California may be the next state to lose its Amazon affiliates

http://www.theunion.com/article/20110405/BREAKINGNEWS/110409893/1066

by thaumaturgy • 15 years ago

17 24 15 years ago

theunion.com

adambyrtek• 15 years ago

Am I the only one who mistook the domain name for theonion.com? :)

oconnor0• 15 years ago

No, I was wondering how The Onion was going to satirize this topic.

hsmyers• 15 years ago

"You cannot build your entire business plan on the avoidance of taxes," said Assemblyman Charles Calderon, D- Whittier, author of Assembly Bill 155 That would be 'news' to GE...

tzs• 15 years ago

GE does not build its entire business plan on tax avoidance.

GoldenMonkey• 15 years ago

0 taxes on $5B in US revenue is at least a major business strategy. 975 employees dedicated to tax avoidance.

bittermang• 15 years ago

One. GE didn't.

http://news.yahoo.com/s/ac/20110326/bs_ac/8148778_new_york_t...

Two. Amazon didn't either.

It's been the same story for ages with catalog orders, phone orders, or any other intrastate commerce. States either 1) looked the other way, because the sales weren't large enough to bother with, or 2) passed laws making the state residents responsible for tracking their sales and paying the appropriate tax, not the business.

Two things changed. The Internet became a Big Deal, and the volume of sales became large enough to get legislator's attention for how they could get their hand in to the flow of money. Then, Amazon actually started doing business inside of these states in the form of affiliate programs and warehouses. It is on these two points that the fight is being contested, which state governments claim absolves them of the long standing taxation between states issue, and makes Amazon liable for sales tax revenue.

They didn't intentionally build their model around dodging taxes. That was the law of the land. Don't like it? Change the law.

kenjackson• 15 years ago

That GE link though doesn't really dispute the gist of the NY Times story. Which is that they didn't pay any tax on their profit in the US. That link just goes and says that it pays payroll and sales tax, and tax in other countries. But never actually points out where GE pays tax on profits in the US.

UPDATE: Much better link here

http://www.propublica.org/article/setting-the-record-straigh...

GE hasn't filed their 2010 taxes yet, but appears they will have a small tax liability. How small? We probably won't know unless they tell us, according to the article (which seems odd for a public company).

thwarted• 15 years ago

Then, Amazon actually started doing business inside of these states in the form of affiliate programs and warehouses. It is on these two points that the fight is being contested

When I was involved with on-line retail, the existence of a warehouse in a state constituted having a presence in the state. We had a warehouse in NJ that we shipped from, and that was the only state we had to collect sales tax for. We delayed opening another warehouse because of the sales tax implications, but finally opened up up in NV in order to reduce shipping time and cost to the west coast. We only had to collect sales tax for those two states (I know because I wrote the code for it).

Now, from what I understand, Amazon tries to get around even that by having their warehouses owned/run by a subsidiary or other entity that is not strictly Amazon but ships Amazon's items to other states (not to the state itself, otherwise this sub-company would have to collect and pay sales tax). Strictly speaking, Amazon still doesn't have a presence in the state in terms of warehouses, so until the state laws are changed to recognize these shipping/warehousing-only companies as one and the same as Amazon, there's still no sales tax to collect on a pure existence-of-business-entity in the state in the form of a warehouse. Amazon effectively outsources their warehousing and shipping to other companies -- this is actually pretty common (along with drop-shipping) in the mailorder business because running a warehouse is an expensive, capital intensive operation.

Affiliate programs are outsourced services also, outsourced marketing (lead generation). Really, this comes down to an attempt to tax outsourced operations. Maybe a better way for the states to fight it is to change the zoning and the tax laws so that warehouses are taxed more aggressively (especially if they ship things out of state -- warehouses that ship intrastate would have to collect sales tax, warehouses that ship interstate would pay higher business or property taxes).

IANAL and IANA-Tax-Collector.

iwwr• 15 years ago

"You cannot build a state budget on onerous taxes."

Whatever happened to saving in the good years to spend in the lean years? Wait, was it all spent on bribes and political promises?

cagey• 15 years ago

> Whatever happened to saving in the good years to spend in the lean years?

Companies and families (including individuals) surely do, but has ANY government ever "saved for the lean years"?

> Wait, was it all spent on bribes and political promises?

