Thread: California tells online retailers to start collecting tax

LA Times
By Marc Lifsher, Los Angeles Times

California tells online retailers to start collecting sales taxes from customers

Beginning Friday, Amazon.com and other large out-of-state retailers will be required to collect sales taxes on purchases that their California customers make online.

Reporting from Sacramento—
Shopping at Amazon.com Inc. and other major Internet stores is poised to get more expensive.

Beginning Friday, a new state law will require large out-of-state retailers to collect sales taxes on purchases that their California customers make on the Internet — a prospect eased only slightly by a 1-percentage-point drop in the tax that also takes effect at the same time.

Getting the taxes, which consumers typically don't pay to the state if online merchants don't charge them, is "a common-sense idea," said Gov. Jerry Brown, who signed the legislation into law Wednesday.

The new tax collection requirement — part of budget-related legislation — is expected to raise an estimated $317 million a year in new state and local government revenue.

But those taxes may come with a price. Amazon and online retailer Overstock.com Inc. told thousands of California Internet marketing affiliates that they will stop paying commissions for referrals of so-called click-through customers.

That's because the new requirement applies only to online sellers based out of state that have some connection to California, such as workers, warehouses or offices here.

Both Amazon in Seattle and Overstock in Salt Lake City have told affiliates that they would have to move to another state if they wanted to continue earning commissions for referring customers.

"We oppose this bill because it is unconstitutional and counterproductive," Amazon wrote its California business partners Wednesday. Amazon has not indicated what further actions it might take to challenge the California law.

Many of about 25,000 affiliates in California, especially larger ones with dozens of employees, are likely to leave the state, said Rebecca Madigan, executive director of trade group Performance Marketing Assn. The affiliates combined paid $152 million in state income taxes last year, she pointed out.

"We have to consider it," said Loren Bendele, chief executive of Savings.com, a West Los Angeles website that links viewers to hundreds of money-saving deals. "It does not look good for our business."

The larger bite from buyers' pocketbooks will be eased only a bit because California's basic sales tax rate also will drop to 7.75% on Friday when a 2-year-old temporary increase expires. The basic rate in the city of Los Angeles falls back to 8.75%.

Brown's signature on the budget bills is aimed at closing a loophole that freed Amazon and other out-of-state retailers from collecting sales taxes for California.

Not collecting sales taxes gave Internet retailers a competitive price advantage over California's small businesses such as independent booksellers and big-box retailers with a presence in the state, including Barnes & Noble Inc., Wal-Mart Stores Inc., Best Buy Co. and Target Corp.

"You can't give one segment of retail a 10% discount every day. It's just not fair," said Bill Dombrowski, president of the California Retailers Assn., a major player in a coalition of large and small stores supporting the legislation.

California's new requirement will generate badly needed state revenue and send a signal to Congress that "we want to see a national solution" to the issue of taxing Internet sales, Dombrowski said.

California is the seventh and largest state in the country to pass a law to collect taxes on out-of-state Internet sales. Illinois, Arkansas and Connecticut acted earlier this year, North Carolina and Rhode Island in 2009 and New York in 2008. Amazon sued to overturn the New York law and lost in the lower courts. The company is paying sales taxes into an escrow account pending an appeal.

Other states currently are considering similar sales tax collection bills.

California's new law was drafted to circumvent a 1992 U.S. Supreme Court ruling that sellers can't be forced to collect sales taxes unless they have a physical presence in the state.

The new statute would establish that presence in two ways: when sellers pay commissions to other Internet sites in California, known as affiliates, that refer buyers; and when sellers have a related company operating in the state.

Amazon has thousands of such affiliates in California. It also has related business operations that include Lab126 Inc. in Cupertino, which develops Kindle electronic book readers, and a Studio City office for its Internet Movie Database unit.

One affiliate, Ken Rockwell of San Diego, the owner of a 12-year-old photography website, said he planned to move out of state.

"Will it be Las Vegas or Scottsdale or Ensenada?" he said. "It's a question of where, not if."

http://www.latimes.com/business/la-fi-a ... 4787.story

Related Thread Here
AMAZON SAYS KISS OF CALIFORNIA
http://www.alipac.us/ftopict-242031-amazon.html

Amazon ends deal with 25,000 California websites

Gov. Jerry Brown has signed into law California's tax on Internet sales through affiliate advertising which will immediately cut small-business website revenue 20% to 30%, experts say.

