Amazon Sales Tax Deal May Ring Up More School Funding Cuts
California lawmakers recently agreed to give Amazon.com, Overstock.com, and other web retailers a temporary reprieve from collecting sales taxes while they lobby the U.S. Congress for a national approach. Drafted with input from Amazon.com, this compromise would delay the State’s internet sales tax collection until September 2012. The bipartisan bill is now on Governor Jerry Brown’s desk. If signed into law, Amazon would suspend efforts to repeal California’s law at the ballot box and avoid setting a dangerous precedent. Unfortunately, California’s public school students would most likely be the ones to bear the brunt of the subsequent budget cuts.
Earlier this year, Governor Brown signed into law what many referred to as the “Amazon tax.” The new law requires online retailers with subsidiaries in California to collect sales taxes from their California customers. Governor Brown estimated that the bill would yield an additional $200M in tax revenue for the current fiscal year.
Instead of complying with the law, which took effect on July 1st, Amazon has spent millions on a signature-gathering campaign to get the issue on the June 2012 ballot, so it may kill the internet sales tax by voter referendum.
“This bipartisan, win-win legislation will allow Amazon to bring thousands of jobs and hundreds of millions of investment dollars to California, and welcome back to work tens of thousands of California-based advertising affiliates,” Paul Misener, Amazon’s vice president of global public policy, said in a statement. Brown has not definitely indicated whether he will endorse the bipartisan plan, and others are skeptical that the U.S. Congress would pass a national internet sales tax law.
If Brown does sign the compromise into law, the State will forfeit $200M in sales tax revenue, and California will be forced to pull the money from social services and most likely the public schools. If Governor Brown vetoes the bill, Amazon will march forward with its referendum push. Amazon’s brick-and-mortar rivals will likely spend millions on a counter message, as they portray the online retail giant as nothing more than a thug willing to stop at nothing to rob the State of the much needed revenue.
7:42 AM on September 17th, 2011
There is no $200 million to be lost, that money never existed. How on earth can you lose something that never existed? Amazon already pulled their subsidiaries from California so this supposed money from a new tax can not be collected. On top of that the state has already lost money due to Amazon pulling out their subsidiaries. The only thing this bill has done is lose California more jobs. Its no wonder we’re at 12.1% unemployment with thinking like this. If this state wants to increase employment and raise revenue then it needs to work with business and not against it. People need to wake up and stop listening to politicians as though they’re the financial wizards. If you have any doubts about this then look at the state’s budget.
7:50 AM on September 18th, 2011
David is correct: California’s legislators knew that the $200 million estimate was a total fabrication, and that NO new revenue would actually be generated by the “Amazon Tax.” It was just part of $4 billion of “smoke and mirrors” inserted into the budget to create the appearance of a balanced budget.
I’ve asked (again and again) for someone to identify any out-of-state retailers who began collecting sales tax as a result of an advertising-nexus tax law (“Amazon Tax”) in ANY state that enacted or even proposed the law. There are none.
Faced with the choice of terminating their performance-based advertising in a state, or collecting sales tax for the state, e-commerce retailers always choose to terminate the advertising. This is because the “Amazon Tax” law allows other companies (those without performance-based advertising programs, as well as smaller merchants exempted from the law) to continue to sell products to Californians without collecting sales tax. Faced with this unfair situation, and the prospect of lost revenue (and jobs), each merchant chooses to terminate their advertising instead of collecting California sales tax.
The result: On June 29, when Gov. Brown signed this law, I lost 26% of the advertising revenue that supports my web site (LessonIndex.com). Like thousands of other California web publishers, I will earn less income and pay less income tax this year because of the change. In the end, California will collect less revenue, not more, because this law was enacted.
Even if Gov. Brown signs AB 155, and even if Amazon resumes its advertising relationship with me, other merchants will refuse to re-establish their advertising in California.
The “Amazon Tax” has always been unwise, ineffective, and unconstitutional.
