CA Amazon Tax Signed Into Law

http://latimesblogs.latimes.com/california-politics/2011/06/jerry-brown-signs-laws-redevelopment-agencies-taxes-online-retailers.html

by cmod • 15 years ago

144 106 15 years ago

latimesblogs.latimes.com

phirephly3• 15 years ago

Damn. There goes my $300-$400 a month passive income... And I already report my use-tax to begin with. Guess it's time to start calling up friends out-of-state for their mailing address.

coin• 15 years ago

And CA won't be collecting income tax on your $300-400 per month (since Amazon has canceled affiliates in CA), so their tax income is actually less.

phirephly3• 15 years ago

And if I have to start filing tax returns with every state and county my small business happens to do business with (~$1000 / year business), I'll probably shut that down entirely for not being worth the bother as well.

anon_lksdwex• 15 years ago

You can also sign up for an account with a mail service like EarthClassMail for a small amount per month.

Harkins• 15 years ago

What do you run?

phirephly3• 15 years ago

A few small sites, but most of my Amazon earnings actually just come from one post: http://kennethfinnegan.blogspot.com/2011/06/so-you-want-to-b...

The rest of the site pulls in about $20/mo in Adsense, which is still pretty nice, but them added together is much more interesting.

zitterbewegung• 15 years ago

Hrm if all the states start to outlaw this will we see a tax haven somewhere being put up to absorb all of these retailers?

nostromo• 15 years ago

Well 5 states have no sales tax -- including Oregon and Delaware. And another 5 states already collect sales tax from Amazon -- including New York and Washington. So there's really no need to get fancy -- there are plenty of good options for places to locate your company.

btilly• 15 years ago

And another 5 states already collect sales tax from Amazon -- including New York and Washington.

http://www.amazon.com/gp/help/customer/display.html?nodeId=4... verifies this. The other three are Kansas, Kentucky, and North Dakota.

themal• 15 years ago

If you look to Europe, we have a sales tax in every country and yet Amazon manages to operate an affiliate service without problem.

If every state harmonised to a similar sales tax range and contributed a certain percentage of the earnings to a central pot (which is shared), then you wouldn't suffer from these problems. I know this is unpopular because people in the US tend to be strongly against tax, but it's a solution.

bennesvig• 15 years ago

This sucks for a lot of people who support their podcasts through Amazon's affiliate program.

dkokelley• 15 years ago

I wonder what authority CA claims over entities with no physical presence in the state. What I mean by that is this: if Amazon wants to ignore this, and still ships to CA residents, what recourse will the state have? If anything, wouldn't this all fall under the interstate commerce powers of the Federal government?

smallblacksun• 15 years ago

California is claiming that by having affiliates who are physically located in California , Amazon does have a physical presence in the state. If Amazon ignores it (and doesn't cancel the affiliate program in California, as they have said they will), California will sue them for unremitted taxes.

JustinJM• 15 years ago

CA affiliates (myself included) received a termination email today. :/

SoftwareMaven• 15 years ago

It is likely interstate commerce, since the affiliates don't work for Amazon, but it would also likely land Amazon in court in a large court battle. That battle may eventually get to the US Supreme Court, but I don't think Amazon wants the distraction.

I do wonder at what point loss of sales from affiliates will cost more than collecting taxes. Apparently, Amazon thinks it's a long way out given how readily they cut ties.

gojomo2• 15 years ago

Amazon would like to win this in the legislature, as they have in some states with lobbying and the pull-out threat. Or by gubernatorial vetoes, as previously in California and just a few weeks ago in Texas. Or in the courts, as they are currently challenging a similar New York law. (Amazon lost an early round; they're appealing.)

They'd rather win before going to the Supreme Court but I think they'd try that route if they had to. The distraction would be worth it; this is a very, very valuable price advantage against in-state retailers like NewEgg.