The bill, AB 28X, takes effect immediately. The state Board of Equalization says the tax will raise $200 million a year, but critics claim it will raise nothing because online retailers will end their affiliate programs rather than collect the tax.

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites. The letter says, in part:

(The bill) specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by California-based marketing affiliates like you - even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

The new law won't affect customers, Amazon said, but added that the immediate termination of the affiliate program also applies to endless.com, myhabit.com and smallparts.com.

(Full disclosure: I have a personal website that has been an Amazon affiliate. It made $2 last quarter. That is not 30% of my income.) [More...]

Almost all the California Amazon affiliates have fewer than 75 employees and a large percentage have no employees, according to Rebecca Madigan executive director of the Performance Marketing Association, a Camarillo-based nationwide trade association.

"This law won't impact Amazon that much but it is a crisis for website owners who make revenue by placing ads on their websites for thousands of online retailers," Madigan said. "Most of them don't have a physical presence in California."

California Retailers Association stated: "We thank Governor Jerry Brown and the leaders in the California State Legislature who have demonstrated their leadership and commitment to California businesses by passing and signing e-fairness into law. Small and large businesses across the state have been held at a major disadvantage by the current law that out-of-state online companies like Amazon.com and Overstock.com have exploited for years. This has cost us jobs and revenues."

The U.S. Supreme Court in 1992 ruled that states cannot tax businesses that aren't physically within their boundaries. Such taxes would regulate interstate commerce, which is a federal government prerogative.

However, New York in 2008 passed a law to require companies with online affiliate advertising programs to collect sales tax for sales through those affiliates based in New York. Since then Rhode Island, North Carolina, Illinois, Arkansas and Connecticut passed similar laws.

Amazon is suing New York over the law, and the Performance Marketing Association is suing Illinois.

Amazon affiliate Keith Posehn, owner of zorz.com in San Diego, said he had affiliate advertising agreements with more than 70 companies and these programs were 35% of his company revenue before the California legislature passed a similar bill last year. Then-Governor Schwarzenegger vetoed that bill.

"We got 70 termination letters in one night before he vetoed it," Posehn said. After that, he started changing his business away from affiliate advertising and has started a new mobile application company.

"I have pitched investors and several question the wisdom of staying in California," Posehn said. "Some venture capitalists are very keen on placing startups outside California because start-up costs are less."

However, another Amazon affiliate, Glenn Richards, an independent recording artist in Orange County (MightyFleissRadio.com), is angry with Amazon and its head Jeff Bezos.

"I think that Amazon.com's decision to throw their affiliates, (including myself) under the bus is a national disgrace," Richards said. "Jeff Bezos should be ashamed of his conduct. His bully boy practice and tactics of extinguishing small business in California should be (condemned). Small business has no power...and no hope to confront Internet giants like Amazon.com."

Board of Equalization Member George Runner blasted Brown for signing the law. "Even as Governor Jerry Brown lifted his pen to sign this legislation, thousands of affiliates across California were losing their jobs. The so-called 'Amazon tax' is truly a lose-lose proposition for California. Not only won’t we see the promised revenues, we’ll actually lose income tax revenue as affiliates move to other states."

http://www.ocregister.com/articles/amaz ... ornia.html

From another blog:

I know a person that runs a fairly large ebay store. Missouri law states that if he sells anything to his fellow Missouri residents that he has to charge and collect taxes from them. His solution to the problem is simple; he refuses to take orders from Missouri residents. He has a disclaimer on his website stating such. He states that his profit margins are so small that the time and money it would take to become a tax collector for the state of Missouri would make his store unprofitable.

Online retailers should do the same thing. Don't sell to California customers. Period. Put up a disclaimer that reads: "We are unable to serve the residents of California due to the California tax code. We are sorry for any inconvenience this may cause. Have a wonderful day."

