CA Amazon Tax Signed Into Law
latimesblogs.latimes.com
latimesblogs.latimes.com
California has no way of charging them sales tax, nor should they, without a nexus. Imagine if you, living in CA, ordered something from a brick-and-mortar store in New York. If that store had to charge you sales tax and remit it to California, they'd simply say "no thanks" to your business. It's just not worth it for them to have to do all that work so you can get a $10 item (and so California can get their 82.5 cents).
Amazon shouldn't be treated any differently simply because they do a lot of business in the state. California knows this, so they come up with (well, Illinois came up with it) the idea that if some third party runs ads on their website for products on Amazon, that third party (an "affiliate") is actually an agent of Amazon. That's preposterous.
Amazon doesn't really have a choice, though. If they sue and lose, the entire affiliate program goes away. So they instead just drop the affiliates. They have to -- they're paying affiliates 6% of all qualified sales and paying the state 8.25%. And they are then open to audits and other nonsense from the state. It's just not worth the leads any more.
We're all futurists here except when that means losing affiliate revenue and/or no longer having a tax dodge. It's just a matter of time before there's uniformity between the online and brick and mortar worlds, and Amazon is simply seeking delay. Per Sinclair "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
Option (2) is really, really bad, especially for small businesses and startups. You don't want to all of a sudden have a successful brick and mortar spice business in New Hampshire and find out, holy cow, you're in arrears for lack of tax payments in California! That'd be a business-killer.
The process matters.
And no, Lab126/A9/their other affiliates don't count, as they are not the company selling you the product.
The affiliate program might be the strongest legal argument for in-state presence, but it's far from the only one. Apart from the subsidiaries, there's also the more than $3 billion they get from CA residents.
I think everyone here should have to disclose competing interests on this topic:
full disclosure: I work for a company (part time) that makes most of its money from Amazon affiliate revenue (but I personally am not taking Amazon's threats very seriously).
I do wonder at what point loss of sales from affiliates will cost more than collecting taxes. Apparently, Amazon thinks it's a long way out given how readily they cut ties.
They'd rather win before going to the Supreme Court but I think they'd try that route if they had to. The distraction would be worth it; this is a very, very valuable price advantage against in-state retailers like NewEgg.
The Supreme Court might find this new crop of laws, and the affiliates-as-sufficient-nexus logic, sufficient. These were crafted with the previous Supreme Court decision in mind, the one from before Internet commerce (1992) that prevented sales tax on out-of-state sellers. Or Amazon might win an updated precedent which would leave only Congress with the ability to address cross-state sales.
I'm sure that Amazon's lawyers have done a very good job at structuring things such that they meet the letter of the law, but come on -- they've been in California for years.
I'm not sure why the California legislature thought they were going to be special in this respect.
Charge a use tax on the goods, like sane states do. The trick would be incentivizing people to pay the use tax. (Oklahoma incentivizes by letting you pay estimated personal use tax. Pay a tiny, flat fraction of you income on your tax return and you are immune from use tax prosecution.)
> If anything, wouldn't this all fall under the interstate commerce powers of the Federal government?
The U.S. Congress could, if they chose, require that interstate vendors be able to collect and redistribute use tax. A standardized federally-administered database would make implementation tractable. The hard part would actually be dealing with businesses who plan to resell the goods, who are exempt from use and sales taxes.
The rest of the site pulls in about $20/mo in Adsense, which is still pretty nice, but them added together is much more interesting.
All that this is business is going to accomplish is that it will collect less tax dollars, drive jobs and businesses out of state. Thank you to big box retailers like Best Buy and Staples for driving to have this bill passed.
Too bad California :(
This is the end result of the "pro-business" crowd pushing society's tax burden into regressive taxes like sales. Sooner or later those taxes have to go where the money is.
"all the small business, affiliates (large and small) will now relocate to other states that are more friendly to their business."