10:45 AM on September 17th, 2011
Could not have said it better myself, David. Until Congress establishes appropriate federal law, there can be no forced collection of sales tax for interstate purchases. California can pound sand, hold its breath till it turns blue and pass laws by the dozen and it will make no difference. Regulation of interstate commerce is exclusively reserved to the Congress under Article I, Section 8 of the Constitution. The people in Sacramento need to face up to this reality, stop jousting at straw-men like Amazon, and concentrate on real improvements to the unfathomably horrid business climate in this state.
2:24 PM on September 17th, 2011
I agree with both Davids. This money never belonged to the state or the schools. The schools don’t seem to be able to get by with any amount of funding, so I do not feel bad about this. There is never enough with this state because our system is so broken.
3:04 PM on September 17th, 2011
Actually both David’s are wrong. Use Tax has been on the CA books for well over a hundred years. The people who purchase items from out of state and bring them here have always owed the tax. All that the new law was trying to do was streamline collection.
6:07 PM on September 17th, 2011
Actually the use tax is irrelevant to this legislation. The purpose of this is to force the retailer to collect the sales tax which Amazon has never done in California. The only affect the legislation had was to lose affiliate jobs. Thus if it’s repealed there can be no lost of tax collected by these retailers. Yes it’s still the responsibility of the buyer to pay the tax themselves but this hasn’t changed. So if California continues down the path of forcing the out of state retailers to collect they’ll still collect nothing which will lead to lawsuits which the federal government already has established are illegal. Thus we will be left with a nice attorney’s bill from Moonbeam’s friends. We need to stop fighting business and start working with it, or continue down the path towards bankruptcy.
6:47 PM on September 17th, 2011
You miss my point. Tax has always been owed on the internet purchases. All the law is trying to do is shift the compliance from low (individuals reporting it on their 540s) to high (having the retailer collect it just like we do with bricks and mortar stores).
9:01 PM on September 17th, 2011
My point is this law isn’t going to change anything. These out of state retailers will not have to abide by it. What’s the point of passing a law which isn’t enforcable? If this legislation passes it will change nothing.
7:59 AM on September 18th, 2011
Claiming that the law “streamlines” the tax collection is inaccurate. Only a subset of out-of-state merchants are affected by the law, and thus California residents who seek to avoid the tax will shift their purchases to merchants who aren’t affected by the Amazon Tax.
As one of the 1% of Californians who report and pay use tax, I’m angry that others do not, and I strongly support measures to compel out-of-state retailers to collect sales taxes for ALL states which have them.
But the U.S. Supreme Court has ruled that without a “streamlined” multi-state sales-tax system, it’s unfair to burden businesses with complex tax computation and reporting requirements for thousands of different tax districts in 45 states.
In response, several states (including California) launched the “Streamlined Sales Tax Project” (SSTP), which is a compact between states to coordinate sales-tax collection systems to reduce the burden on business and increase compliance. California dropped out of the SSTP, but other states (including about one-third of the US population) have joined the SSTP and modified their sales tax laws accordingly.
California should rejoin the SSTP and pressure Congress to enact “enabling legislation.” Instead, California is just blowing smoke by enacting the unwise, ineffective, and unconstitutional “Amazon Tax,” knowing that it won’t collect any new revenue but will create the false impression that they’re trying to resolve sales-tax unfairness.
9:31 AM on September 18th, 2011
Nice post Mark. The intention of my somewhat inarticulate initial post was to point out to the folks that are up in arms about this that they have always owed tax on their online (in state or out of state) purchases. Because they choose not to pay the tax is their issue. The legislation is not good, but the motive of shifting collection of the tax that is already owed from the consumer to the retailer is sound.
A universal solution would be nice, but we all know the chance of getting it through our bought-and-paid-for Congress is near zero.
4:35 PM on September 17th, 2011
This is illegal and unconstitutional.
Under Article I, Section 10, it says that state governments cannot tax goods transported across state lines. States are prohibited from tariffs(taxes on imported goods).
4:36 PM on September 17th, 2011
What California is trying to do is unconstitutional and illegal.
Under Article I, Section 10, it says that state governments cannot tax goods transported across state lines. States are prohibited from tariffs(taxes on imported goods).
4:37 PM on September 17th, 2011
Sorry for double post. I’m not sure why it did that.