California Law Will Tax eCommerce

by Gavin O'Malley , Staff Writer, June 30, 2011

Until now, Amazon and other mostly digital businesses have had clear tax advantages over brick-and-mortar rivals. But with vast implications for the future of ecommerce, cash-strapped states are trying to level the playing field.

On Friday, Los Angeles Times reports, "a new state law will require large out-of-state retailers like Amazon to collect sales taxes on purchases that their California customers make online." In response, Amazon and rival etailer Overstock.com plans to cease paying commissions to California Internet marketing affiliates 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," the L.A. Times explains. The move has Web affiliates fuming. Respected tech watcher Danny Sullivan, for one, is hoping someone hits Amazon with a class action lawsuit "They probably won't win, but you deserve a little hassle, too," Sullivan wrote in an open letter to Amazon CEO Jeff Bezos.

Meanwhile, The Next Web suggests that Sullivan and all California residents should consider blaming the state's Governor Jerry Brown. "If the governor was attempting to call Amazon's bluff, it didn't work," it writes. "In grabbing for sales tax, the state has, it seems, eliminated a chunk of income tax."

Bigger picture, as BoingBoing notes, "The move follows similar shutdowns in other states, most recently Arkansas and Connecticut, where similar laws have been enacted." Yet, "California ... is by far the largest U.S. state and represents an enormous revenue source for Amazon and associates."

"States are scrambling for cash, so it's no surprise they see a pot of gold in e-commerce sales," writes ZDNet. "Brick and mortar sites - such as Wal-Mart - that have failed to grasp the opportunities Amazon created with programs (like Affiliates) are out for blood."

ecommerce, sales

5 comments about "California Law Will Tax eCommerce".

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Agustin Valdovinos from A3 Consulting, June 30, 2011 at 1:17 p.m.
another example of the left not understanding how business works. the sad part is they used past sales numbers times sales tax from on line vendors and added the projection to the budget. the fact is these businesses have already retreated from the california market and more jobs will be lost from the reduction in shipping and handling from online purchases.
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Pokey Joe from Self, June 30, 2011 at 1:29 p.m.

You just gotta love the Socialist mentality in politics. I call it the hive-mind economic theory. It goes something like this:
The harder & smarter you work, the more you make.
The more you make the more we take.
The more we take, the bigger we get.
The bigger we get the harder you have to work to support "us".
When you don't, can't, won't work, you become part of the supported "us".
When there's no one left to support "us", we are no longer the U.S. of A.

Keith Yockey from KEY Products, June 30, 2011 at 2:06 p.m.

Class Action lawsuit against Amazon? You are suing the wrong people. The lawsuit should be against the Governor and State legislature of CA for making unconstitutional law.

Robert Repas from Machine Design Magazine, June 30, 2011 at 2:38 p.m.

Wait, wait, wait...Agustin, you're misunderstanding what goes on here. There's nothing to prevent Amazon.com from selling to California residents and shipping it in. What happens, though, is that the Affiliates program is dead. Without Affiliates, Amazon doesn't have to pay the state sales tax, because they have no connections in California.

The stupidity of those in government about services and business practices runs to every state. In my state of Ohio, they decided to just about double the fee being paid for vanity license plates, with the idea of increasing income. Instead, a large number of state residents just turned their vanity plates in, switching to the lower cost regular license plate. The state now has even less money coming in from vehicle plates than they did before the price increase.

Jerry Foster from Energraphics, July 1, 2011 at 4:30 a.m.

The US doesn't have a serious justice system because someone should have been able to have already challenged the states' assertions that "the existence of affiliates getting commissions constitutes a presence or nexus" without having to have paid much money personally in lawyer fees and, to be honest, without having had to identify themselves in any way. Anonymity is OK because it's the ideas that count.

The system is mainly stacked against the little guy because, although he can theoretically write a challenge on a Denny's restaurant napkin and turn it in to the nearest federal courthouse, we never hear about that actually happening and of judges taking the challenges seriously, which they damned well must (legally, they must).

It is now like ancient Rome. Only those who pay big lawyer fees get taken seriously by judges.

The Supreme Court should have already decided on this based on someone complaining on a restaurant napkin and tossing it on the reception desk of the nearest federal court anywhere (including American citizens living in other countries tossing a challenge onto the reception desk of the nearest US consulate - not just embassy).