Amazon vs. sales tax
Despite Amazon's best efforts for a delay, California governor Jerry Brown holds firm on a new state law requiring online retailers to collect sales tax
California governor Jerry Brown at the start of a panel discussion on energy at the National Clean Energy Summit in Las Vegas. Despite Amazon's offer to open new distribution centers in California in exchange for a delay on a new sales tax law, Brown will likely let the law take effect, forcing Amazon to collect sales tax from its customers.
Julie Jacobson/AP
After threats and tough talk for most of the summer, Amazon seems to be in its battle against collecting sales tax on purchases by Californians. For months, the firm has been bankrolling a ballot initiative to reverse a new state law requiring online retailers to collect the levy. Wednesday, Godfather-like, Amazon made Governor Jerry Brown an offer it thought he couldn鈥檛 refuse: Amazon would open new distribution centers in California in exchange for a two-year delay in the law. Yesterday, the governor said . He hasn鈥檛 made a final decision but he鈥檚 signaling no. I鈥檓 sure that Amazon and its supporters will now blame Brown for costing the state 7,000 new jobs.
Here鈥檚 the back story: In June, Brown mandated collection of the tax. Sales tax collections by out-of-state sellers are governed by a legal principle called 鈥渘exus.鈥� In effect, if a business has a physical presence in a state, it must collect taxes. Amazon promptly cut ties with 10,000 California business affiliates to erase any physical presence. It refused to collect the tax and funded the campaign to repeal the law through the ballot box. This isn鈥檛 a new fight. We blogged about it last , when states started proposing laws to collect internet sales tax, and , when New York first raised the issue of Amazon paying taxes due to the presence of affiliates within the state.
Amazon offered to bring 7,000 distribution center jobs to California to avoid a ballot-box fight in exchange for a two-year moratorium on the tax. Want to guess how long the jobs stay once the freeze ends? Are 7,000 jobs worth the $200 million-a-year in sales taxes the state figures it will collect (plus another $100 million for local governments)? And would they ask for another delay or blame Brown for sacrificing these jobs? Of course, offering to set up distribution sites has already worked for Amazon in South Carolina and Tennessee.
Meanwhile, the repeal effort rolls on. Amazon has donated over $ to collect signatures, and many of the paid signature gatherers were set up in front of its . The referendum, which would repeal the law, requires 505,000 signatures of registered voters to make it onto the ballot. Given California鈥檚 record on tax votes, chances are the repeal will go through.
Amazon is bound and determined to avoid collecting sales tax to keep a price advantage over its competitors, even though in doing so it is effectively encouraging its buyers to break the law. Other e-tailers seem to have no problem calculating and collecting the tax.
What does this mean for California鈥檚 budget? It obviously doesn鈥檛 help. State revenues already appear to be coming in below projected levels, which means more budget cuts later this fall. But that might be a blog for another day.
Meanwhile, Amazon鈥檚 move may signal the end of my love affair with my Kindle. As convenient as shopping at Amazon is, I鈥檓 going to buy things from sites that charge their customers sales tax. While I did pay use taxes in California (where you report it on your income tax return) I haven鈥檛 figured out how to do the same in DC (my current residence). Amazon鈥檚 refusal to collect taxes encourages customers to avoid the taxes they owe. I鈥檒l stop feeding my Kindle because, in the end, I think a customer boycott may be the only way to get Amazon to behave.