The Supreme Court might find this new crop of laws, and the affiliates-as-sufficient-nexus logic, sufficient. These were crafted with the previous Supreme Court decision in mind, the one from before Internet commerce (1992) that prevented sales tax on out-of-state sellers. Or Amazon might win an updated precedent which would leave only Congress with the ability to address cross-state sales.

dangrossman• 15 years ago

I have doubts that there is any point where loss of sales from affiliates would cost more than taxes. The main reason for Amazon to have an affiliate program is not awareness but SEO. The tens of thousands of people placing links directly to Amazon product pages are what keep Amazon at the top of search results for hundreds of thousands of product names, in turn driving much of their search traffic.

dcreemer• 15 years ago

Lab126 (which develops the Amazon Kindle) and A9 (Amazon's search technology firm) both are located in the SF Bay Area, and from the outside appear to operate as Amazon divisions. In addition, EC2 offers instances in Northern California, though I'm less familiar with their physical presence.

I'm sure that Amazon's lawyers have done a very good job at structuring things such that they meet the letter of the law, but come on -- they've been in California for years.

Daniel_Newby• 15 years ago

> ... if Amazon wants to ignore this, and still ships to CA residents, what recourse will the state have?

Charge a use tax on the goods, like sane states do. The trick would be incentivizing people to pay the use tax. (Oklahoma incentivizes by letting you pay estimated personal use tax. Pay a tiny, flat fraction of you income on your tax return and you are immune from use tax prosecution.)

> If anything, wouldn't this all fall under the interstate commerce powers of the Federal government?

The U.S. Congress could, if they chose, require that interstate vendors be able to collect and redistribute use tax. A standardized federally-administered database would make implementation tractable. The hard part would actually be dealing with businesses who plan to resell the goods, who are exempt from use and sales taxes.

adebelov• 15 years ago

this is very anti-entrepreneurial. all the small business, affiliates (large and small) will now relocate to other states that are more friendly to their business.

All that this is business is going to accomplish is that it will collect less tax dollars, drive jobs and businesses out of state. Thank you to big box retailers like Best Buy and Staples for driving to have this bill passed.

Too bad California :(

Steko• 15 years ago

"this is very anti-entrepreneurial."

This is the end result of the "pro-business" crowd pushing society's tax burden into regressive taxes like sales. Sooner or later those taxes have to go where the money is.

"all the small business, affiliates (large and small) will now relocate to other states that are more friendly to their business."

No, all of them won't. Many have physical locations in their state which they earn more from then they do from Amazon.

"Too bad California :("

Maybe you missed it but it's also too bad for Amazon. Affiliates add value, 40% of their sales. Now some will relocate and some will fold but the majority will keep selling their stuff and trying to chip customers away from Amazon.

swaits• 15 years ago

Businesses are leaving CA in droves. Amazon affiliate programs in business friendly states will prosper. Sacramento is killing this place.

protomyth3• 15 years ago

No, this is the end result of a government spending more money than its citizens are willing to pay for. California needs to seriously get its spending under control including the unfunded liabilities (e.g. public employee pensions).

Of course they will threaten to cut fire and police to force the issue, when they have plenty of other budget expenses that can be cut first. Using fear to keep their donors in cash seems to be the current state tactic.

At some point, states needs to their expense, assign use tax (e.g. gas tax) to repair the infrastructure it is fixing and increase those taxes if they don't cover the infrastructure (or quit raiding them if they have a surplus).

PS: Depending on what the sales tax is actually taxing - it is not that bad on the poor. Going with that, "progressive" taxes aren't fair either.

PPS: I still want to know why sales tax doesn't apply from the state the item is being sold from.

justinsb• 15 years ago

Does anyone know why Amazon doesn't already have to charge sales tax, by virtue of their California offices (e.g IMDB, A9 & Alexa)?

biot• 15 years ago

If they're separate legal entities, they are responsible for collecting their own sales tax on what they sell in California.

e402• 15 years ago

Because those offices aren't involved in direct sales of products from amazon.com.

xxpor• 15 years ago

And Lab126

brown9-2• 15 years ago

IIRC Amazon has a pretty complicated legal structure where each of those companies - IMDB, A9, etc - are wholly owned subsidiaries of Amazon (or some other legal entity) and not considered the same entity as Amazon.com.

tungwaiyip• 15 years ago

And A2Z, Zappos, the Kindle group. Search the job board and you will find those Amazon subsidiary job come up often. The are enjoying huge tax advantage over other retailers. You can be sure they will make every legal maneuver to work around this.

