Tag Archives: Amazon.com

Budget

Internet Tax Bill Clears Senate

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I’ve mentioned the so-called “Amazon tax” a couple of times recently, and now it looks like it has passed the second big hurdle by clearing the Senate.  It was actually packaged up into a bill by Sen. Hancock with two other bills:

Hancock added, “Out-of-state online merchants are able to underprice local stores and California-based online businesses by as much as 10% by simply refusing to collect state sales tax.  We’re finally on our way to changing that in a way that will help small business and brings in more revenue.  It’s only fair.”

The three bills that are part of today’s legislative package include:

* Senator Hancock’s SB 234, which insures that the state tax board (Board of Equalization) has the authority to enforce collection of state sales tax by out-of-state retailers.

* Assemblyman Calderon’s AB 158, which specifies that retailers have a business “nexus” or connection with the state if any member of their corporate family is located in the state.

* Assemblyman Skinner’s AB 153, which obligates Amazon and others that use in-state affiliates to promote their sales to collect state sales tax immediately.

The measure incorporating the three bills now goes to the State Assembly, where a vote is also expected later today.

Hancock’s bill should pass the Assembly on a majority vote basis today, and head to the Governor’s desk.

Budget

“Amazon” Bill Waits In the Senate

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Back in January, I wrote up a little ditty about Asm. Nancy Skinner’s AB 153 bill to require sales taxes collection for major retailers who mostly exist online, but have sizable presences in California.  Of course, this is really directed at Amazon.com, the world’s biggest internet retailer.

The good news is that the bill passed the Assembly, after a modification requiring affiliate payments of over $500,000 rather than $10,000.  The change is relatively minor, irrelevant to Amazon, but actually could end up making a difference for some growing e-businesses.

You’ll not be surprised that I’m mostly interested in this for the revenue purposes.  Sure, I pay my use tax (or guess at it anyway), but to be honest, few people do this.  To get that revenue, it really has to be done at the seller’s side.

And that is where this bill comes in, requiring online retailers who use so-called “affiliates” to drive them business.  Basically, these are California folks (um, like me) who drive traffic to Amazon who then get a cut of sales.  New York has already used this legislation, and it is now pending in court.  We are breaking no new ground other than in a quantitative aspect.

But there is still the other argument, which is really more compelling to a wider swath of people that the lack of taxation on internet retailers is just a blow to small businesses in the state who do have to collect their local sales taxes.  Scott Hauge, the president of Small Business California, made this point quite well in an op-ed that originally appeared in the San Jose Merc back in March:

Unfortunately, a tax loophole being exploited in our state hurts small businesses and creates a competitive disadvantage in the marketplace. Out-of-state, online-only vendors don’t collect state sales taxes like brick-and-mortar stores are required to do. This loophole has given out-of-state, online-only retailers an unfair competitive advantage over retailers in our own community.  As a result, the brick-and-mortar small businesses that employ our family members, participate in our communities and are critical to our economy’s recovery are operating at a loss, and jobs are at risk.

At its core, this is an issue of basic fairness. California businesses are being priced out of the marketplace because they are following the law and collecting the sales tax as required by law. All the while, online-only retail giants like Amazon.com are refusing to collect the sales tax by exploiting a loophole and passing on the liability to remit the sales tax to their consumers, many of whom have no idea the compliance burden falls on them to track and issue payment.

The result has meant that online-only retailers abusing an outdated system to get around collecting the sales tax can offer an artificially lower price. That’s not fair, not right and not the way the marketplace should work. It is no way to do business in a 21st century economy.

Fortunately, our state has an opportunity to close the loophole, modernize the system and ensure small businesses are able to compete. Lawmakers can support Assembly Bill 153 by Assemblywoman Nancy Skinner that will require out-of-state, online-only retailers to comply with the same requirements to collect sales taxes that California businesses must follow. (SBCal)

In the end, I think what should ultimately happen with the internet is that there should be some sort of federal sales tax which then gets divided down to the states.  Or…you know, totally overhaul the taxation system that would allow us to rely more on progressive taxation and less on the more regressive sales taxes.  But that last hope seems rather distant at this point.