It is far past time that businesses teach liberal states like New York, Illinois, and California exactly who John Galt is.
F.A. Hayek Fan

norge1

6:42 AM on June 30, 2011

The stupidity of CA liberalism is why I have, and will continue to boycott California businesses. I started this three years ago and have enlisted the forums of various on-line shooting sports retailers to further this boycott. Example: RCBS Inc. is one of the largest ,...and best producers of reloading equipment in the US, but being located in CA, as is Kaiserworks, and Buck knives, and many other sporting goods makers, we have started a boycott of CA businesses until the liberal immigration enforcement starts to comply with Federal law and the people of the Republik of Kalifornia are no longer subject to Soviet-style firearms restrictions.

We are finding new high quality products being made outside CA, and hope CA business either leaves the socialist, foriegn invaded state, or collapses adding to the woes of the illegal government. If the inland counties should choose suscession from the left-coast counties we would support their efforts and businesses.

related

Amazon sweetens job offer; Texas lawmakers don't bite

Amazon.com sweetened its pitch to Texas officials on Thursday, but lawmakers - at least for now - said no to the online retailer's offer to bring thousands of jobs to the state in exchange for a break on collecting sales taxes.

After Amazon upped its number of promised jobs from 5,000 to 6,000, a joint House-Senate conference committee decided not to attach the Amazon proposal to Senate Bill 1, the fiscal matters bill being debated in the Legislature's special session, a spokeswoman for the committee's chairman, Sen. Robert Duncan, R-Lubbock, confirmed late Thursday.

It's unclear whether lawmakers could bring the proposal forward in some other format during the special session, or whether Thursday's decision effectively ends the negotiations between Amazon and Texas. Amazon officials were not available for comment.

Amazon initially offered Texas a deal that would create 5,000 jobs and invest $300 million in the state over the next three years. In exchange, lawmakers would agree to grant Amazon a 41/2-year exemption from collecting tax on online sales in Texas.

Amazon does not now collect sales taxes in Texas and many other states. But the comptroller's office has moved to collect $269 million in past uncollected sales taxes from the retailer, and Amazon is fighting the assessment in court.

Earlier Thursday, Paul Misener, Amazon's vice president of global public policy, sent legislators a letter with the higher job creation offer.

"Amazon fulfillment and customer service affiliates intend to create these 6,000 new jobs somewhere in the US , and I respectfully request that you support the safe harbor provision that would allow these jobs to be created in Texas," said the letter, which was obtained by the American-Statesman.

Ronnie Volkening, president and CEO of the Texas Retailers Association, praised lawmakers for their Thursday decision and disputed that the vote "was a choice between extending the sales tax to online retailers or creating jobs."

"Main street retailers are creating jobs every day, … and they are doing it in the time-honored fashion, working on the street, collecting sales tax, paying property tax and supporting the communities they serve," Volkening said.

Sen. Bob Deuell, R-Greenville, a member of the conference committee, said Thursday that he couldn't see a reason for exempting Amazon from collecting sales tax.

"We don't have an income tax - and I'm not advocating for that - so we have to have (sales) tax. That's a mainstay of our economy," he said.

Deuell also said he was skeptical that Amazon could deliver on its promise of 5,000 jobs and $300 million in capital investments by the end of 2013.

"I don't see how in the world they can provide 5,000 jobs at distribution centers. Those operate very efficiently, with computers and mechanized things," Deuell said. "I don't want to doubt their word and their intentions; I just don't see how they bring 5,000 jobs to the state."

Texas and Amazon have been at odds over the collection of online sales taxes since last September, when Comptroller Susan Combs sent Amazon the $269 million bill, covering sales taxes it failed to collect from 2005 to 2009.

Combs has said Amazon is required to collect sales taxes on Texas transactions because it was operating a distribution center in Irving, constituting a physical presence.

Amazon responded by saying it would close the Irving facility, eliminating 119 jobs. Amazon also said it was scrapping other plans to expand in Texas, accusing the state of having "an unfavorable regulatory climate."

Gov. Rick Perry criticized Combs' action and said in February that he hoped legislators would try to keep Amazon from leaving Texas.

Instead, during the regular session, the House and Senate passed a measure spelling out that retailers that have distribution centers or warehouses in the state must collect sales taxes.

Perry vetoed that measure, but language identical to that bill was attached to SB 1. On June 9, the House defeated an amendment by Rep. Bill Zedler, R-Arlington, to strip the language from SB 1.

http://www.statesman.com/news/texas-pol ... _frontpage