Amazon Wants Voters To Decide On California Tax Law

SAN FRANCISCO — Amazon.com Inc. wants California voters to decide whether to overturn a new law that forces online retailers to collect sales taxes there, setting the stage for a potentially high-dollar ballot fight next year that would pit business against business.

A petition for a referendum was filed Friday with the state Attorney General's Office so that voters can decide on the requirement, which was included in a state budget signed into law in late June.

The new law forces online retailers to collect California sales taxes by expanding the definition of having a physical presence in the state. The requirement now kicks in if an online retailer has a related company, such as a marketing or product-development arm, or affiliates in the state – individuals and companies that earn commissions by referring visitors to Amazon from their websites.

Passage of the law, which is projected to help the state collect an additional $200 million annually, adds California to a growing list of states that have turned to such measures in hopes of bringing in more tax revenue. Its legislature passed a similar law in 2009, but then-Gov. Arnold Schwarzenegger vetoed it.

Billions of dollars are at stake as a growing number of states look for ways to generate more revenue without violating a 1992 U.S. Supreme Court ruling that prohibits them from forcing businesses to collect sales taxes unless the business has a physical presence, such as a store, in that state. When consumers order from out-of-state retailers, they're supposed to pay the tax that is due, but they rarely do and it's difficult to enforce.

States are trying to get around the Supreme Court restriction by passing laws that broaden the definition of a physical presence. Online retailers, meanwhile, are resisting being deputized as tax collectors.

Amazon had thousands of affiliates in California, which received fees varying from 4 percent to 15 percent of each sale they brought to the company. Amazon, which is based in Seattle, cut ties with them after the law's passage.

Paul Misener, Amazon's vice president of public policy, said the referendum supports "jobs and investment in California."

"At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away," he said.

To bring the measure before Californians in the next statewide vote in February 2012, Amazon must gather more than 500,000 signatures by late September.

Assemblyman Charles Calderon, who introduced one of the bills that was combined into the online tax measure, called Amazon's decision "an odd tactic." The Whittier-based Democrat said the ballot approach also will face opposition from California businesses large and small that are hurt by out-of-state competitors who don't collect the taxes.

"They're willing to go through all of that rather than just collect the state tax and remit it?" Calderon said. "It shows how much they are committed to their business plan, which is centered around tax avoidance, and that's the whole reason for the bills."

Efforts to force online retailers to collect sales tax are supported by traditional retailers and their lobbying arms in Washington, D.C., and Sacramento. They say online companies such as Amazon have an unfair advantage and can lure customers who seek to escape paying state and local sales taxes.

That led to an estimated $4.1 billion in lost sales in California in 2010, the California Retailers Association said Monday in a statement responding to Amazon's planned ballot initiative.

In addition to Amazon, Overstock.com Inc. also has cut ties to California affiliates because of the law.

According to the Performance Marketing Association, there are 200,000 affiliates across the country, 25,000 of which are located in California.

Amazon also has dropped affiliates in Arkansas, Connecticut and Illinois after similar sales-tax collection laws were passed there. Overstock, which is based in Salt Lake City, also has shuttered its affiliate programs in several states due to the laws.

Amazon does collect sales taxes in North Dakota, Kansas, Kentucky and its home state of Washington. It collects in New York, too, as it fights the state over a 2008 law, the first to consider local affiliates enough of an in-state presence to require sales tax collection.

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Associated Press writer Adam Weintraub in Sacramento contributed to this report

Comments

[DoWMNGOPrmberB4 TLIX NO]

09:50 AM on 07/19/2011

This is one big company Not favored by the GOP I guess. It would seem now-a-days they are more than willing to wreck havoc on the middle and lower class simply because businesses don't want to pay their due.

I don't think Amazon should be forced into policing Californians. We are required to report online purchases every year on our taxes. It's not Amazon's job to make sure Californians are honest.

[Lawson Meadows]

04:45 AM on 07/13/2011

Somehow this seems wrong. Amazon not collecting taxes but others, selling the same product must. But I have questions. Does Amazon collect no sales tax on products sold to customers in certain states? If that is so, how about the state in which the product was made, or the state where the order was taken, or the state where the owners of Amazon live, or maybe drove through once???

Taxes are how programs, infrastructure, maintainence, construction, and all other state expenses are paid for. Why should citizens taking advantage of those, be exempt from paying with each purchase? The argument that customers are responsible to pay separately is specious in that if a large percent of them did, the collection and tracking costs would be expensive to the point of reducing the revenue greatly.

It seems less than patriotic for any company to take this type of advantage, even with the courts support of it. There is legal, and then there is right. For companies to collect sales tax on each sale is the right thing to do; I believe the law does not restrict a company's ability to do the right thing.

