Online retail tax targeting Amazon passes in California Assembly

June 1, 2011 By Jeff Hughes

A bill that would enforce taxes on in-state sister companies of online retailers such as Amazon has passed in the California Assembly.

Amazon, Overstock and similar companies may be facing new taxes in California. The golden state has passed a bill in the Assembly which will tax retail internet sales, and now the piece of legislation is on its way to the Senate.

AB 155, which passed 47-16, is the doing of Democratic Assemblyman Charles Calderon (D-Whittier). The bill would close a loophole that proponents say gives online stores an advantage over brick-and-mortar stores such as Wal-mart, Best Buy and Barnes & Noble.

Aside from “leveling the playing field”, the bill is hoping to fill California’s coffers as well. Online retailers currently dodge the state’s use tax, which is typically collected at the time of sale. The use tax is placed on “the storage, use, or other consumption of TPP purchased out-of-state and brought into California” and is set at the same rate as the sales tax.

The problem with collecting this use tax is that federal law, set in the Quill Corp. v. North Dakota (1992) case, stipulates that a retailer needs to have a physical presence in a state in order for a use tax to be collected. Close to $1.145 billion in annual revenue is lost to California due to unreported use taxes, and much of that can be attributed to Internet sales.

Calderon’s legislation solves this problem by imposing the obligation of use tax collection on sister companies that are in California. The chief concern among the bill’s opponents is that, if it could even be enforced, AB 155 would not provide more revenue for the state since these related companies would just relocate. Amazon has already sent a letter in February that it would terminate relationships with more than 10,000 affiliates if California moved in this direction.

This bill is just the latest form of this issue, with California far from being a singular case. Illinois, New York and many other states seem to be banding together against the online retail community’s figurehead Amazon.

Showing 4 comments

Ian Bell at 8:56pm 1st June 2011 My gut reaction is to be upset with these states for enacting these taxes, but the truth is that while the business model is changing, so should the way that states and governments think about collecting these taxes. If a retailer moves to the net, then they should replace their brick and mortar tax with an internet tax. This applies to electric cars too for example. Owners currently do not have to pay a tax gas (for obvious reasons), but does that mean that these owners should also be exempt from paying for our infrastructure like all other tax payers? Absolutely not. So simply replace the gas tax that one would normally get, with a special, equivalent tax for electric car owners. Fair is fair.
1. Kelvin L. at 9:58pm 1st June 2011 Yes, it's a good thing for states to charge taxes, but when it drives businesses from the state, that will further destabilize CAs (nonexistent) financial security.
  1. Ian Bell at 10:06pm 1st June 2011 I would agree with you, we certainly would not want that to happen. So where is the middle ground? Is there any? Or will all of these businesses just be content moving to Kansas to operate?
  2. PeepingTom at 5:41am 2nd June 2011 I've got to agree with Kelvin. Since it is up to the state there will be some who will not charge taxes for online sales to get companies to move to their state. Not sure what the answer should be for the long term, but it may be short sighted for CA to make this move since it will take years for the other states to catch up.