I suspect an awful lot went (in)directly into corrupt government employees'/officials' pockets: remember Bell, CA? http://www.scpr.org/news/2011/03/24/former-bell-city-adminis...

Power (the largely unchecked ability to spend OPM) corrupts?

P.S. (from the above linked article) quick, name the party affiliation of those arraigned! I think they must be "Independents" all.

Semiapies2• 15 years ago

Well, one way or another it was blown on spending that couldn't be sustained in a downturn.

earl• 15 years ago

Amazon should be paying taxes in CA -- they have a major dev shop here [1]. a2z is right off market street in sf, and while they somehow managed to finagle their way out of being technically employed by amazon, employees there (1) receive amazon stock, (2) receive a discount on amazon purchases, (3) produce software used exclusively by amazon such as the recent online music player/locker service. As far as I can tell, that's Amazon having a presence in CA and as such, they should be collecting sales tax for the state. Not that I'm jonesing to pay sales tax...

[1] http://public.a2z.com/about.html

aphexairlines• 15 years ago

Also a search team (a9) office in palo alto.

splat• 15 years ago

I find it strange that news articles always phrase it as

"The state estimates it loses about $1.1 billion a year in revenue through uncollected "use taxes" from online sales."

rather than

"It is estimated that consumers save about $1.1 billion a year form online sales"

hugh3• 15 years ago

Isn't it, strictly speaking, tax evasion for the consumer to not pay it? If I recall correctly, my California tax return asked me how much stuff I'd bought in other states, and would I very kindly pay N% of the value of that to the state now please.

Schultzy• 15 years ago

It depends on what you mean by tax evasion. If you are referring to the legal charge that can be brought against someone, then no, it is not. If, however, you used the phrase as a general description, then sure, it may very well be, but there's nothing wrong with it.

ams6110• 15 years ago

It is estimated that consumers save about $1.1 billion a year form online sales ... which they probably spend on other (local) stuff. The state is getting their taxes either way.

sportsTAKES• 15 years ago

It's just insane. The one sector of the retail channel that's really cranking is online.

And given the many (not the occasional bad experience, the many...) that I have in shopping at brick and mortar retail, I feel little to no sense of obligation to shop locally. Either they don't have it or the service is terrible.

It seems like some government entities argue that w/o the competition of online business these brick and mortars would be thriving. In what other realm is 'less' competition a good thing?

And I don't buy for a second that it's not a level playing field. I currently live in Oregon (came from California will be moving back there again relatively soon...) where there is no sales tax and retailers still generally don't have a clue on how to manage their inventory and deliver a good customer experience.

So sales tax will do nothing to resolve the issue as it relates to local retailers.

The bottom line is that good retailers that manage their inventory and provide a great experience will thrive regardless. The bad ones won't survive either way.

And for those that are always saying they will gladly pay more taxes, I say got for it. Send your money to the government - literally nothing is stopping you. Cut and check and send to the state - they can accept those checks.

orijing• 15 years ago

I'm not going to argue whether Amazon (and other online merchants) should be forced to collect sales taxes in California, whether it's an ethical or legal responsibility, but it's definitely in California's interest to do so, and not just in the obvious way.

The obvious benefit for CA is that it can collect more sales taxes from online purchases from companies like Amazon who have historically not collected the taxes. But a less obvious benefit is that it tilts the playing field so that merchants currently based in CA are better off (relative to itself without the tax) competitively. Additionally, companies that have avoided presence/nexus in California for the sole purpose of avoiding the tax will have less disincentives for avoiding California. As a result, perhaps more companies will open branches in California, either for sales, distribution, or development; and merchants already with presence in California will do relatively better than otherwise.

I can see why California would want to push for such a tax.

thaumaturgy• 15 years ago

The problem is that it doesn't actually work out that way. The proposed bill is only expanding the requirements to cover companies with "sister companies" in California -- i.e., affiliates.

We've already seen this play out a few times. We know exactly what happens if the bill passes: Amazon cancels all of its affiliate contracts in California. California residents still do not pay taxes on Amazon purchases, Amazon no longer has any presence at all in the state, the state makes no extra money, and the competitive field is still left unchanged for local businesses.

It's a net loss for California.

California may be the next state to lose its Amazon affiliates

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