But, I feel confident there are many who only see the business advantage in the loopholes in life and will resist closing them with every financial fiber in their wallet... I suspect some of them work at Amazon.

Lawson Meadows

[Berettasskeeter]

09:53 AM on 07/13/2011

Lawson, you are too erudite to not know the answer to your own questions, but I'll make a stab at a reasonable explanation of this. Many states have attempted to force on-line companies to collect sales tax for them, unsuccessfully. And the Congress hasn't really addressed it because it would be a nightmare of regulatory knots (on second thought, why haven't the Democrats taken this one on as their own??). Trying to force on-line companies to comply with the sales tax laws of ALL states would be such a burden that most small businesses would go OUT of business. Amazon is not a small business, of course, but the effect could be the same. And, if so many of them go out of business, who is served? Not the businesses, not the states, and not the Fed.
As for doing the "right thing"?? We follow the law. The "right thing" does not always comply with the law! Furthermore, who decides what is the "right thing"? You? Me? The State? Who?
Semper fi

[Lawson Meadows]

03:51 PM on 07/13/2011

Hi my friend, been a while!

We are in agreement about one thing and disagree about others.

We agree that I am erudite, but not too... as are you. ;oP

We disagree about the level of tax collection burden this would cause; we are looking at different sides of that coin (no intended pun).

First, I see no excessive regulatory problem, in that all congress needs to do is legislate that businesses collect taxes as required by each state in the same manner any instate purchase is handled.

Second, I am sure the software to calculate 50 state tax percentages is already available and that subsequent to any national requirement, it will be bundled with the software virtually all business currently purchase to handle their financial dealings. Speculative? Yes? But, highly probable! The cost in money and time would increase somewhat, of course, but in order to level the field, it would be worth it.

Third, the states should allow out of state companies the option of paying sales taxes monthly, quarterly, or yearly with discounts being given to the more frequent payment plan.

Fourth, the increased cost would likely be passed on to the customer anyway as a result of the field being leveled so the danger to a company is minimized. And to this point: Will this make customers happy, probably not, but that is not the point.

(continued in reply …)

[lennyca]

01:10 AM on 07/13/2011

Amazon will be still cheaper than brick mortal stores..
their prices 40-50% lower than bestbuy...so even with 9% sale tax i still buy from amazon..

[Str8upNya]

11:57 PM on 07/12/2011

More taxes will just deepen CA debt.

[George Hanshaw]

11:50 PM on 07/12/2011

Californian websites that provide comparison shopping services and discount coupons are seeing their range of offerings narrow as online retailers abandon them to escape a state tax on internet shopping.

Several online retailers have followed a lead taken by Amazon and severed links to Californian websites that carry advertisements or links to their products, a move that enables them to avoid a new demand to collect sales tax from Californian shoppers.

http://www.ft.com/cms/s/0/d148e7a8-abae-11e0-8a64-00144feabdc0.html?ftcamp=rss#axzz1RxBoabI4

The tax measure was passed in a state budget last month as California struggles to reduce a $9.6bn deficit. It has been backed by traditional retailers such as Walmart and Best Buy, which say it is unfair that most online shoppers do not pay sales tax.

[George Hanshaw]

11:50 PM on 07/12/2011

But e-commerce executives say that rather than raising tax revenue it will kill off business in the state that is home to Silicon Valley and leave shoppers with fewer options.

Nick Loper, founder of Shoes ’R Us, a small comparison shopping site, said that since lawmakers passed the tax measure in late June, he had been told by six retailers – who made up 70 per cent of his revenue – that they would cut ties.

“It puts us at a competitive disadvantage … Since those guys are really the big volume players, without them the site is no longer valuable to customers,” he said.

He said three of the retailers to cut ties were Planetshoes, Shoebuy and Shoeline, all based in Massachusetts, and three others were linked to Seattle-based Amazon: Zappos, Endless, and 6pm.

Under the tax measure, online retailers must collect a sales levy if they have a presence in California, which is defined to include relationships with Californian websites that earn referral fees by directing customers to them.

[George Hanshaw]

11:31 PM on 07/12/2011

Ah, California. Load gun, shoot self in foot, reload and do it again.

California is liberalism in a microcosm. It just plain don't work...

http://money.cnn.com/2011/06/28/news/economy/California_companies/

NEW YORK (CNNMoney) -- Buffeted by high taxes, strict regulations and uncertain state budgets, a growing number of California companies are seeking friendlier business environments outside of the Golden State.

And governors around the country, smelling blood in the water, have stepped up their courtship of California companies. Officials in states like Florida, Texas, Arizona and Utah are telling California firms how business-friendly they are in comparison.
Companies are "disinvesting" in California at a rate five times greater than just two years ago, said Joseph Vranich, a business relocation expert based in Irvine. This includes leaving altogether, establishing divisions elsewhere or opting not to set up shop in California.

