"Amazon" Bill Waits In the Senate

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By Brian Leubitz
Calitics

Back in January, I wrote up a little ditty about Asm. Nancy Skinner's AB 153 bill to require sales taxes collection for major retailers who mostly exist online, but have sizable presences in California.  Of course, this is really directed at Amazon.com, the world's biggest internet retailer.

The good news is that the bill passed the Assembly, after a modification requiring affiliate payments of over $500,000 rather than $10,000.  The change is relatively minor, irrelevant to Amazon, but actually could end up making a difference for some growing e-businesses.

You'll not be surprised that I'm mostly interested in this for the revenue purposes.  Sure, I pay my use tax (or guess at it anyway), but to be honest, few people do this.  To get that revenue, it really has to be done at the seller's side.

And that is where this bill comes in, requiring online retailers who use so-called "affiliates" to drive them business.  Basically, these are California folks (um, like me) who drive traffic to Amazon who then get a cut of sales.  New York has already used this legislation, and it is now pending in court.  We are breaking no new ground other than in a quantitative aspect.

But there is still the other argument, which is really more compelling to a wider swath of people that the lack of taxation on internet retailers is just a blow to small businesses in the state who do have to collect their local sales taxes.  Scott Hauge, the president of Small Business California, made this point quite well in an op-ed that originally appeared in the San Jose Merc back in March:

Unfortunately, a tax loophole being exploited in our state hurts small businesses and creates a competitive disadvantage in the marketplace. Out-of-state, online-only vendors don't collect state sales taxes like brick-and-mortar stores are required to do. This loophole has given out-of-state, online-only retailers an unfair competitive advantage over retailers in our own community.  As a result, the brick-and-mortar small businesses that employ our family members, participate in our communities and are critical to our economy's recovery are operating at a loss, and jobs are at risk.

At its core, this is an issue of basic fairness. California businesses are being priced out of the marketplace because they are following the law and collecting the sales tax as required by law. All the while, online-only retail giants like Amazon.com are refusing to collect the sales tax by exploiting a loophole and passing on the liability to remit the sales tax to their consumers, many of whom have no idea the compliance burden falls on them to track and issue payment.

The result has meant that online-only retailers abusing an outdated system to get around collecting the sales tax can offer an artificially lower price. That's not fair, not right and not the way the marketplace should work. It is no way to do business in a 21st century economy.

Fortunately, our state has an opportunity to close the loophole, modernize the system and ensure small businesses are able to compete. Lawmakers can support Assembly Bill 153 by Assemblywoman Nancy Skinner that will require out-of-state, online-only retailers to comply with the same requirements to collect sales taxes that California businesses must follow. (SBCal)

In the end, I think what should ultimately happen with the internet is that there should be some sort of federal sales tax which then gets divided down to the states.  Or...you know, totally overhaul the taxation system that would allow us to rely more on progressive taxation and less on the more regressive sales taxes.  But that last hope seems rather distant at this point.

In the short-term, the Senate should quickly pass AB 153 and get it to the Governor's desk.  Amazon has threatened to cut off their California affiliates, but as they showed in New York (but not Colorado) they are a bit more cautious on the big states.  Lets get this done, both for the revenue as well as the simple fairness of requiring the same taxation for all businesses.

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Brian Leubitz publishes Calitics.com, where this piece originally appeared. He holds a law degree from the University of Texas and a Master of Public Policy (M.P.P) from the Goldman School at The University of California, Berkeley.