Internet retailer ends long stalemate with California

by Brian Leubitz

You may have noticed that in the article below, I have an Amazon.com link to a book about a horse.  Which, mostly I just found kind of cute,  but tangentially related to the story.  But, why Amazon, you ask?  Well, remember that deal I mentioned a few weeks back, well, it’s official and Amazon has reopened their affiliate program to Californians.

Gov. Jerry Brown signed legislation Friday that postpones new sales taxes rules that would have affected online purchases in California, granting more time for traditional and online retailers to lobby Congress for a national standard on the high-stakes issue.

The bill, crafted as a compromise among Amazon.com, traditional retailers and California lawmakers searching for ways to raise revenue, delays until at least September 2012 online tax rules that were implemented as part of this year’s state budget package.

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Under the deal, the retailing giant will rekindle its relationship with its California affiliates and has promised to create at least 10,000 full-time jobs and hire 25,000 seasonal employees in the state by the end of 2015.(AP)

So, you can now go back to wondering whether the Amazon tablet will be the iPad killer and getting free shipping.  That being said, buying in local, independent stores is still your best choice for economic development in your own community.

To avoid ballot fight, State to agree to deal with the online giant

by Brian Leubitz

Amazon had put up over $5 million in a show of force for a potential referendum.  But, they never really wanted to go to the ballot.  And it looks like both parties avoid an expensive ballot fight with an agreement scheduled to be finalized before the end of session:

Under the handshake deal, Amazon won a delay until at least September 2012 but will eventually collect state sales taxes.

The arrangement could lay the groundwork for a national online sales tax law. Amazon and major brick-and-mortar retailers like Wal-Mart and Barnes & Noble agreed to lobby Washington over the next 11 months for an Internet sales tax law that applies across 50 states. …

If no federal deal emerges by July 31, 2012, Amazon would have to begin collecting California sales taxes starting on Sept. 15, 2012.

State lawmakers intend to pass a new bill in the next two days that would delay implementation of the online sales tax law until that date, according to Calderon and several sources. If Congress strikes a deal by July 31, 2012, online retailers would begin collecting taxes starting on Jan. 1, 2013, under whatever federal requirements are approved.(SacBee)

While the governor has previously said that he’s not really all that excited about a deal with Amazon, given that this was negotiated by the Senate leaders, it would seem hard to block.  

The bigger issue is how are we going to deal with the $200 million hole this blows in the budget.  And the fact that we basically only get a promise to lobby for a sales tax measure?  Well, that and a quarter might be able to get you a gumball.

But the reality is that Amazon wasn’t going to collect any sales tax anytime soon.  And were they to collect and submit the signatures, the law wouldn’t go into reality until approved (if approved).  So we are essentially dealing with a bunch of posturing.  Amazon knows that they are going to have to collect sales tax at some point and are hoping to delay it as long as possible. And oh, sure, it wouldn’t hurt to have one national standard.

With Amazon and the big retail giants on board, there is likely to be significant movement on the bill.  We’ll end up getting money into the system at some point by 2013, and we can stop messing with this fight.  Covering another $200 million, well, that won’t be so easy.

Online Giant Looks to Avoid Sales Taxes

by Brian Leubitz

Amazon has been publicly piling money into a campaign fund to halt the new legislation that would force them to collect sales taxes.  But, if they could avoid a big fight with California’s brick and mortar retailers by pulling a quick deal, they’d prefer it.  One of the ways they’ve done that in a few other states is to promise some jobs in the state as long as they aren’t taxed.  Queue the rumors of a deal here:

While discussions are still preliminary, sources said legislative leaders have received an Amazon-inspired plan that would give the online retailer a two-year moratorium on the new tax. In return, Amazon would bring 7,000 jobs to the state, these sources said.(SacBee)

Obviously, the retailers are none too pleased, with good justification.  They are facing an uphill battle against a company that has a 8-9% price advantage right off the top.  Whether this actually amounts to a) any new jobs or b)

The problem with this is that Amazon is just shifting jobs from state to state for these deals.  It is a race to the bottom, while brick and mortar retailers continue to lose out, and our main streets continue to look bleaker and bleaker.

Sen. hopes to avoid referendum

by Brian Leubitz

Sen. Hancock (D-Berkeley) has refiled her “Amazon” sales tax measure. Why, you ask? Well, the thing about the referendum process is that you can’t use it against a bill passed by 2/3 of the Legislature.  So, can she get the two votes?

Getting this passed will take the votes of two Republicans in each chamber — votes that weren’t there when the bill passed as part of the budget earlier this year.

Asked if she had secured the needed votes, Hancock said, “We’re talking to people. We have a week and a half left so we’re putting it out there and talking to people.”(SF Gate)

As we’ve mentioned here a few times, the Amazon tax measure raises some really interesting questions that don’t always line up perfectly with the R-vs-D divide.  Specifically, the Big Box stores are quite interested in seeing Amazon’s built-in government subsidy cut.