"There is a feeling that the state is not stable," Vranich said. "Sacramento can't get its act together...and that includes the governor, legislators and regulatory agencies that are running wild."

The state has been ranked by Chief Executive magazine as the worst place to do business for seven years.

"California, once a business friendly state, continues to conduct a war on its own economy," the magazine wrote.

[Robgrut]

06:58 PM on 07/12/2011

Businesses leaving California at 5X the rate of just two years ago. Failed liberal policies will kill California. Let's sell it to the Chinese...

[Mr Bobo]

06:54 PM on 07/12/2011

All CA did was shoot itself in the foot with this silly measure. That's 25,000 affiliates NOT paying taxes they were once paying into the state coffers. Honestly, don't legislators consider the domino effects of their decisions?

Personally, I shop for items online from out-of-state retailers and combine with free shipping offers in order to save money.

[gsocratesasks]

02:37 PM on 07/12/2011

Now cal wants to tax other states too.

[jgreen3947]

04:29 PM on 07/12/2011

That's because so many businesses have left, or are leaving.

[funinthesun]

12:12 PM on 07/12/2011

As a Californian I am all for Amazon's move. The problem with these new revenue sources is they never go away...we'll still be paying this tax when the economy turns around again. For what it will cost Amazon to set up collecting the tax, as well as for potentially 49 other states, it might not be worth it.
One of the things the state I don't believe takes into account is the potential drop off in business from adding the tax. I for one would be less likely to order items online if I have to pay sales tax as well. ...This happened with the cigarette tax...they raise for revenue and to get people to stop smoking,,,,it works and then the state is surprised when they are not getting as much revenue from the tax they thought they would get.

[mothergrace]

06:36 PM on 07/12/2011

You do know that you are supposed to be paying this already don't you? It is called a use tax. Amazon just doesn't want to be bothered collecting it as sales tax, but the fact of the matter is that we are all supposed to be paying it when we order online.

[Berettasskeeter]

09:55 AM on 07/13/2011

I don't know California taxes, living in VA. But what is a use tax? And how does California collect it? We don't have such a beast here.
Semper fi

[Donkan]

11:33 AM on 07/12/2011

It would probably cost Amazon some money to implement a system to collect sales tax for each of the states, but once it was implemented, it should not impose a real burden on the company. Amazon's real objection to this is that it may become a bit less competitive with stores and businesses located in the states. Actually, that's probably a win for the states and the people employed by those businesses.

[George Hanshaw]

11:33 PM on 07/12/2011

"It would probably cost Amazon some money to implement a system to collect sales tax for each of the states, but once it was implemente­d, it should not impose a real burden on the company."

And they should charge their customers a tax they are not required by federal law to charge because......?

[robinhood1]

10:21 AM on 07/12/2011

The sales tax problem needs to be resolved at the federal level but probably won't be anytime soon. Even without the sales tax "subsidy", Amazon is very competitive on many products. Try finding a replacement keyboard for under $20 at Best Buy.

[RUKidding0]

10:10 AM on 07/12/2011

To he!! with California !!!

Amazon should sever all ties to ANY state that passes such legislation, move it's west coast distribution center to Nevada.

Moreover, in reaction to the government greed demonstrated by this state action, California consumers should transfer purchase of ALL taxable items to the Internet, driving down both employment and taxes in this tyrannical social democratic state as the first step in a national revolution against social democracy.

Forget voting, take direct and actively destructive action against tyranny.

[Mr Bad Example]

05:44 AM on 07/12/2011

Oh boy...as a sometimes signature collector for initiative and referendum petitions (it's a living), I can't think of anything more appealing than being paid by a big rich corporation to collect signatures from people solely so that those people can then vote against the corporation. Perhaps if Amazon had spoken up while the Repos in the state legislature were stonewalling letting the people vote on these increases, I could have some pity for them, but the truth is they sat smugly in their offices thinking they were too big to be messed with.
And you know, if California approves it, they'll have to pay-it's all smoke and mirrors to threaten not to do business with 10% of this country's population, especially when it includes some of the more affluent sectors of the national population.

[NorquistNemesis]

02:51 AM on 07/12/2011

Forget just CA. They should just make it that the sales tax is paid at the same rate the customer lives in, just the same as if they went to the corner store and bought an item. Besides, the business isn't paying the tax, the customer is...just the same as paying for shipping.

[robinhood1]

10:22 AM on 07/12/2011

Do you understand that this would require a change in federal law. Read up on the Supreme Court decision in the Quill case from 1992.