blahblahblah2• 15 years ago

Frankly, I wish Amazon would just give up the fight and go ahead and charge sales tax for all 50 states. They're the only retailer that I do any business with that doesn't charge sales tax and, because it's a PITA to remember to save every single receipt from them for tax purposes I don't do so and, therefore, I end up paying stupid use taxes which probably end up costing me more than what it would've cost me if Amazon had just collected the sales tax in the first place.

kin• 15 years ago

How do you end up paying more in taxes? A majority of my spending this year was made on Amazon and in my tax return I didn't enter a single one of those purchases as "Out of State Untaxed Purchase" so I didn't get taxed, which I think was illegal but apparently I'm not the only one who neglects to do this. In any case, all Amazon receipts can be viewed in your account history.

blahblahblah2• 15 years ago

How do I end up paying more in taxes? Because I'm aware that I undoubtedly bought something from Amazon in the past fiscal year and, therefore, in compliance with my state's laws, I check "yes" in the box and pay the flat fee for use tax. That flat fee is set at a level that reflects what the state thinks an average taxpayer owes for their "out of state untaxed" purchases, but the "average" taxpayer in their model buys more stuff than what I would ever actually buy and, thus, they charge me more in use taxes than what it would have cost me if I had just been charged sales tax in the first place. I guess it just plain never occurred to me to look up my account history and compute an exact value instead.

SamReidHughes• 15 years ago

Sales tax laws are different in all the different states. It's not like there's a lookup table matching state to tax rate. You've got different tax rates on different categories of goods, and different tax rates by county.

r00fus• 15 years ago

Amazon does the web front for Target, and this is a solved problem (it is a PITA, but not intractable).

lsc• 15 years ago

yeah. I mostly avoid going through provantage.com for similar reasons. Keeping track of what I bought for use tax is a pain in the ass, and provantage does some ridiculous "ship it from CA to Oklahoma, then back to me in CA" scheme to allow me to evade sales tax. Well, i end up paying use tax anyhow, so it just costs me extra in shipping and bookkeeping costs.

DEinspanjer• 15 years ago

I would be rather unhappy if they started charging sales tax for all 50 states. Where would the money they charge me go since I live in New Hampshire?

woobar• 15 years ago

Why do you need to save every receipt? Can't you just look up your order history on amazon.com?

e402• 15 years ago

Can someone explain the redevelopment issue?

gcb• 15 years ago

apparently the state allowed you to spend property taxes owned into building renewal if the building area qualified.

consultutah• 15 years ago

I'd be interested in buying anyone's amazon affiliate store. If you are interested, contact me privately.

newchimedes• 15 years ago

Why does legislation have to be some confusing. So I get that certain parts of the law have been signed, but what about the affiliate tax? Is that now the law. The article says

"Brown announced signing eight separate pieces of that package Wednesday, though not the main spending plan itself.

The online sales tax law, AB 28 1x, would seek to force online retailers who have no physical presence in California, such as Amazon.com, to collect the same levies as bricks-and-mortar stores."

The use of "would seek to force" seems to suggest this part hasn't passed yet. So the real question is did it pass or not?

gojomo2• 15 years ago

The battle over similar issues in Texas has also been fun:

• Amazon has a distribution center in Irving, Texas but argued its clever legal structure freed it from having to pay sales taxes.

• The Republican Comptroller Susan Combs insisted on payment of a past tax bill, based on these operations.

• Amazon said it'd thus need to close the facility, and Republican Governor Rick Perry announced his opposition to the Comptroller's decision.

• The Republican-dominated legislature then passed a bill, similar to this California bill, further establishing Amazon's sales tax obligations, for not just the distribution center but the affiliates.

• Perry vetoed it.

• Amazon's hometown newspaper, the Seattle Times, then editorialized that it should stop dodging state sales taxes nationwide.

• The Texas legislature started working on a veto-proof way to obligate Amazon, perhaps by attaching the obligation to a larger budget bill.

• Amazon offered the legislature a bigger new distribution center, with 5000 (and then 6000) new jobs, in return for a full legislative exemption from sales taxes for the next few years.