The question is how much influence do Wal-Mart and Best Buy have over the Republican caucuses in each house?  We’ll see over the next few weeks.

Investment makes it extremely likely to qualify

by Brian Leubitz

There was some thought rumbling around that Amazon was just going to use their measure to overturn the online sales tax measure as a stick to beat politicians with.  But it now seems they are intent on getting it on the ballot:

In a filing Friday with the Secretary of State, {Amazon} revealed it had already contributed $3 million to the More Jobs Not Taxes Committee, which was established less than a month after a state law taxing online purchases took effect.

The committee bills itself as a “growing coalition of taxpayer groups, consumers, small businesses, and online companies,” but so far it has only one funder: Amazon.

The company’s contribution will go toward gathering signatures to put an initiative repealing the tax on the June 2012 ballot, committee spokesman Ned Wigglesworth said. The committee must submit 504,760 valid signatures to the Secretary of State by Sept. 27. (The Bay Citizen)

I think it is at least interesting to note that Wigglesworth is a former staffer for Common Cause, who, you know, advocates for openness and is generally against large corporations buying electoral votes.  But since he also managed the campaign for Prop 26 and the expansion of the 2/3 rule, I guess that Common Cause stint is more the anomaly than the current gigs.  

Returning to the issue of speculation, there is one more side benefit for qualification for Amazon.  As soon as the referendum is qualified for the ballot, the law isn’t valid until it is approved by voters.  Of course, Amazon isn’t obeying the law now, as they aren’t gathering taxes for their California sales, but the referendum puts the legal question off for a while.  Even if they lose on the ballot measure, they likely earn back that $3 million bucks.

Of course, they’ll need to spend more than $3 million to win when this gets to the ballot, but they certainly have the easier side of the argument.

Amazon has avoided sales taxes since its inception

by Brian Leubitz

Amazon is a product of the 90s internet boom, you know that part of the story already.  But unlike many of their contemporaries, they saw not only the mere presence of the internet being the next step forward, but also a nice little legal loophole:  Quill v North Dakota.

Quill was a case from 1992 that essentially said that retailers who sent across state lines through the mail did not need to collect sales taxes for states that they had no physical connection to.  Jeff Bezos, CEO of Amazon, was keenly aware of this fact.  An article in the Wall Street Journal looks back at Amazon’s use of this natural advantage against brick and mortar stores:

Amazon’s Mr. Bezos has said he established the company in Washington partly because it has a tech-savvy but relatively small population, so state taxes wouldn’t affect many potential customers.

“It had to be in a small state,” he said in a 1996 interview with Fast Company magazine. He even mulled basing Amazon on a California Indian reservation because he thought it would allow his company to avoid collecting sales taxes in the state, he added. (WSJ)

Over the years, Amazon has gone to great lengths to ensure that they didn’t cross the very murky line into “nexus” with states that they were targeting for their sales tax schemes.  Along with California, this list included Texas and Illinois.  Just how far did they go? Well, how about this:

For travel to California, some former employees recall being instructed by lawyers and managers to use special business cards. Rather than distributing typical “Amazon.com” cards, they used ones from “Amazon Digital Services,” a wholly owned subsidiary that sells digital content such as books and music. Representing a subsidiary, rather than core retail operations, would help prevent state authorities from going after Amazon, the people said.

“It’s a very unscrupulous practice,” said Ms. Yee of the California tax board. She said Amazon employees visiting the state on business should present themselves clearly. If they don’t, she added, “I think it’s a conscious attempt to evade California’s tax laws.” She declined to comment on whether the practice was illegal. It couldn’t be determined to what extent Amazon currently uses the method.

But Amazon’s connections to California aren’t limited to the affiliates that they unceremoniously dumped after the budget bill passed, A9.com, an Amazon search subsidiary, is based in Palo Alto, and the company has many employees in the state.  However, they claim that as they do not sell within the state, most of the employees are engineers or engineering support, that these employees should not count as the nexus required by Quill.

Ultimately, something has to give, as American taxpayers really don’t need to subsidize Amazon.com anymore.  Sen. Durbin (D-IL) is now pushing the Main Street Fairness Act, a measure that would create a single national sales tax with one reporting mechanism for sell by mail retailers.  Interesting, Amazon has chosen to support the measure as an easing of reporting deadlines.  The bill is unlikely to pass in current governing climate in DC, and Amazon has to know that.  For a multi-billion company, the costs of reporting the taxes would be essentially negligible.  Whether they are using their support cynically to fight the taxes in the states is up for debate.  