No, all of them won't. Many have physical locations in their state which they earn more from then they do from Amazon.
"Too bad California :("
Maybe you missed it but it's also too bad for Amazon. Affiliates add value, 40% of their sales. Now some will relocate and some will fold but the majority will keep selling their stuff and trying to chip customers away from Amazon.
Of course they will threaten to cut fire and police to force the issue, when they have plenty of other budget expenses that can be cut first. Using fear to keep their donors in cash seems to be the current state tactic.
At some point, states needs to their expense, assign use tax (e.g. gas tax) to repair the infrastructure it is fixing and increase those taxes if they don't cover the infrastructure (or quit raiding them if they have a surplus).
PS: Depending on what the sales tax is actually taxing - it is not that bad on the poor. Going with that, "progressive" taxes aren't fair either.
PPS: I still want to know why sales tax doesn't apply from the state the item is being sold from.
http://leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/abx1_2...
I read parts of this and noticed the following exception for small retailers (<$10,000 annually), which may or may not be applicable to Amazon Affiliates (could be interpreted either way, because "retailer" includes "an entity affiliated with a retailer within the meaning of Section 1504 of the Internal Revenue Code."):
"This bill would include in the definition of a retailer engaged in business in this state any retailer entering into agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers, whether by an Internet-based link or an Internet Web site, or otherwise, to the retailer, provided the total cumulative sales price from all sales by the retailer to purchasers in this state that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and provided further that the retailer has cumulative sales of tangible personal property to purchasers in this state of over $500,000, within the preceding 12 months, except as specified. This bill would also provide that a retailer entering into specified agreements to purchase advertising is not a retailer engaged in business in this state and would define a retailer to include an entity affiliated with a retailer under federal income tax law, as specified. This bill would further provide that these provisions would not apply if the retailer can demonstrate that the referrals wold not satisfy specified United States constitutional requirements,as provided."
• Amazon has a distribution center in Irving, Texas but argued its clever legal structure freed it from having to pay sales taxes.
• The Republican Comptroller Susan Combs insisted on payment of a past tax bill, based on these operations.
• Amazon said it'd thus need to close the facility, and Republican Governor Rick Perry announced his opposition to the Comptroller's decision.
• The Republican-dominated legislature then passed a bill, similar to this California bill, further establishing Amazon's sales tax obligations, for not just the distribution center but the affiliates.
• Perry vetoed it.
• Amazon's hometown newspaper, the Seattle Times, then editorialized that it should stop dodging state sales taxes nationwide.
• The Texas legislature started working on a veto-proof way to obligate Amazon, perhaps by attaching the obligation to a larger budget bill.
• Amazon offered the legislature a bigger new distribution center, with 5000 (and then 6000) new jobs, in return for a full legislative exemption from sales taxes for the next few years.
The part-time legislature, which usually only meets every other year and (with no state income tax) takes sales taxes very seriously, has so far declined Amazon's offers.
Some of the coverage:
http://www.techflash.com/seattle/2011/02/texas-governor-back...
http://www.statesman.com/news/texas-politics/amazon-sweetens...
Elsewhere on HN, I've read Amazon's claim that they would be happy to pay sales taxes, but that dealing with all the local taxing authorities would be a nightmare. If this is true, it makes me quite sympathetic to their position.
But if I understood you right, it looks like Amazon outright attempted to bribe the legislature for special treatment which other retailers in the state don't get. I realize this kind of shit happens all the time, but that doesn't make it right.
And the Texas legislature refused to play ball. If I lived in Texas I would be standing in line to re-elect these people.
It probably doesn't make sense, from a business standpoint, for Amazon to maintain their facilities there if Texas can make them collect sales tax. So Amazon would probably save money by moving the facility. But it still costs money for them to move, which they'd rather not do.
So consider these two options:
A) Amazon is forced to collect sales tax. Amazon moves the facilities to a different state. Texas still doesn't collect sales tax, and also loses 5,000 jobs! Amazon has to pay for new facilities/relocation.
