Amazon Wins Reprieve Over Charging Sales Tax
For the time being, mega-online-merchant of everything Amazon.com has gotten its way, somewhat. On Friday night, California lawmakers approved a compromise bill granting Amazon.com a one-year reprieve from charging sales tax to its customers in the state. Amazon, which has deemed the compromise bill “win-win legislation,” is to start collecting sales tax on September 15, 2012, provided there is no federal legislation passed that sets a national standard.
The original law, which went into effect July 1, required that Amazon and other e-commerce companies pay sales tax if they had offices, workers or other connections in California. Instead of paying what some dubbed the “Amazon tax,” the gigantic, Seattle-based e-tailer chose to fight it, spending $5 million to gather a half-million signatures for a referendum to take the matter to voters. The California legislature had been wary of such a referendum as it would have entailed a “noisy…campaign that the state could easily have lost,” says the New York Times. Democrats and the California Retailers Association took a stand against Amazon, which teamed up with Republicans who said attempts to collect the sale tax amounted to a tax increase.
Senate President Pro Tem Darrell Steinberg, a Democrat, dubbed the new bill, AB 155, a “classic compromise,” says the Los Angeles Times. Amazon has agreed to cease its fight against paying the tax as part of the deal. Both California’s Senate and Assembly overwhelmingly approved the bill, which now awaits the signature of Governor Jerry Brown who, though, has not yet indicated whether he will sign it or not.
Senator Richard J. Durbin, a Democrat from Illinois, has introduced a law requiring all e-commerce companies to charge sales tax but the bill has so far not gained much support. State legislatures around the country view the sales tax on e-tailers as a means to collect much-needed revenue. Indeed, the New York Times says that the state of California had hoped to collect some $200 million from Amazon and other online retailers for the current state budget; the money will now have to be scraped from other sources. New York state has a law requiring e-commerce companies to pay sales tax and Amazon is currently fighting it in the courts. In negotiations with other states — Texas and South Carolina — Amazon is holding out the prospect of opening or closing warehouses, with a prospective sales tax hanging in the balance.
Amazon had previously sold goods in California through third-party affiliates with facilities in the state but had ended those connections prior to the original bill taking effect on July 1. Amazon does currently have a physical presence in California, in the form of small subsidiaries such as a lab in Silicon Valley which does research and development on the Kindle e-reader and related products. As the New York Times points out, Amazon may well see the new legislation as a way to bide its time and even move those small subsidiaries out of California, in contrast to its statement that the new measure will enable it “to bring thousands of jobs and hundreds of millions of investment dollars to California.”
If Governor Brown does not sign the bill, and Amazon continues to call for a referendum, “its bricks-and-mortar rivals are poised to spend millions on negative advertising portraying the company as depriving the state of revenue and jobs,” says the Los Angeles Times. However, it’s still up in the air if, given the struggling economy, Californians would vote to require an online sales tax.
Should Amazon and other online retailers be required to pay a sales tax?
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