Referendum could get expensive

by Brian Leubitz

A new poll by the LA Times and USC shows that voters are split on the “Amazon” referendum.

The poll found 46 percent of voters favor the tax and 49 percent oppose it.

Gov. Jerry Brown (D) signed the bill last month, but opponents are collecting signatures to put a measure on the ballot to overturn it.

“At this point, Californians are evenly divided on whether online purchases should be taxed. This could be one of the most expensive campaigns in California history, and neither side starts with a clear advantage,” Dan Schnur, director of the USC Dornsife/Los Angeles Times poll, said in a statement. (Hill)

With some brick and mortar retailers looking set to join the battle against Amazon, there is going to be a lot of money flowing back and forth when this one appears on the primary ballot.

From a strategy standpoint, Amazon just gets to bash legislators, always an easy target.  On the other hand, supporters of the online sales tax will have to do some explaining.  There are a lot of reasons to support the tax, but actually getting the votes? Well, the old saying goes, when you are explaining, you are losing.

One more point was that there were more “Strongly” opposed to the sales tax collection than those “Strongly in favor” of the collection.  So, Amazon has a higher ceiling and a broader audience to attempt to move.

Amazon wants to overturn rules requiring they collect sales taxes, but is it possible through referendum?

by Brian Leubitz

The following provision of the California Constitution will get much scrutiny over the next few weeks (and months) as Amazon seeks to overturn the requirement that they collect sales taxes:

SEC. 9.  (a) The referendum is the power of the electors to approve

or reject statutes or parts of statutes except urgency statutes,

statutes calling elections, and statutes providing for tax levies or

appropriations for usual current expenses of the State.

That’s from Article II of the California Constitution.  While a quick reading would indicate that Amazon could not, in fact, put the tax statute to a referendum, quick readings don’t always win the day.  And while Amazon’s attorney, Steve Merksamer, spouts off about how the right to referendum is “sacrosanct,” it isn’t quite that simple either.

The measure is now in the capable hands of Attorney General Kamala Harris, who will determine whether it can proceed to the signature gathering phase.  If she determines that it is not a valid referendum, then Amazon will likely sue.  If she finds it is valid, well, expect a suit in the opposite direction, after all these are some high stakes:

Whichever way she rules, the losing side could end up suing.

“I’m sure there will be litigation on this,” said Assembly Majority Leader Charles Calderon, D-Whittier.

Calderon, Assemblywoman Nancy Skinner and several area retailers crowded into Swanberg’s on J, a small midtown clothier that specializes in Hawaiian shirts, to blast Amazon’s sales tax stance. By not collecting the tax, Amazon is harming brick-and-mortar retailers, they said.

“It’s a fairly big issue,” said Swanberg’s owner Lauren Lundsten, wearing shorts and a Hawaiian shirt.(SacBee)

The automatic 9% discount that Amazon gets is made any more fair through all of their machinations.  They’ve blocked other avenues to charge sales tax on their products, so what choice is left?

We should hear sometime soon from the AG’s office, and then shortly thereafter in the courts.  But this is not a battle that should have to be fought for the sake of an unfair advantage for an out-of-state corporation.

In New York, Amazon.com is collecting taxes from sales there, but not submitting them to the state while they are suing to block the legislation that requires them to collect sales tax.  In California, there is a tried and true way that major corporations fix policy by throwing cash at it: the referendum process.

Amazon.com Inc. wants California voters to decide whether to overturn a new law that forces online retailers to collect sales taxes there.

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. (SacBee)

This really should come as no surprise to anybody, as it only costs them a few million bucks to get it on the ballot.  And the basic question is one that they will do their best to boil down to something along the lines of “Do you like free shipping? So do we? We also like not charging tax. Yay for no taxes!”

Beating back such a referendum will be a very tough fight on some uphill terrain.  That isn’t to say that there won’t be those who will try.  Some of the biggest backers of the Amazon legislation in the first place have some pretty big pockets, like, um, Walmart, Barnes & Noble, and Best Buy.  And it is true that the legislation benefits big box stores, but it also benefits the few remaining small retailers. And while the big box stores are (very, very) far (extremely far) from perfect, at least they do provide jobs to local communities.

On what grounds is it good policy to give a sales tax exemption to a company that ships jobs out of the state?  It is a happenstance of our jurisprudence that mail-order and online companies don’t have to charge sales tax, I get that.  But from any way you look at it, it just doesn’t make policy sense.

There are a number of ways to go about defeating this Amazon referendum, depending on how much money comes into opposing it. But by the time this hits the ballot in the primary next year, expect lots of ink, pixels, and TV bandwidth to be spilled (ads and coverage).  Depending on when the election is next year, it will be a very difficult time to fight back.  Yet, I imagine there will be a pretty good fight on this.

And, for the record, no, Amazon.com, I do not want a pony.