The part-time legislature, which usually only meets every other year and (with no state income tax) takes sales taxes very seriously, has so far declined Amazon's offers.

Some of the coverage:

http://www.techflash.com/seattle/2011/02/texas-governor-back...

http://www.statesman.com/news/texas-politics/amazon-sweetens...

impendia• 15 years ago

Good for Texas.

Elsewhere on HN, I've read Amazon's claim that they would be happy to pay sales taxes, but that dealing with all the local taxing authorities would be a nightmare. If this is true, it makes me quite sympathetic to their position.

But if I understood you right, it looks like Amazon outright attempted to bribe the legislature for special treatment which other retailers in the state don't get. I realize this kind of shit happens all the time, but that doesn't make it right.

And the Texas legislature refused to play ball. If I lived in Texas I would be standing in line to re-elect these people.

unshift4• 15 years ago

why? i'd rather keep the money than give it to the state. why vote for people who want to tax you more? i realize it's nice to believe in integrity but i don't think this is an example of it

mdiep• 15 years ago

I don't think that's really a fair treatment of the issue.

It probably doesn't make sense, from a business standpoint, for Amazon to maintain their facilities there if Texas can make them collect sales tax. So Amazon would probably save money by moving the facility. But it still costs money for them to move, which they'd rather not do.

So consider these two options:

A) Amazon is forced to collect sales tax. Amazon moves the facilities to a different state. Texas still doesn't collect sales tax, and also loses 5,000 jobs! Amazon has to pay for new facilities/relocation.

B) Amazon isn't forced to collect sales tax. Amazon stays. Texas retains the 5,000 jobs, but also gains 5,000 new jobs. Amazon doesn't have to pay to relocate.

Either way, the state isn't going to collect sales tax. So why bother enacting the law? It's really a choice between keeping or losing the jobs, not between collecting or not collecting sales tax.

Amazon recognizes this. So rather than both lose money, Amazon proposes to Texas that they invest more in their infrastructure their, create new jobs, and indirectly fund the Texas government through income and property taxes.

(It may also make sense for Texas to pursue enforcement as a way to blackmail Amazon into investing more into their state.)

Politicians would do well to recognize that their actions don't exist in a vacuum. Businesses will react to maximize profits. So even though something might on paper bring in money, it's possible that in reality it will only cost money.

techsupporter• 15 years ago

It appears that the measure died. The enrolled form of SB1 (the Fiscal Matters bill) that was sent to the Governor today doesn't seem to include the sales tax provision.

FilterJoe• 15 years ago

Here is the law, marked up:

http://leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/abx1_2...

I read parts of this and noticed the following exception for small retailers (<$10,000 annually), which may or may not be applicable to Amazon Affiliates (could be interpreted either way, because "retailer" includes "an entity affiliated with a retailer within the meaning of Section 1504 of the Internal Revenue Code."):

"This bill would include in the definition of a retailer engaged in business in this state any retailer entering into agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers, whether by an Internet-based link or an Internet Web site, or otherwise, to the retailer, provided the total cumulative sales price from all sales by the retailer to purchasers in this state that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and provided further that the retailer has cumulative sales of tangible personal property to purchasers in this state of over $500,000, within the preceding 12 months, except as specified. This bill would also provide that a retailer entering into specified agreements to purchase advertising is not a retailer engaged in business in this state and would define a retailer to include an entity affiliated with a retailer under federal income tax law, as specified. This bill would further provide that these provisions would not apply if the retailer can demonstrate that the referrals wold not satisfy specified United States constitutional requirements,as provided."

ajays• 15 years ago

Amazon has it's search engine A9 based in Palo Alto, CA. Amazon refers to A9 as "our search engine" in its own documentation: http://www.amazon.com/gp/xs/sharethepi.html

How can it then claim that it has no offices in California?

ardit33• 15 years ago

it is a subsidiary. Ie. Amazon pays A9 for the technology, but A9 is a separate legal entity.

I worked developing for the Kindle, which is designed/engineering in Cupertino, by a company called Lab126, which is a subsidiary of Amazon. (basically Amazon pays Lab126 for technology transfer on the books, but really, internally amazon controls everything). The Parent company/legal entity of the CA subsidiaries is called A2Z.

