Amazon Prepares For Showdown In California After Budget Includes Amazon Tax

from the how-will-this-help-california dept

Wed, Jun 29th 2011 7:03pm — Mike Masnick

Over the past couple of years, a variety of states have tried to implement "Amazon taxes," whereby they change the definition of what counts as "presence" in a state to include if a company has any affiliates. Frankly, this is ridiculous. An affiliate is really nothing more than an advertiser, and it defies common sense to claim that an advertiser counts as a direct employee of a company. Amazon has been fighting these efforts in a variety of states, but it's about to take on a big fight. Apparently, the new California budget includes a version of this Amazon Tax, and the company wasted little time sending out an email to all California Amazon associates (such as us) to let us know that it would be "terminating" the contract unless California changed its mind.

For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by California-based marketing affiliates like you - even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective.

As we've noted before, this is an incredibly short-sighted move by the state. They think it will bring in tax revenue, when all it actually does is kill off affiliates and drives that money elsewhere, to other states. For a state that should be friendly to the internet, considering the whole "Silicon Valley" thing, you'd think the local politicians would know better.

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Filed Under: affiliates, california, taxes
Companies: amazon

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Anonymous Coward, 29 Jun 2011 @ 7:11pm

We'll get to where we're heading faster
They should pass the bill and Amazon should leave CA.
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gojomo (profile), 29 Jun 2011 @ 7:33pm

Having sales-affiliates who are under incentive payment plans (commissions as a percentage of sales) isn't an absurd basis for a tax nexus. And the relevant Supreme Court ruling came from 1992, and relied at least a little on how onerous it was, back then, to keep track of sales taxes everywhere. Now, there's practically 'An App For That'.

Amazon doesn't even like to pay sales taxes in states where it has actual physical distribution centers, which store and ship retail-purchased products, like it has in Nevada and Texas. (It uses a system of subsidiaries to try to avoid liability.)

Last year, the Texas comptroller decided Amazon owed almost $300 million in back taxes based on its in-state distribution center, kicking off a battle there with many twists and turns:

� GOP comptroller demands back-tax payment

� Amazon declares intent to leave state

� GOP governor announces opposition to GOP comptroller's decision

� Amazon's hometown newspaper, the Seattle Times, editorializes that Amazon should stop trying to dodge sales taxes in Texas and elsewhere

� Texas's GOP legislature passes bill (like the California one) establishing additional Amazon liability based on the affiliate logic � supporting and going beyond the Comptroller

� GOP governor with rumored presidential ambitions vetoes bill

� Texas GOP legislature starts working on ways to pass measure over veto

� Amazon offers Texas legislature 5000 � no, two weeks later, make that 6000! � new distribution jobs in state if they pass a multi-year Amazon-specific sales-tax exemption.

Since Texas has no income tax, they can't make up that exemption on the employees' income taxes � the sales tax is the state's main source of revenue. So far, the legislature has rejected Amazon's offer.
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SUNWARD (profile), 29 Jun 2011 @ 8:07pm

be fair
why is it brick and mortar stores need to charge sales tax but others doing business in the state don't? (yes, I know about the Supreme court decision).

It is time to allow states to charge sales tax to help balance their books. Be fair to everyone.
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Anonymous Coward, 29 Jun 2011 @ 8:09pm

Re:
You tear apart any huge corp.'s tax dodge structure and you're going to find this kind of stuff. Comcast not having to pay (state and/or local?) taxes for 15 years to build HQ in Philly comes to mind.
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Tom The Toe, 29 Jun 2011 @ 8:21pm

RE:Be Fair
Amazon is not doing business in the state and has no physical presence there. Only associates. Is the state also going to tax all ebay sales too? I doubt it. The legislature is being extreamly short sighted. In the words of Lily Tomlin,"Ninety-eight percent of the adults in this country are decent, hard-working, honest Americans. It's the other lousy two percent that get all the publicity. But then--we elected them."
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jakerome (profile), 29 Jun 2011 @ 8:27pm

Can only boot so many affiliates...
before this is no more affiliate program. California, Illinois, New York, probably Texas at some point. That's 1/3 of the country. There's also the fiction of having a wholly-owned affiliate operate their warehouses in states across the country as part of the tax dodge.
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Anonymous Coward, 29 Jun 2011 @ 8:27pm

Re: be fair
Amazon isn't the tax dodge, you are. If you buy anything online, you are responsible for reporting and paying sales tax to your state. Nevermind that in places like Illinois, its impossible without an advanced math decree to figure out the sales tax for any item.
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Anonymous Coward, 29 Jun 2011 @ 8:27pm

Re: be fair
Amazon isn't the tax dodge, you are. If you buy anything online, you are responsible for reporting and paying sales tax to your state. Nevermind that in places like Illinois, its impossible without an advanced math decree to figure out the sales tax for any item.
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Beta (profile), 29 Jun 2011 @ 8:42pm

Re: be fair
Or to put it another way, "why is it brick and mortar stores have to charge sales tax when others doing business in the state don't? It's time to abolish state sales taxes to help local businesses compete. Be fair to everyone. (For the children. Don't do drugs.)"

