You may have heard something about the tax situation in the budget.  There aren’t any real increases, as you know, no Republicans voted for it.  But there are a few things that do attempt to increase revenue.  Most publicly, there is the so-called “Amazon tax”, which isn’t really a tax at all.  All it does is instead of depending on Californians to keep track of their purchasers from major online retailers and then pay use tax, and puts it on said major online retailers.

You’ve been paying your use tax dutifully every year, right? Right?  Well, if that was the case, then Amazon wouldn’t be going to lengths that it has gone to avoid charging sales taxes to California residents.  Because here’s the news on that front, they’ve decided to terminate their affiliate program in California due to the new requirement to collect sales taxes:

For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It 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.

As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to Amazon.com , Endless.com , MYHABIT.COM or SmallParts.com . Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule.

Of course, they have no proof that job losses are arising from anything but their own obsitancy from paying their fair share.  They use government services heavily, after all, their packages go across interstate highways and city roads maintained by the government, and that whole internet thing? Yeah, that was originally a project of the government.  But they don’t give a crap about any of that.  They are about one entity and one entity alone, and that’s Amazon.com.  

They like that they get this unfair advantage on price.  Sure, big box retailers aren’t exactly notorious good actors, but at least they pay their freaking taxes.  Amazon complains that it is just too hard for them, or they can’t process it.  Frankly, that’s BS.  They manage to maintain a catalog of millions of products, I’m pretty sure they can handle the few lines of code and a few checks for sales tax.

So, with that, as a former “affiliate” of Amazon, I have now switched to Barnes & Noble, who pay their taxes.  You can find that link in the upper right corner.  Furthermore, there are these other institutions.  You can walk in to them, and actually see the products IRL.  Crazy, but true.  Please, consider supporting your local businesses first before you give the money to an unsupportive partner like Amazon.  

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.

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.