B) Amazon isn't forced to collect sales tax. Amazon stays. Texas retains the 5,000 jobs, but also gains 5,000 new jobs. Amazon doesn't have to pay to relocate.
Either way, the state isn't going to collect sales tax. So why bother enacting the law? It's really a choice between keeping or losing the jobs, not between collecting or not collecting sales tax.
Amazon recognizes this. So rather than both lose money, Amazon proposes to Texas that they invest more in their infrastructure their, create new jobs, and indirectly fund the Texas government through income and property taxes.
(It may also make sense for Texas to pursue enforcement as a way to blackmail Amazon into investing more into their state.)
Politicians would do well to recognize that their actions don't exist in a vacuum. Businesses will react to maximize profits. So even though something might on paper bring in money, it's possible that in reality it will only cost money.
"Deuell also said he was skeptical that Amazon could deliver on its promise of 5,000 jobs and $300 million in capital investments by the end of 2013.
"I don't see how in the world they can provide 5,000 jobs at distribution centers. Those operate very efficiently, with computers and mechanized things," Deuell said. "I don't want to doubt their word and their intentions; I just don't see how they bring 5,000 jobs to the state."
Texas and Amazon have been at odds over the collection of online sales taxes since last September, when Comptroller Susan Combs sent Amazon the $269 million bill, covering sales taxes it failed to collect from 2005 to 2009.
Amazon responded by saying it would close the Irving facility, eliminating 119 jobs. Amazon also said it was scrapping other plans to expand in Texas, accusing the state of having "an unfavorable regulatory climate.""
I had thought sales taxes were the darlings of the anti-tax crowd ... because, you know, they're so "fair".
But to say that the mess of the current per-state sales tax system has any relation to the FairTax is nonsensical.
This demagoguing of taxes is getting a bit old. Reagan, Ike, and Nixon would all be chased out of the party at this point. Taxes are the price we pay for living in a society.
Edit for clarification: Obviously not all taxes are good, similarly not all taxes are bad. That is my point. Life is rarely black and white. I also think tax laws should apply equally and Amazon shouldn't be given any breaks that others aren't.
Not like they used to.
According to my grandfather (now 89 years old), who was a USDA inspector at a couple of meat processing plans from the end of WWII until he retired (in the late 1980s): There used to be an independent USDA inspector in virtually every processing plant. That inspector could shutdown the entire facility if he saw fit. Now most plants are self-regulating and only get pre-scheduled spot checks by the USDA.
He was pretty upset by the change in the system and the associated decline in the safety and quality of meats.
Agreed; however, for things such as schools and roads and a police-force, this is part of how they earn their money, so when you say no to sales taxes, you're not only saying no to all of its abuses, but you're saying no to the things that actually need it.
The problem isn't with the taxes, the problem is with where the taxes go; and if we don't like where taxes are going, then we need to vote with the mind to change it, and petition our elected officials to change their spending practices.
Will it work? Probably not, sadly, and I don't know where that leaves us.
Maybe, change tax due dates from April to the 3rd week of October?
Spending priorities will change rapidly.
Very, very rarely do I find people who want no government or crippling taxes. The question, as you point out, becomes "how much is too much?"
So can we please stop describing other people's opinions in extreme ways? (I mean that for both sides)
I'm in favor of allocating a certain percentage of GDP to various governments. Say 15% to national, 5% to state, and 2% to local governments. Let the governments themselves decide how to collect it.
This does two things: it gives a real number instead of a bunch of arm-waving, and it puts government on a budget. Historical records show us that you're not getting much more than 20% out of a population anyway (and that's forgetting the Laffer curve)
You can always argue for more or less government and taxes. Both positions are perfectly fine. What's not fine is making this out to be socialism versus anarchy. It's really much more a conversation about finding compromise and being able to spend as much as you tax, instead of having politicians vote for programs nobody can afford and then pointing their fingers at the other guy when the bill comes due.