In the short-term, the Senate should quickly pass AB 153 and get it to the Governor’s desk.  Amazon has threatened to cut off their California affiliates, but as they showed in New York (but not Colorado) they are a bit more cautious on the big states.  Lets get this done, both for the revenue as well as the simple fairness of requiring the same taxation for all businesses.

Uncategorized

Giving the Use Tax Teeth: Leveling Amazon’s playing field

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Last year, Legislative leaders looking at how we balance the budget, investigated following New York’s path by requiring Amazon.com, and other online companies that have affiliate programs, to pay sales tax. Ultimately, that was vetoed by Schwarzenegger, but it is not dead. Today, Asm. Nancy Skinner announced that she was bringing it back:

Assemblywoman Nancy Skinner is making another run at forcing major online retailers, including Amazon, to collect sales tax on California purchases.

Skinner, a Berkeley Democrat, said the bill could generate between $250 million and $500 million for the state. Proponents are hoping that a new governor and some major corporate firepower, including Amazon rival Barnes & Noble, will help the legislation succeed where it failed before. (SacBee CapAlert)

Of course, this is all pretty complicated.  Back during the catalog days, the Supreme Court, in its infinite wisdom, determined that mail order companies couldn’t be required to collect sales tax.  Without getting too far into the nitty gritty, the decision was made under the constitutional theory of the “dormant commerce clause.” Basically, if Congress hasn’t taken action on interstate commerce, the states can’t do it.

And so for a generation, people have expected to pay no sales tax for anything purchased online.  And for a generation, brick and mortar stores, who have higher labor costs (eg, they hire more local workers) and other costs, were disadvantaged in one more way.  It’s a friendly way of kicking our local stores in the shins while they are already down. (Note that the federal “Internet Tax Freedom Act” actually had nothing to do with this issue, instead only addressing taxing internet access itself.)

Now would be a good time to point out that under California law, the consumer is required to pay use tax on goods bought outside the state and where sales tax was not paid.  This is true of yachts and that new Kindle you bought for your mom last year. It’s called the use tax, and it is basically the consumer side of the sales tax. The Board of Equalization has been trying to push people to pay it, but we all know the success they have had. In theory they could try doing a bunch of audits, and would surely find something on a great majority of the returns.

But, really, how efficient is that?  Having the retailer collect the sales tax is not particularly onerous for online retailers. Technically, it’s just a few lines of code, and then sending a check to the states every so often.  But that’s not really what this is about.  Rather, it’s about the unfair advantage online stores have over brick and mortar stores, and Amazon (and others) are fighting to keep that advantage.

We would be far from the first in taking this action.  New York has already done so in the same manner, claiming the “nexus” are the affiliates in the state.  Amazon threatened to cut ties with its affiliates in the state, but ultimately the market power of the third largest state in the union won out.  

However, that wasn’t the case for Colorado.  It tried something different, entirely unrelated from affiliates.  Colorado required Amazon and other large online retailers to provide a tax document to any consumer who spent over a certain amount, reminding them how much money they had spent on their site.  Legally, Colorado was on very stable ground, they were well within their power to require that.  However, Amazon responded by firing the affiliates anyway, despite the fact that Colorado’s plan had nothing whatsoever to do with them.  It was simple petty revenge.

However, it’s hard to imagine they would want to cut off the nation’s largest market if they weren’t even willing to do it to New York.  And now, Skinner has enlisted some atypical support for a tax measure by gathering businesses with a California presence and employees, from small to large, to fight against this unfair advantage at the expense of the state budget.  Of all the tax incentives that we are giving out, why would we want to give one to companies that are taking away business from the state, and shipping jobs elsewhere.

Surely the next argument you will hear is that we have quite a few of those internet businesses here.  And of course that is true (though internet retailers generally try to locate in smaller states for precisely this reason), but this is a classic race to the bottom.  States shouldn’t be fighting to give away local jobs. It just doesn’t make sense.