Amazon goes the state initiative route in California against the Amazon law

Amazon goes the state initiative route in California against the Amazon law

This is fascinating! I first heard about it on a 24-hour news channel.

I’ve written quite a bit about Amazon dropping their Associates program in California, in response to a change in the law in that state.

Full disclosure: I was an Amazon Associate at the time the program ended, and benefited from that program financially.

Now, it appears that Amazon is going to fight the law…by sponsoring or supporting a state initiative to effectively repeal it.

This

Bloomberg article

is, unfortunately, really misleading in my opinion. I will no longer be able to trust Bloomberg’s writing to the same extent in the future, which is too bad.

The article suggests that the law was going to place new taxes on Californians, and that our notoriously tax-averse population (see Prop 13, for example) would rally against the law for that reason.

The “Amazon law” levied no new taxes…it just changed how they were paid. It forced Amazon to collect the state sales taxes because they paid advertisers (“Associates”) who put links on their websites that resulted in sales for the e-tailing giant.

So, without the initiative we are back where we were before it: you are supposed to pay “use taxes” on your annual state taxes in California for the things you buy from companies outside of the state that do not collect those taxes and submit them to the state for you.

The initiative would presumably repeal the definition of those advertisers as a “sales force”  for Amazon (as employed salespeople would be), which created a “nexus” in California, allowing the state to make Amazon take on the expenses of collecting those taxes and submitting them.

Some of you outside California may not know how our initiative process works. Essentially, you collect a bunch of signatures, they get verified, and your proposition is put up to the voters in the state. We’ve had all sorts of propositions on which to vote…many don’t pass, of course, and it’s no sure bet.

I would need to read the proposition, but regardless of whether I would support it or not (and my strong intuition is that I would), I’m happy Amazon is doing this. It’s going to pump probably hundreds of millions of dollars into the cash-strapped state…as brick-and-mortar superstores like Costco and Wal-Mart buy advertising to fight it, and Amazon buys advertising to support it.

Feel free to tell me what you think about this. Is it appropriate for Amazon to spend corporate money to fight a California law? Would you support the proposition, depending on how it is worded?

For more information, see this

previous post

To share how the end of the Amazon Associates program in California affected you (if you are an ex-Associate), please see this

previous post

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

7 Responses to “Amazon goes the state initiative route in California against the Amazon law”

  1. Emily Says:

    My first thought is Amazon wants to pick their battleground for a constitutional challenge, and California isn’t it. Amazon probably would prefer to go to federal court in some other jurisdiction than California. Or perhaps the law itself is not the ideal one to challenge on constitutional grounds. So maybe they are going for the quicker route to get what they want. A state initiative would get them results (repeal of the law) much faster than waiting for a constitutional challenge to wend its way through the courts.

    • bufocalvin Says:

      Thanks for writing, Emily!

      Yes, they have challenged it in New York, and I expected them to concentrate on that one until it got to the US Supreme Court. In other states, they’ve complied with conditions, as they have in California.

      It’s going to cost them quite a bit of money in California to do this, but they wouldn’t be the only people on their side (Overstock.com, for example, might contribute to the campaign as well).

  2. Tom Semple Says:

    I really don’t like the initiative process. Supposedly it is ‘direct democracy’ but so many of the more significant and damaging (in my view) initiatives pass in out-of-season elections, when turnout is very low and bang for the buck is highest. And there’s no accountability when things go wrong.

    I’ll confess I don’t understand how the new California law is supposed to generate tax revenue. It would be foolish for any out of state retailer to voluntarily begin collecting CA state taxes before this has worked its way through the courts. And evidently Amazon believes that shutting down the Associates program puts them on eminently defensible legal turf. The state is going to have to take somebody to court, which will take time, and money the state doesn’t have.

    And of course for the foreseeable future, the state loses out on Associates income tax that is much more reliably collected.

    Unfortunately there’s no political will to actually fix the problem via constitutional reform, at least not yet.

