Thursday, June 30, 2011

California's Amazon Tax Driving Business — and People — Out of State

Amazon sent a follow-up email last night confirming that they'd terminated the associates program effective immediately. The number of affiliate retailers is being placed at 25,000 and the effect of Governor Brown's budget is simply to kill business. And it's another reason for some to flee the state. See Fortune, "Will California's 'Amazon tax' cause an affiliate exodus?" And at Cato, "California Wants Amazon to Tax Californians." The article cites the Los Angeles Times, and notes:
The natural result of California doing yet more to make the state uninhabitable for business comes at the end of the story. Californians who earned and spent money in California as part of the Internet remote sales ecosystem plan to move elsewhere:
One affiliate, Ken Rockwell of San Diego, the owner of a 12-year-old photography website, said he planned to move out of state. “Will it be Las Vegas or Scottsdale or Ensenada?” he said. “It’s a question of where, not if.”
See also, Robert Stacy McCain, "Amazon Goes Galt, Cuts Off California to Avoid Internet Tax in Zimbabwe, U.S.A."

There's a disgruntled former affiliate, at Fox News, "An Open Letter to Jeff Bezos On Terminating the Amazon Affiliate Program In California." It's interesting but unpersuasive. Taxes disrupt markets, and while affiliates are getting burned, it's not good business policy to be magnanimous. Competition is fierce. Tax systems vary by state and the U.S. Supreme Court has said out-of-state companies cannot be taxed without actual physical presence at the point of sale. This is not to discount the fairness issue, or arguments that Amazon market share enables it compete in sales tax markets. It's more than California is simply hostile to business. I've noted a couple of times recently how companies and individuals are fleeing the state. Jan Norman's "Small Business" column at the Orange County Register reports frequently on the uncompetitive marketplace for California firms. (See, for example, "O.C. manufacturer to move, create 270 jobs in D.C.") And she has this on Amazon's decision, "How do Amazon affiliates lose out?":
If the online retailer has a physical presence in California — such as Walmart or Target, which have been supporters of the new law — it must charge California sales tax from California buyers.

But many of these online retailers have no physical presence (stores, warehouses, headquarters etc.) in California. And they have not been collecting California sales tax.

Understand that retailers don’t pay sales tax. They collect it for the state or local government entity.

Brick and mortar retailers say they are at a big price disadvantage because they have to collect sales tax (as much as 10% in California right now) that online retailers don’t.

However, in 1992, the U.S. Supreme Court ruled that a state could only require retailers with some physical presence (stores, warehouses etc.) within the state’s borders to collect the sales tax.

So a California firm that only sells online must collect sales tax for California but not for the other 44 states that charge sales tax (5 states don’t charge sales tax). But an online retailer in Oregon, which has no sales tax, doesn’t have to add sales tax to any of its sales.

States have been trying to figure a way around that Supreme Court ruling ever since.

EXTRA: At Sundries Shack, "Clearing the Browser Tabs – Why Does California Hurt Its People Thursday Edition."


Bartender Cabbie said...

California was once a mecca for business. What happened? Have the fruit loops finally won?

Marathon Pundit said...

Blago's old running mate, Pat Quinn, closed down my Amazon shop this spring. At least I had a couple months warning.