We were instructed not to travel around, we couldn't attract recruits by saying we were working for Amazon, etc. etc. But internally Amazon was controlling pretty much everything.

DanLivesHere2• 15 years ago

Amazon's doing the right thing here.

California has no way of charging them sales tax, nor should they, without a nexus. Imagine if you, living in CA, ordered something from a brick-and-mortar store in New York. If that store had to charge you sales tax and remit it to California, they'd simply say "no thanks" to your business. It's just not worth it for them to have to do all that work so you can get a $10 item (and so California can get their 82.5 cents).

Amazon shouldn't be treated any differently simply because they do a lot of business in the state. California knows this, so they come up with (well, Illinois came up with it) the idea that if some third party runs ads on their website for products on Amazon, that third party (an "affiliate") is actually an agent of Amazon. That's preposterous.

Amazon doesn't really have a choice, though. If they sue and lose, the entire affiliate program goes away. So they instead just drop the affiliates. They have to -- they're paying affiliates 6% of all qualified sales and paying the state 8.25%. And they are then open to audits and other nonsense from the state. It's just not worth the leads any more.

leot7• 15 years ago

You can't be serious. It's not really the affiliates that make the difference here -- it's all of Amazon's operations in CA.

We're all futurists here except when that means losing affiliate revenue and/or no longer having a tax dodge. It's just a matter of time before there's uniformity between the online and brick and mortar worlds, and Amazon is simply seeking delay. Per Sinclair "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

gergles• 15 years ago

What operations in CA? (Almost) Everything I purchase from Amazon comes from Nevada.

And no, Lab126/A9/their other affiliates don't count, as they are not the company selling you the product.

DanLivesHere2• 15 years ago

You're focusing way too much on the outcome here and not at all on the process. If you want Amazon to be taxed (which I'm fine with), it should be done federally or consistent with how every other company is treated. Amazon is being singled out here because they're so big. There are two possible paths here: (1) Amazon continues to be singled out and/or (2) Other companies also get dinged (wrongly) in this way.

Option (2) is really, really bad, especially for small businesses and startups. You don't want to all of a sudden have a successful brick and mortar spice business in New Hampshire and find out, holy cow, you're in arrears for lack of tax payments in California! That'd be a business-killer.

The process matters.

meow2• 15 years ago

I'm curious, how is Amazon selling things online different from software companies offering software and services online ? Does this law pave way in future to tax these kind of services too ? Or is it that software companies already pay a sales tax for Software...

sabat• 15 years ago

That's pretty much the end of all affiliate programs for people in CA, no?

eftpotrm2• 15 years ago

The core problem, from an outsiders' perspective, appears to be jurisdictional fragmentation. Amazon, not unreasonably, want to be able to regard the USA as a single market, yet this gives them 50 different sets of legislation and 50 tax codes under which to operate.

However politically unpopular this idea might be (it's certainly not popular in Britain with the EU, which itself started as a common market and legislation / regulation area) the most business friendly idea seems to be centralisation. Remove competency for this sort of issue from the individual states, create common legal frameworks, allow a one-size-fits-all management model rather than having to individually cater for the requirements of Wyoming, Vermont, Alaska, North and South Dakota, Delaware and Montana. Seven jurisdictions, seven legal codes, seven sets of tax law. Yet only one has enough population that it would even qualify for the top ten cities by population and even combined they would only be twenty-second in population ranking. They're not major markets and a legal framework designed like this is unduly expensive.

Symmetry• 15 years ago

Way more than 50 different tax codes (Amazon could probably deal with that), many counties and municipalities have their own laws regarding sales tax too.

camiller• 15 years ago

On top of that how would Amazon identify if I live inside Omaha 7% (state+local) sales tax, or just outside Omaha 5.5% (state only) sales tax? Nothing changed about my address between when I lived in an un-annexed suburb and after I was annexed.

AAABBB• 15 years ago

It's amazing how 90% of the people here are so incredibly ignorant that they don't know that states don't have jurisdiction over the activities of their residents and non residents in other states. This community is not very smart.

CA Amazon Tax Signed Into Law

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