Governor Brown signs California/Amazon sales tax compromise

Governor Brown signs California/Amazon sales tax compromise

Governor Jerry Brown of California has signed a compromise with Amazon regarding compelling the Seattle-based company to collect California sales tax.

http://gov.ca.gov/news.php?id=17232

It’s a remarkable development, and one which was not at all certain to occur.

I’ve written about this previously, but this makes it official.

Amazon is dropping a petition drive to overturn California’s “Amazon law” which would have compelled it to collect California sales tax at the time of sale for sales going into California (on products which would have been taxable there if sold in a store…not on e-books).

Amazon also agrees to bring ten thousand jobs to California, and there is talk of them opening fulfillment centers in the state.

What did Amazon get in exchange?

The internet retailer does not have to collect sales tax in California…until September 15, 2012.

That gives time for a national sales tax policy (such as the “Main Street Fairness Act”) to get passed, which would override California’s law.

What does this mean for former Amazon Associates in California (which includes me)?

After all, Amazon dropped the program (through Amazon pays advertising fees to individuals and organizations that use special hyperlinks to direct buyers to Amazon) in California in response to the law California had passed…which is now suspended. My guess is that they’ll restart the program…and soon. Whether a federal law is passed or not, the presence of Associates in California after September 15, 2012 makes no difference. I should say, “Most likely.” The Main Street Fairness Act might not pass, and something else might. I doubt anything else will make advertisers into a “nexus” that forces a company to collect sales tax. If nothing passes, Amazon has to collect sales tax anyway.

The Associates are a good thing for Amazon: we drive business their way. The Associates are also a good thing for California, in my opinion: we pay income tax on those fees.  The argument against it is that people buy online from Amazon rather than buying the same thing in California…and then that they don’t pay their “use taxes” on their annual taxes, which is what they hypothetically should be doing.

However, it would be hard to demonstrate that people wouldn’t just go ahead and buy online, even with tax collection.

So, I’m guessing we’ll see the Associates program restored by Monday.

There is also a rumor out there that Amazon is going to announce the AmTab (Amazon Tablet…that’s just my slang for it) on Wednesday. They’ve called a press conference in New York for that day, according to online stories:

GadgetBox MSNBC article

Having the Associates back up and running for the launch of the AmTab would make a difference, I believe, in the early sales. Obviously, I’d be favorably affected by that personally, but I don’t think that’s swaying my speculation too much. ;)

My best guess: California Associates restored by Monday, AmTab announced on Wednesday…and I get one quickly and tell you about it. :)

Amazon could also be announcing something else, but the timing seems about right.

What do you think about Governor Brown signing? What do you think will happen with a national sales tax policy? Is the AmTab going to be announced Wednesday? Feel free to let me know.

This post by Bufo Calvin appeared in the I Love My Kindle blog.

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12 Responses to “Governor Brown signs California/Amazon sales tax compromise”

  1. Rick Says:

    Did I miss a post or did you really fail to comment on the Kindle-for-the libraries announcement?

  2. Sherri Says:

    I was really surprised to see Amazon give in on this, considering how hard they’ve fought in other states. I’d guess there’s approximately a zero chance of Congress passing a national sales tax act in an election year, and I would have guessed that Amazon stood a pretty decent chance of winning a proposition in California. Maybe they thought they’d lose the eventual court case over it, that a court was likely to consider Lab126 a nexus?

    • bufocalvin Says:

      Thanks for writing, Sherri!

      I actually do think there’s a chance it will pass in time. To be clear, it wouldn’t be a law that imposes a new national sales tax, but one that standardizes the current state sales taxes. The current one is the Main Street Fairness Act, and it does have some support. Of course, it’s proving hard to pass anything…

      I don’t see Lab126 as a nexus holding up…but Amazon can fight in states, and it still needs to end up eventually in Congress, since its really an interstate commerce issue, as I understand it.

  3. Common Sense Says:

    I think it’s a bad idea for everyone. It’s not just an Amazon issue, it’s every business that does business online with people from outside of their state. It’s not just state sales taxes either, but local taxes as well which means businesses would have to maintain over 15,000 different tax schemes. Would it also apply to catalogs since most catalogs also do business online? Catalog businesses have traditionally been exempt.

    I also don’t see how states with low or no sales tax would agree with this, it’s one of their selling points.

    Although Amazon has the infrastructure for this already in place (they have to charge tax for items where the price is set by the publisher), small businesses aren’t so lucky.

    Any business regulation will harm businesses who have to spend money to comply instead of hiring more people and expanding their businesses, which costs jobs and harms the economy.

    I’ve always thought that sales tax collected by merchants was a bad thing since the government is forcing merchants to be their tax collectors.

    • bufocalvin Says:

      Thanks for writing, Common!

      Well, if you are opposed to sales tax collection by brick and mortar stores, then it’s reasonable you’d be opposed to a federal policy that would simplify that collection process and apply to sales from outside a state into a state.

      Another alternative, I suppose, would be to treat all of it like we generally treat use tax now: not collect the sales tax at the time of sale, and collect it when people pay their annual state taxes.

      I would really not like that, personally. It would certainly tend to wipe out any state tax people refund many people get (and which tends to stimulate the economy). I don’t like now going through the work to calculate my online taxes and pay them as a lump sum. I do it, but it’s a bear. If I had to pay all my in-store sales tax at once at the end of the year, I presume it would be thousands of dollars.

