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.

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

  • Jeff

    All state revenue administrators use Amazon as an excuse for declining sales tax revenues. Whatever the sales tax savings Amazon provides to consumers is offset, if not exceeded, by the shipping changes which I see on used books to be at least 15% and sometimes even 100% of the book value. So, the sales tax Amazon-benefit/local-burden is simply non-existent. Then, what local services is Amazon paying for in California, North Carolina, Maryland, or any other state other than its home state? Local bookstores receive police protection, roads to their stores, schools for its employees and their children. FedEx receives a benefit, but they are not Amazon and they pay taxes comensurate to what it’s required under law.

    On top of that, as a personal note, I have been searching for two weeks at local new and used bookstores for a book without success, but I guarantee I will find it with a few clicks on Amazon or other online retailers. Nonetheless, for every boarded up storefront they show, in my town there is a locally-owned, used book store popping up on every corner and they are PACKED with customers. And, that’s supposedly Amazon’s primary competitor!

    It’s time for states to realize that it’s the inherent nature of the sales tax that’s leading to declining sales tax revenues as our country moved away from manufacturing to service industries, not the Amazon boogieman/scapegoat.

  • no_taxes_please

    I live in NY and I do buy online to avoid the sales tax. Trust me, I am paying enough already – especially considering how effectively our state government is being run. (Have you seen the news where the state senate in in this state has done nothing for three weeks because of bickering? And now it is summer recess, so time for vacation!)

    One other benefit is that by not paying sales tax you can generally cancel out the shipping and handling costs.

    Fwiw I also buy things locally, but only where the total cost of the purchase would be comparable.

  • John

    There seems to be some misunderstanding to the nature of the tax.

    Sales tax is a use tax that the consumer owes to his/her state for every product they buy. Consumers (not the merchant) owe the tax whether they purchase from a local or interstate company. Local, in-state merchants are tasked with collection within their state of operation. However, traditionally, it has been deemed too burdensome for merchants to collect and remit taxes for every state they do not operate in. Consumers are under the “honor system” to calculate and remit use taxes for products purchased from out-of-state (and famously fail to do so).

    I don’t object to merchants collecting all taxes, but there needs to be some kind of standard system to handle it. Credit card processors could add a sales tax processing and remittance services to their product line, however, receiving states (rather than merchants) should pay for the service.

  • Lela Davidson

    I understand the consumer is responsible for the tax, but there’s really no administrative process to pay the taxes anyway. If it were a priority it seems we’d have a way to do this, or it would be measured or monitored in some way.

  • Lela Davidson

    Yes, you can almost always find exactly what you’re looking for on Amazon. I was recently in the same situation – looking for a book by a local author, that a local store did not carry.