Here's another question: why is that people who use the word "fair" when talking about taxes always want to raise them?
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Alessar (profile), 29 Jun 2011 @ 8:46pm

Re: Re: be fair
In Michigan we can pay use tax as an estimate. Purchases above a certain amount, I think it was $1,000 this year, need to be specifically addressed. So if you buy a PC online you have to pull out your receipt and pay actual tax on it, but if you bought a bunch of assorted stuff on Amazon you can just pay an estimate. I think it added maybe $20 to my state taxes this year.
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Anonymous Coward, 29 Jun 2011 @ 8:54pm

Ok, lets play the fair bit.

When the rich and the corporations are actually paying their fair share, we'll go along with paying ours. Especially since the low end got their taxes raised but as usual the other end didn't happen...again.
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Anon, 29 Jun 2011 @ 9:04pm

Obvious
If residents of the state of California don't claim the sales tax on their returns, then they obviously don't think they should pay the tax. That is intentionally breaking the law, but the government won't go after their own voters.

If laws like these pass, what happens to all the small business that also send packages across state lines. Do they get a pass? Amazon is being targeted because of their size and the fact that it can't collect the tax from it's own residents.
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Anonymous Coward, 29 Jun 2011 @ 9:35pm

Do It Like Australia
Here in Australia, all this arguing over state sales taxes has been eliminated by the GST (Goods and Services Tax). The GST is a flat 10% on sales of goods and services. There are some tax exempt items, such as basic food, but not many. So vendors have to cope with 0% and 10% tax rate depending on item. The software looks after that automatically. Business buyers claim an input tax credit against everything they have paid GST on. Consumers do not get an input tax credit. The GST is collected by the federal government and is the same, Australia-wide. All GST revenue is earmarked for the states. There are regular federal-state conferences where the money is divided up, accompanied by the usual grandstanding.

The GST may not be perfect, but it is a huge improvement over states trying to impose their own taxes, which is plainly not working for the USA, or anybody else. Tax is a necessary evil, which should be collected as fairly and efficiently as it reasonably can be. Americans, stop wasting your money on useless infighting. Try a GST, you won't love it, just the same as we don't, but it works reasonably well.
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nasch (profile), 29 Jun 2011 @ 9:37pm

Re: be fair
Because sales tax is supposed to be about recouping costs incurred to local infrastructure. Of course any tax over time is likely to be seen by politicians as just a generic revenue stream.
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James, 29 Jun 2011 @ 9:42pm

There are some that are preparing a lawsuit over this because it's being called an "Amazon" tax. That reference implies this only applies to Amazon and no other online company making sales to CA residence. They may file shortly after Gov. Brown signs the budget.

If all goes well, the CA Gov will be forced to withdraw and rewrite, rename and re-vote in a fashion that isn't worded to imply this only applies to Amazon.
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AlwaysBreaking (profile), 29 Jun 2011 @ 9:43pm

A better tax
A better idea would be to have websites that sell stuff to Californians pay a page view tax. That would balance the budget pretty quick. And would be as easy to implement as asking Californians to declare out of state purchases on their tax returns and pay the sales tax, because we all are 100% honest with that already.
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Cam E Parking Lot, 29 Jun 2011 @ 10:31pm

Re: Can only boot so many affiliates...
I don't understand why Amazon hasn't discontinued its New York affiliates program yet, considering that NY started this whole fight.
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Anonymous Coward, 29 Jun 2011 @ 10:51pm

Re: be fair
they don't have to charge sales tax, they only have to pay it.
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gojomo (profile), 29 Jun 2011 @ 11:17pm

Re: Re: Can only boot so many affiliates...
My understanding regarding NY: Amazon is pursuing a court challenge there. While the challenge is alive (it lost at a lower level, but has been appealed), Amazon is paying New York sales taxes into an escrow account. As long as they're on the hook for sales taxes during the appeal, and hopeful of a victory, it seems they're also maintaining the affiliate program.
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Difster, 30 Jun 2011 @ 12:36am

Re: be fair
Why? Because tax money in the state goes to pay for the police, fire, roads, etc. that the brick and mortar businesses utilize. Out of state retailers derive no benefit from the taxes that are supposed to fund services to those in the state. THAT is why it makes a difference.
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Anonymous Coward, 30 Jun 2011 @ 12:39am

Re: Re: be fair
The one nice thing about living in Delaware, no sales tax
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Hephaestus (profile), 30 Jun 2011 @ 12:49am

Re: We'll get to where we're heading faster
"They should pass the bill and Amazon should leave CA."

