physical presence in their states AND a nigh-universal market saturation are harder to push around than brick-and-mortar ones.  I’m actually moderately impressed that California legislators were able to even partially see reason on this; the economic situation in that state must be worse than I thought.

The real question, of course, is what happens next year…

Moe Lane (crosspost)

Full disclosure: I am an Amazon.com affiliate for Maryland.

*$200 million a year; what actually happened, of course, was that Amazon.com terminated its affiliates, which not only eliminated the state’s justification for trying to make Amazon.com collect the sales tax; it also eliminated a source of state income tax from the affiliates themselves.

**But, well, it’s Moonbeam, so your guess is as good as mine.

***For those who don’t feel like clicking the link:

Very short version of the Amazon tax controversy: online retailers don’t have to collect sales tax for a state unless they have a physical presence in the state (thanks to a Supreme Court decision).  Various state governments (typically Democratic-controlled ones), usually at the instigation of big-box brick-and-mortar retailers who hate the idea that online retailers might do to them what the big-boxes did to small brick-and-mortar retailers*, have decided to get around this by defining an in-state affiliate of an online retailer as being that retailer’s physical presence in the state.  When this becomes a state law, Amazon.com responds by immediately terminating its affiliate program in that state, thus neatly eliminating its obligation to collect sales tax**.  The last iteration of this happened in California, where Amazon.com simply dropped roughly 25,000 affiliates without even breaking stride.

6 Comments

  • jetty says:

    “…Amazon.com and other online retailers to petition Congress to straighten out national sales tax guidelines”

    Shouldn’t we be worried about this?

    • Moe_Lane says:

      Well, we all pay sales tax now. I can see how companies that do interstate business would like to have one standard that they can plug and factor in.

  • Rob Crawford says:

    Why should the reinstate affiliates over a mere delay in the law?

  • Full disclosure: I was an Amazon.com affiliate in California. The associated revenue never accounted for much of our annual total, but it was infinitely more than the State of California ever did to help our small business.

    I think the California Legislature finally realized that they would lose this case once it reached the U.S. Supreme Court. The Constitution says that ONLY the U.S. Congress has the authority to regulate inter-state commerce. The Supreme Court has ruled on this before for out-of-state catalog companies. Amazon had no presence in California. Based on current U.S. law, any sales tax imposed on Amazon would be the classic taxation without representation.

    California also has the nation’s largest U.S. Congressional delegation. I’ve always advocated that the Governor and the California Legislature direct the California delegation to resolve the issue where it belongs–in the U.S. Congress. THIS is the way it is supposed to happen and not by Imperial decree by one state house.

    If California State Government were smart–not an allegation that I’ll ever make–they would contract with Amazon to create a world-class Internet presence for the State of California. Imagine if tracking the myriad different sales tax rates for the different California counties and cities were more automated for California vendors? What if California made it easy and obvious for businesses to pay their taxes on time and to the right authorities. Amazon could make it easy.

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