    I don’t have enough information about the proposed proposition to know if I could support it. Generally speaking, I’m not in favor of corporate-sponsored initiatives like this one. And It’s unclear if Humpty Dumpty can be put back together again, in any case.

    • bufocalvin Says:

      Thanks for writing, Tom!

      The initiative process has the advantage of bringing money into the state in the form of political advertising (which may be paid for by out-of-state interests). As you say, the concept seems reasonable, but the practicality makes it difficult for a grass roots initiative to actually become law and law that stands up to subsequent legal challenges.

      In California, we could have an initiative to repeal the “law of gravity”. The first barrier would be to get people to sign the petition. That would get people some money, as they are paid to stand outside the grocery store and ask people to sign. Many people sign any initiative like that, figuring the people should get to decide any issue. There is a cost to the state to verify those signatures.

      If there are enough valid signatures, it qualifies for the ballot.

      There then is a campaign. The people who run those campaigns make money. Advertising companies make money. TV stations, radio stations, make money.

      The “x-treme sports” lobby would support it (and the lobbyists would make money). The airlines might fight it (if there is no gravity, they lose their monopoly on flight).

      Let’s say it passes.

      Is gravity immediately repealed?

      No.

      Turns out that repealing it legally is insufficient. 🙂

      Let’s say it was repealed, though. Next stop? The court system. It works its way through a lot of things, including eventually the Ninth District..which certainly doesn’t always settle the matter.

      Eventually, it may get to the US Supreme Court…which may refuse to hear a case, saying it’s the legislative branch’s responsibility, kicking it to Congress.

      The problem here is that challenge to California’s law will be Federal…California’s “Amazon law” will fail (if it does) on US Constitutional grounds.

  3. Edward Boyhan Says:

    I think I mentioned before in another post that the situation vis a vis California and Amazon is quite different from Amazon versus all the other states that have passed similar laws. One reason is due to the existence of Lab126 in Cupertino and A2Z in SF (these are really the same company operationg under different dba’s — both are wholly owned Amazon subsidiaries). The Calif law was specifically worded to capture their existence in the justification for Sales tax collection. There is also some other “creative” verbiage in the Calif law to give them a fighting shot on enforcement even though Amazon has severed ties with all its affiliates.

    Several legal commentators have remarked that Amazon may have no recourse but to fight the law in court — these same commentators also point out that it’s not at all clear that Amazon can prevail — the initiative route may be their only viable recourse.

    While you are technically correct that under the law Calif residents are required to pay sales tax on out of state purchases, the fact is that most don’t, and so if Calif does prevail, the net result will be that many Calif residents will experience this as a very real tax increase — no matter that the letter of the tax law will not have changed. People don’t care what the law says — they care what “real” impacts they may be subject to.

    • bufocalvin Says:

      Thanks for writing, Edward!

      I think the change should be that California collects those taxes which are already on the books. They’ve tried an amnesty on this before, but how about this? One year tax amnesty (pay what you owe with penalties and interest)…with a threatening e-mail that if you don’t comply, they will fine you the next year. Then…they do. 🙂 That’s the hard part, though.. They don’t know how much you got on the internet, and can’t compel out of state companies to tell them. Audit authority should let them look at your computer for confirmation e-mails.

      That doesn’t sound popular, though…hey, maybe they can get Amazon to do it… 😉

    • bufocalvin Says:

      Thanks for writing, Edward!

      I didn’t reply to the Lab126 part of it, and that is significant.

      That’s another major redefinition of a sales/use tax. It’s not that you own something in the state…it’s what it does (or at least, that’s what it used to be). If California wants to impose a development tax, that’s one thing, but R&D (Research and Development) isn’t selling things to people. Yes, it contributes…but so does the health care of your employees. If Jeff Bezos has a surgery done in California, does that mean California should be able to compel sales tax collection?

      The tax is on the sale or the use…not on what enables those.

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