That is a problem US politicians just never seem to get. Money is mobile, you can build a factory anywhere, and if you are an internet based company it's a data center anywhere and some tax law tricks.
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John Doe, 30 Jun 2011 @ 4:30am

Re: Re: be fair
I totally disagree here. It is illegal for states to charge sales tax on purchase made in other states. They have no right to collect on mail order purchases.
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Michial Thompson, 30 Jun 2011 @ 4:42am

Re: Re: be fair
--------------
Why? Because tax money in the state goes to pay for the police, fire, roads, etc. that the brick and mortar businesses utilize. Out of state retailers derive no benefit from the taxes that are supposed to fund services to those in the state. THAT is why it makes a difference.
--------------
But don't those who are RESPONSIBLE for paying the sales tax gain benefit from ALL of those?

Sales Tax is the responsibility of the consumer to pay, Amazon isn't arguing to prevent to consumer from paying, they are arguing to not have to COLLECT the taxes. BIG difference, the state already has the ability and the right to go after the consumer because the consumer is supposed to report and pay these taxes.

"brick and mortar" companies don't pay anything, they simply collect and forward these moneys to the state.
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ShellMG, 30 Jun 2011 @ 4:45am

Re: Do It Like Australia
There's a plan in the US called the "Fair Tax" that's being circulated. It would be a set sales tax on all first-bought goods; resales and used items would be exempt. Everyone qualifies for a "prebate" of a set amount each year so that the poor aren't impacted too harshly. The problem? Our legislature. It would initially strip them of their power and control and they'd slowly tack on special taxes and fees to get it back.

Here in MI our economy is so depressed the newest fad is "fees." There's even one city that levied a substantial "stormwater runoff fee" and used EPA regs as the dictating authority to do it. And yes, our tax structure is slowly killing us.
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Chris, 30 Jun 2011 @ 5:16am

Amazon canceled my account today. Thanks State of CA. What would I do without you?
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Brandon (profile), 30 Jun 2011 @ 5:30am

I wonder...
I wonder how long before CA coffers start complaining that Amazon pulling the affiliate program is "stealing tax money" from the state. A similar argument (over a completely different thing, cigs) was happening here in Florida when our cigarette tax was boosted. When they started noticing lower tax income from the raise of prices coffers started calling people who quit smoking "tax cheats" because it was robbing the state of projected income. Yet, a month earlier, they were saying how good this tax was because it would get people healthier when they quit smoking.

Isn't it the citizens responsibility to pay taxes legally owned to their state? Here in FL we can buy anything we want online tax free but its our *legal responsibility* to report our purchases of untaxed goods past a certain ($500?) limit. Just because you're too lazy to do this doesn't mean that everyone else has to suffer.
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Danny, 30 Jun 2011 @ 5:37am

Dang...
And I thought the Amazon nonsense was bad in NC.
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charliebrown (profile), 30 Jun 2011 @ 7:18am

You're forgetting one thing....
"For a state that should be friendly to the internet, considering the whole 'Silicon Valley' thing, you'd think the local politicians [of California] would know better."

Are you kidding? Hollywood is also in California, hence why the internet is hated there by local politicians!
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charliebrown (profile), 30 Jun 2011 @ 7:19am

Re: Do It Like Australia
As an Australian, I would have to agree: I don't like GST but, when all is said and done, it does work!
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Gwiz (profile), 30 Jun 2011 @ 7:44am

For a state that should be friendly to the internet, considering the whole "Silicon Valley" thing, you'd think the local politicians would know better.

Maybe it's just my Midwestern bumpkin view of California, but I thought most of the politicians out there were really unemployed actors doing the political thing as a part time gig. Ronnie, Arnie, Sonny, Clint, etc....
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Howeird Dstrange, 30 Jun 2011 @ 7:59am

Re: Re: be fair
Damn right and I'll continue to not pay them since our elected reps here in Oklahoma spend most of their time trying to figure out how to give the tax dollars to their rich Repub cronies. You listening Tom Coburn?
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el_segfaulto (profile), 30 Jun 2011 @ 8:17am

Re:
As a Nevada resident (and a former Texas one) I can guarantee that I have paid sales tax in Nevada and not in Texas. Personally I don't see why they should pay taxes in states where they do not have a physical presence. Without a presence, exactly which government services are they using? I sold a buffet on craigslist and didn't charge California sales tax to the gentleman that came up from Sacramento...am I liable?
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Anonymous Coward, 30 Jun 2011 @ 8:32am