As for your question about living in a modern society, I'd argue we're paying about 20x more than we need to for these services, mainly because there's no choice involved. As governments continue to clamp down with taxes and more "help", there will be less and less choice, thereby making the multiplier even higher.
There's nothing wrong with believing that yes, we need these things, but no, this is not the way to have them. Doing the wrong thing with good intentions and a good goal is still the wrong thing. :)
That said, almost no one bothers doing so, so in theory the rate would go up. However the rate would not be the "tax rate" but instead the "rate of taxes owed which are ultimately paid".
i refuse to believe taxing out of state corporations is going to make a big difference. there's already plenty there, it's just used in the least efficient way possible. this whole thing with the affiliate programs is either a really lame money grab or good lobbying by big box stores.
Your argument also assumes that the business is a net drag on the local environment unless it charges a sales tax. But I strongly doubt that the sales tax revenue a business generates is much more than the other economic benefits it brings (e.g. jobs). This is why so many local governments are willing to provide tax credits to businesses that move or start in their districts.
Looks like there is a correlation between test scores and funding, but it's not statistically significant.
According to a review of over 400 studies, "there is not a strong or consistent relationship between student performance and school resources, at least after variations in family input are taken into account," according to a paper published in the journal Educational Evaluation and Policy Analysis.
This chart, http://www.heritage.org/static/reportimages/796DF8C7C231CFFE..., would seem to suggest while per-student education spending has doubled between 1970 and 2005, scores haven't really improved.
Do you have any evidence that increasing funding will improve results?
Pay particular attention to the McKinsey report results, which found that a teacher that is a standard deviation better than the norm adds $20k to a student's lifetime earnings. Two standard deviations gets you $32k, or $640,000 for a class of 20. Teachers' starting salaries are $39k/year in the U.S., but in educationally top performing places like South Korea and Singapore teachers earn more on average than lawyers and engineers.
However politically unpopular this idea might be (it's certainly not popular in Britain with the EU, which itself started as a common market and legislation / regulation area) the most business friendly idea seems to be centralisation. Remove competency for this sort of issue from the individual states, create common legal frameworks, allow a one-size-fits-all management model rather than having to individually cater for the requirements of Wyoming, Vermont, Alaska, North and South Dakota, Delaware and Montana. Seven jurisdictions, seven legal codes, seven sets of tax law. Yet only one has enough population that it would even qualify for the top ten cities by population and even combined they would only be twenty-second in population ranking. They're not major markets and a legal framework designed like this is unduly expensive.
http://www.amazon.com/gp/help/customer/display.html?nodeId=4... verifies this. The other three are Kansas, Kentucky, and North Dakota.
On the plus side, my orders often ship from the very city I live in.
If every state harmonised to a similar sales tax range and contributed a certain percentage of the earnings to a central pot (which is shared), then you wouldn't suffer from these problems. I know this is unpopular because people in the US tend to be strongly against tax, but it's a solution.
How can it then claim that it has no offices in California?
I worked developing for the Kindle, which is designed/engineering in Cupertino, by a company called Lab126, which is a subsidiary of Amazon. (basically Amazon pays Lab126 for technology transfer on the books, but really, internally amazon controls everything). The Parent company/legal entity of the CA subsidiaries is called A2Z.
We were instructed not to travel around, we couldn't attract recruits by saying we were working for Amazon, etc. etc. But internally Amazon was controlling pretty much everything.
"Brown announced signing eight separate pieces of that package Wednesday, though not the main spending plan itself.
The online sales tax law, AB 28 1x, would seek to force online retailers who have no physical presence in California, such as Amazon.com, to collect the same levies as bricks-and-mortar stores."
The use of "would seek to force" seems to suggest this part hasn't passed yet. So the real question is did it pass or not?