Amazon Warns State of California to Back Off

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This week Amazon.com Inc. sent a letter to California legislators threatening to sever business relationships with affiliates in the state if they passed a law forcing the Seattle based company to collect and remit California sales tax.

Last week Amazon sent letter to North Carolina and Hawaii as they got closer to passing similar legislation. The states are looking to require e-commerce companies with online affiliates in their state to collect tax. These affiliates receive commission from sales that are the result of links on their own websites. According to the WSJ, the letter sent to California Gov. Arnold Schwarzenegger and leaders in state government called the proposed law, AB 178, unconstitutional and said it “ultimately would require sellers with no physical presence in California to collect sales tax merely on the basis of contracts with California advertisers” .

Geoffrey A. Fowler reports:

Assemblywoman Nancy Skinner, a Democrat, said that the law could raise nearly $150 million in revenue for the state when she proposed it in February. The California law is based on one passed by New York last year, which Amazon and Overstock.com Inc. have challenged in court. Ms. Skinner’s bill is still pending its first hearing in committee.

Aside from desperately needed revenue for the State of California, the new tax law is hoped by some to ‘level the playing field’ between brick and mortar stores and online retailers. They cite boarded up store fronts and struggling local economies.

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I don’t know about you, but when I buy online, it’s not because I’m saving the 10% sales tax (yes, where I live it’s just under that). It’s because shopping online is convenient. It’s time efficient. Sure I might save a little on with the discounts and tax savings, but I make up for it in impulse purchases and shipping costs.

Do online retailers really have a competitive advantage, and if so, does it have anything to do with sales taxes?

Image Credit: Robert Scoble, Flickr