      I would assume that the states would have to start prosecuting people for not paying those taxes, in the same way they do for people who don’t pay income taxes.

      So, a couple of points about the “Main Street Fairness Act” (and points that are likely to be true if alternative legislation is proposed):

      * Part of the legislation is to simplify sales tax collection
      * States are not required to change their current tax rates. If they are zero, they can stay zero
      * This is not an additional sales tax…it would redefine a “nexus” (the condition that compels the retailer to collect sales tax at the point of sale), so that companies collect sales tax instead of asking customers to pay it at the end of the year
      often

      By the way, I believe we do often pay sales tax on catalog sales…if the company is in California (where we are), I’m sure I’ve seen that “add sales tax” thing.

      Another option would be to eliminate sales tax and collect the money elsewhere. I believe California has been saying that Amazon’s sales tax collection would amount to about $200 million a year. They could do a Valued Added Tax, or raise something like income tax instead…

      This previous post of mine links to the bills (one for the Senate, one for the House)…you can see the proposals there:

      http://ilmk.wordpress.com/2011/08/04/amazon-sears-both-support-federal-sales-tax-collection-plan/

  4. Lady Galaxy Says:

    When people come to my state to visit, they pay my state’s taxes on anything they buy while here. So I don’t understand why items aren’t taxed according to the tax rate of the state where the seller is located. Of course, that is probably complicated by the fact that really big retailers might have corporate offices in one state, telephone call centers in another country (or if my experience is any indication, another planet), and warehouses and shipping centers in still another location or locations. OK, I think I just answered my own question:)

    • bufocalvin Says:

      Thanks for writing, Lady!

      Actually, if I (as a California resident) buy something in your state (assuming you aren’t in California) and bring it back for use in California, I’m supposed to pay the difference in sales tax. Let’s say my rate is 8% and yours is 5%…California wants me to figure out that I haven’t paid that 3% and pay it on my annual state taxes:

      http://www.boe.ca.gov/sutax/faqusetax.htm#1

      Of course, it is more complicated than that, a bit…California did a pretty good job writing the scenarios, in my opinion.

      Part of why Amazon would like a national sales tax policy is to standardize things like that.

  5. Bob Fry Says:

    “What do you think about Governor Brown signing?”
    Good deal, it’s a reasonable compromise. Online retailers should collect the local sales tax and return it back to the taxing authority, just like physical stores. They’ve had a free ride long enough. If the marketplace is leveled in this manner, it will sort itself out. My prediction: people will continue buying as they do now…few are going to stop buying, or switch to physical stores, for a few percent difference.

    “What do you think will happen with a national sales tax policy?”
    Unlikely Congress will pass anything, look how utterly dysfunctional it is now. The sales tax policy, of course, should simply state that all retailers must collect and return the local sales tax from buyers.

    As for the “difficulty” in collecting this from the thousands of taxing jurisdictions, please…it’s a nearly trivial problem. The big online retailers might set up their own system, the little guys will very quickly have access to online tax-collecting outfits to perform the service. Being a competitive market, the fraction they charge will be quite small.

    I hope Amazon now quits acting so childishly and accepts the Associates again, and quickly.

    • bufocalvin Says:

      Thanks for writing, Bob!

      I agree with you…the mechanism to collect and remit the sales tax is not complicated (even though I have heard that there are something like 8,000 sales tax jurisdictions in the USA)…it’s a software thing, mostly, and if people don’t already have a system, there will be one available and affordable.

      I also agree with you that I don’t think it is going to change shopping habits much. It may force internet retailers to do more free shipping deals, so that the total isn’t significantly higher than the local store (especially on big budget items).

      What you describe as the sales tax policy is pretty much what the national sales tax policy needs to do. It has to be done at the federal level, since it involves interstate commerce.

      I might describe Amazon’s action concerning the Associates differently, but I agree with your hoped-for outcome. :)

  6. Tom Semple Says:

    I have a several questions about the law. The Governor’s press release refers to ‘other internet retailers’. Does that mean ‘ALL other internet retailers’? Are CA residents still responsible for paying sales tax if an out of state retailer fails to collect any (I assume so)?

    Finally, as I believe you’ve stated previously, is it still true that CA does not charge sales tax for e-books?

    In any case, I think this has been a long time coming and a good thing for CA (once the Associates program is re-instated and those ‘thousands’ of Amazon jobs appear), and for Amazon’s CA customers, who should eventually enjoy Even Better service due to shorter shipping routes. However, I imagine it will eventually eliminate Amazon jobs elsewhere (e.g. fulfillment centers in Nevada) that existed primarily to serve Amazon’s CA customers.

    Yes, AmTab will be announced Wednesday (finally).

    • bufocalvin Says:

      Thanks for writing, Tom!

      I have to read the agreement in more detail to answer these. Some of the “Amazon Laws” have a threshold before they take effect (number of transactions or dollars), I believe. Yes, you’d still be responsible for use tax on your annual taxes. That’s always true…if you buy a car in Nevada and use it in California, you’d be asked to pay taxes on it.

      Amazon has been adding fulfillment centers…I don’t think putting them in California necessarily means pulling them out of somewhere else. Expenses for fulfillment have been rising, and Amazon is doing more free shipping, I believe. Fulfillment centers can cut back o those costs.

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