Governor Moonbeam Signs Amazon Tax

[Conan71]

Amazon is terminating thousands of agreements with their California affiliates to avoid having to collect and remit sales tax to the state of California.  There's no doubt online retailing has been detrimental to sales tax collections for every state which has a sales tax, but here's the unintended consequences of potentially running upwards of 25,000 small businesses which may employ one person or a hundred out of business.  The short-sightedness of such laws fails to recognize that on-line selling brings millions and billions of dollars into a state from other states and from around the world.  Profits are turned into payroll and a portion of that payroll is spent in the local economy.

Yet one more reason to examine a national consumption tax much like what's laid out in the "Fair Tax" plan in order to ensure collection and distribution of sales taxes.

Personally, I see large tax grabs like this as a lazy approach to dealing with state and local solvency issues.  In doing something like this, they simply worry about pissing off one company.  If they dealt with the real problem, Asian and Hispanic voting blocs would retaliate at the polls.  California needs to quit being a dumping ground for the rest of the world's human refuse for starters.  Their education and prison systems are broke because of incredibly liberal views on immigration for far too many years.

It's going to be interesting to see how this shakes out.

"Will California's law forcing out-of-state retailers to pay sales taxes help it raise hundreds of millions in revenue? Or will it just force Amazon's affiliates out of state?

FORTUNE - California Gov. Jerry Brown on Wednesday signed the so-called "Amazon tax" into law. The measure forces out-of-state retailers (not just Amazon) to pay taxes on sales within the state. Earlier on Wednesday, Amazon (AMZN) sent notices to its affiliates in California, warning them that if the measure became law, the company would have to terminate its contracts with them because it's the affiliates' presence in the state that makes Amazon subject to the tax. Amazon has pulled similar maneuvers in other states where such taxes were imposed.

California, like other cash-strapped state governments, is flailing about for new sources of revenue. Proponents of the tax claim it will raise $317 million in revenue a year. But California should look around at other states that have tried this tactic: it usually doesn't work out so well.

A 1992 decision by the U.S. Supreme Court in Quill v. North Dakota held that online sales are not subject to taxation unless the seller has a physical presence in the jurisdiction imposing the tax. That has allowed Amazon and other retailers to undercut competition from bricks-and-mortar retailers by selling tax-free in states where it has no physical presence.

In its notice to California affiliates (technically including me, though I've never sold a thing through Amazon), the company calls the measure "unconstitutional and counterproductive." Amazon (AMZN) notes that it was "supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors."

That might be a slight mischaracterization. It's hard to imagine executives at Wal-Mart (WMT) sitting around a conference table, plotting ways to "harm" Amazon affiliates. And those companies have a point: Amazon and lots of other online retailers get to sell competing goods without having to pay the taxes the brick-and-mortar outfits must pay. That's not fair.

But fairness isn't the only consideration here. For one thing, there's that pesky Supreme Court decision. The California tax is like similar measures passed in other states in that it amounts to an end-run around that decision. Amazon might not have a physical presence in California, but its affiliates do. It's really not that simple, though, because whether through an affiliate or not, the actual transactions are between Amazon and the customer. Affiliates in the company's Associates Program simply send traffic to Amazon, and take a cut when a sale is made. In New York, only about 1.5% of Amazon's sales in that state came via affiliates before that state's "Amazon tax" was passed.

Despite the moniker, the "Amazon tax" applies to all online retailers that don't have a physical presence within California. Rebecca Madigan of the Performance Marketing Association, which opposes such taxes, says most affiliates who will be affected in fact don't work with Amazon, but with hundreds of other retailers. Some of the bigger ones include Overstock.com (OSTK) and Drugstore.com.
New York State passed its tax based on the notion that affiliates are basically storefronts for Amazon and other retailers. That measure is making its way through the courts, and Amazon is depositing the collected taxes in an escrow account until the case is settled.

In other states, such taxes have backfired, according to John Henchman of the Tax Foundation, a nonpartisan group that opposes the such taxes. Henchman has noted that tax receipts have actually fallen in Rhode Island and North Carolina as a result of the imposition of "Amazon taxes." A big affiliate, FatWallet.com, fled to Wisconsin from Illinois after the latter state imposed such a tax, he notes.

California could lose 25,000 "small businesses," according to CalWatchdog, which calls itself an "independent journalism venture," but which is backed by the libertarian Pacific Research Institute. That number comes from the Performance Marketing Association. Madigan, its executive director, told me that it includes anyone who has sold at least $25 worth of goods. So the true number of people who will lose their livelihoods is hard to pin down. But losses there will surely be."

http://tech.fortune.cnn.com/2011/06/29/california-passes-amazon-tax-amazon-pulls-plug-on-affiliates/

[Ed W]

I read in Ken Rockwell's photo blog that if the law passed, he'd have to stop providing his website free to readers.  Apparently Amazon click throughs and ads provide a substantial portion of his income from the site, and if it goes away, he'll change the terms.  In fact, there's a voluntary $10/month contribution ask on the front page now.  We'll undoubtedly see more of that in the near future.

I thought Oklahoma collected a use tax on the income tax form.  I'll have to go look that up.

[Conan71]

I read in Ken Rockwell's photo blog that if the law passed, he'd have to stop providing his website free to readers.  Apparently Amazon click throughs and ads provide a substantial portion of his income from the site, and if it goes away, he'll change the terms.  In fact, there's a voluntary $10/month contribution ask on the front page now.  We'll undoubtedly see more of that in the near future.

I thought Oklahoma collected a use tax on the income tax form.  I'll have to go look that up.

They do, I'm certain of that.  But how many people wind up reporting all their taxable purchases and what tools does OTC have to reasonably monitor and enforce proper collections on out-of-state purchases over 2+mm citizens?  Not much.  It's completely an honor system.

Again, it might be time to examine a national consumption tax and junk the current tax code.  

[guido911]

Again, it might be time to examine a national consumption tax and junk the current tax code.  

Silly conan, with a consumption task and the current tax code Nate and his folks will not be able to yell about the rich not paying their fair share.

[nathanm]

Silly conan, with a consumption task and the current tax code Nate and his folks will not be able to yell about the rich not paying their fair share.

Silly guido, making stuff up again.