California tells online retailers to start collecting sales taxes from customers

[Arrogance]

http://www.latimes.com/business/la-f...,4344787.story

By Marc Lifsher, Los Angeles Times June 30, 2011



Sacramento—


Shopping at Amazon and other major Internet stores is poised to get more expensive.

Beginning Friday, a new state law will require large out-of-state retailers to collect sales taxes on purchases that their California customers make on the Internet — a prospect eased only slightly by a 1-percentage-point drop in the tax that also takes effect at the same time.

Getting the taxes, which consumers typically don't pay to the state if online merchants don't charge them, is "a common-sense idea," said Gov. Jerry Brown who signed the legislation into law Wednesday.

The new tax collection requirement — part of budget-related legislation — is expected to raise an estimated $317 million a year in new state and local government revenue.

But those taxes may come with a price. Amazon and online retailer Overstock told thousands of California Internet marketing affiliates that they will stop paying commissions for referrals of so-called click-through customers.

That's because the new requirement applies only to online sellers based out of state that have some connection to California, such as workers, warehouses or offices here.

Both Amazon in Seattle and Overstock in Salt Lake City have told affiliates that they would have to move to another state if they wanted to continue earning commissions for referring customers.

"We oppose this bill because it is unconstitutional and counterproductive," Amazon wrote its California business partners Wednesday. Amazon has not indicated what further actions it might take to challenge the California law.

Many of about 25,000 affiliates in California, especially larger ones with dozens of employees, are likely to leave the state, said Rebecca Madigan, executive director of trade group Performance Marketing Assn. The affiliates combined paid $152 million in state income taxes last year, she pointed out.

"We have to consider it," said Loren Bendele, chief executive of Savings.com, a West Los Angeles website that links viewers to hundreds of money-saving deals. "It does not look good for our business."

The larger bite from buyers' pocketbooks will be eased only a bit because California's basic sales tax rate also will drop to 7.75% on Friday when a 2-year-old temporary increase expires. The basic rate in the city of Los Angeles falls back to 8.75%.

Brown's signature on the budget bills is aimed at closing a loophole that freed Amazon and other out-of-state retailers from collecting sales taxes for California.

Not collecting sales taxes gave Internet retailers a competitive price advantage over California's small businesses such as independent booksellers and big-box retailers with a presence in the state, including Barnes & Noble Inc., Wal-Mart Stores Best Buy Co. and Target Corp.

"You can't give one segment of retail a 10% discount every day. It's just not fair," said Bill Dombrowski, president of the California Retailers Assn., a major player in a coalition of large and small stores supporting the legislation.

California's new requirement will generate badly needed state revenue and send a signal to Congress that "we want to see a national solution" to the issue of taxing Internet sales, Dombrowski said.

California is the seventh and largest state in the country to pass a law to collect taxes on out-of-state Internet sales. Illinois, Arkansas and Connecticut acted earlier this year, North Carolina and Rhode Island in 2009 and New York in 2008. Amazon sued to overturn the New York law and lost in the lower courts. The company is paying sales taxes into an escrow account pending an appeal.

Other states currently are considering similar sales tax collection bills.

California's new law was drafted to circumventa 1992 U.S. Supreme Court ruling that sellers can't be forced to collect sales taxes unless they have a physical presence in the state.

The new statute would establish that presence in two ways: when sellers pay commissions to other Internet sites in California, known as affiliates, that refer buyers; and when sellers have a related company operating in the state.

Amazon has thousands of such affiliates in California. It also has related business operations that include Lab126 Inc. in Cupertino, which develops Kindle electronic book readers, and a Studio City office for itsInternet Movie Database unit.

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."

[draggar]

I can see the next step. You'll need to pay state taxes based on where you are, where the company is based, where the host is, and where the registrar is and if any of those are outside the USA you'llalso have to pay an import tariff. :(

[Gerry]

This is the first step leading to Amazon telling the state SCREW YOU!

This is typically followed by Amazon dropping affiliates based in that state.

---------- Post added at 01:47 PM ---------- Previous post was at 01:45 PM ----------

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."

The use of addresses of out of state affiliates is going to greatly increase and could possibly be a boon for those living in states exempt from this effort. Virginia voted such an effort down.

[Arrogance]

I know there is a budget crisis in CA but this move seems anything but a "common sense" approach. Seems eerily similar to the CARD act which on the surface appeared to "help" credit card holders but lead to banks/lenders scrambling and finding "new" ways to collect fees.

[Gerry]

I know there is a budget crisis in CA but this move seems anything but a "common sense" approach. Seems eerily similar to the CARD act which on the surface appeared to "help" credit card holders but lead to banks/lenders scrambling and finding "new" ways to collect fees.

Virginia voted down a similar measure. Losing Amazon affiliates in the State of Virginia with the attempt to collect sales tax from those that were not reporting taxable income was found to be far less income when compared to legitimately run enterprises (from a single site, mom and pop operation, mail order company) who did claim Amazon income and pay taxes on that income.

States are trying to claim that an Amazon affiliate is actually a sub-contractor of Amazon. Therefore, Amazon should be withholding state income tax and filing.

Amazon has said SCREW YOU to every state that has passed such legislation and dumped all of the individual state affiliates. North Carolina is one of those states.

States are shooting themselves in the foot over these measures by actually putting some people out of business. The end result is out of business = no taxes to pay actually leading to a more detrimental effect of a decreased tax revenue base.

[DaddyHalbucks]

In 2007, I told Rhode Island to go screw. Best move I ever made.

[Arrogance]

Virginia voted down a similar measure. Losing Amazon affiliates in the State of Virginia with the attempt to collect sales tax from those that were not reporting taxable income was found to be far less income when compared to legitimately run enterprises (from a single site, mom and pop operation, mail order company) who did claim Amazon income and pay taxes on that income.

States are trying to claim that an Amazon affiliate is actually a sub-contractor of Amazon. Therefore, Amazon should be withholding state income tax and filing.

Amazon has said SCREW YOU to every state that has passed such legislation and dumped all of the individual state affiliates. North Carolina is one of those states.

States are shooting themselves in the foot over these measures by actually putting some people out of business. The end result is out of business = no taxes to pay actually leading to a more detrimental effect of a decreased tax revenue base.

100% agree Doc. I don't see this sort of legislation having any traction in VA anytime in the future, especially with our current governor (whom I supported) and its a shame that some in CA feel this is a viable solution to cover even a fraction of the state budget crisis. In regard to the other states that have adopted the measure, NC is surprising (Arkansas to a lesser extent) and I can't imagine it holds any significant popular support

[Makis77]

Damn this looks like Greece!