Re: Re: be fair
Because someone, somewhere needs to pay for the services that you and society get from said taxes. Doesn't that seem "fair?" to you? Or do you typically take all services and goods without paying/bartering?
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JeffR, 30 Jun 2011 @ 8:58am

Re: Re: Re: be fair
Which is why they're not officially Sales Taxes, they're Usage Taxes.. which happen to look, smell, act and quack exactly like sales taxes.
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btr1701 (profile), 30 Jun 2011 @ 9:41am

Amazing
California continues its headlong descent into the abyss�

You have to wonder what goes through the heads of these guys in Sacramento. Literally as the law is being signed, Amazon completely nullified it by cutting loose 25,000 California affiliates. So they have this new law, which won�t collect a dime of revenue from Amazon, but they�ve now put 25,000 *more* people out of work, many of whom will now presumably either leave the state and take their businesses with them or go on the government dole and start draining even more government resources.

I swear to god, these people couldn�t do a better job of tanking this state�s economy if that was their actual goal.
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Anonymous Coward, 30 Jun 2011 @ 10:00am

And so we can now see clearly there is a disconnect... A sales tax is not directly related to the way that "revenue" is being put to use by the state. Perhaps this is good, perhaps it is bad, but there is clearly a disconnect that we don't see with things like toll roads. Clearly asking users to pay for the use of something avoids these types of things. What is Amazon using that California is asking them to pay for? We can't tell.
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Jerry Good, 30 Jun 2011 @ 10:33am

VAT
Time for VAT! Due away with local sales taxes.
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David Liu (profile), 30 Jun 2011 @ 11:21am

Re: Amazing
A bill nearly passed in California which would've killed the import and sales of airsoft guns (replica guns that shoot tiny plastic bbs). There are already existing laws that limit the usage of airsoft guns and ban them in public places, but the newest bill tried to ban them entirely when a dumb teenager got shot and killed when he pointed an airsoft gun at a police officer.

The ban would've killed the airsoft industry and result in the loss of countless tax revenue for the state. I swear, California lawmakers are just a bunch of idiots who do nothing but kneejerk reaction at everything.
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Anonymous Coward, 30 Jun 2011 @ 11:32am

Re: be fair
Everyone who buys from amazon in CA is required by law to make a payment of "use tax" (equal to what the sales tax would have been). There is a spot on the CA tax return to include this money. Anyone who doesn't pay these taxes is guilty of tax evasion and the CA Franchise Tax Board should go after them.
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Jordan (profile), 30 Jun 2011 @ 3:45pm

Re: Re: be fair
But those B&M stores are charging you sales tax based on their location. Not asking you where you live and pulling out a slide rule.
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Jordan (profile), 30 Jun 2011 @ 3:46pm

Re: Re: be fair
Exactly. Not require a private company in a different state to enforce your laws.

It's like Homeland Security and the MPAA in reverse.
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Tina, 30 Jun 2011 @ 6:23pm

Re: Do It Like Australia
Would love to but only if we 1st abolish the state and federal income tax I am paying @ a rate of 25% of my income. You add the property taxes ,local sales tax and state sales tax and I am paying at least 40% of my income to the state,local and federal govt.
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Beta (profile), 30 Jun 2011 @ 8:02pm

Re: Re: Re: be fair
That really is incredibly weak. Look, it works just as well the other way, maybe better: "taxes should be cut, because someone somewhere has to pay for the things bought with that money by the people who earned it."
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nasch (profile), 30 Jun 2011 @ 9:20pm

Re: Re: Re: be fair
No, it's not fair that "someone, somewhere" pay for California's services. California residents and businesses should pay for them.
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Anonymous Coward, 1 Jul 2011 @ 5:24am

Re:
This kind of thing is actually just getting more common in other states as well. Not specifically with Amazon, but states are functionally competing each other to be the state that gives companies the most stuff for free because otherwise they're not getting jobs. That Amazon is doing this, I guess, isn't a surprise and I'm glad that said GOP officials who aren't running for President are standing up to it. Especially since Texas is functionally America's India.
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Anonymous Coward, 1 Jul 2011 @ 5:27am

Re: Re: Re: be fair
How does that even work? Sales tax makes up for so much revenue that isn't taken in via income tax. Does Delaware just not have any revenues at the state level? Isn't Delware also where all the credit card companies are located? Man, the citizens there must be getting screwed.
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nasch (profile), 1 Jul 2011 @ 12:56pm

Re: Re:
Why are you glad Texas is doing this, because you're in another state and hoping the jobs will end up there?
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PRMan, 1 Aug 2011 @ 4:14pm

Re:
Sadly, they're among the better politicians in the state...
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Rose M. Welch (profile), 26 Aug 2011 @ 12:08pm

Re: Re: Re: be fair
No, he's not. Tom Coburn doesn't give a shit about you. (Or me.)
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