'Amazon Tax' Would Kill 25K CA Businesses
June 21, 2011
By KATY GRIMES
A growing number of states, including California, are demanding that online retailers such as Overstock and Amazon collect and pay sales tax.
eBay, the world’s largest online auction company and not necessarily a retailer, is also concerned with the bills. At first glance, eBay appears to be opposing the online taxes. But taking a closer look, it seems that the giant company is only fighting for smaller, out-of-state businesses that sell on eBay, and offering up its largest sellers to the state Board of Equalization to be required to collect the online tax.
As state budgets have declined and states are operating with huge deficits, online retailers now find themselves the targets of potential new sources of revenue. In California, there have been several attempts to squeeze more sales and use taxes out of all businesses, but now it’s the online retailers in the crosshairs of lawmakers.
eBay sellers based in California already have to collect and remit sales tax at the point of sale. But eBay is trying to exempt as many of its out-of-state sellers from having to comply with the California online sales tax bills through an amendment to one of the online tax bills, upping the sales total. The amendment would require eBay sellers to register with the Board of Equalization, and remit sales and use tax to California if they sell more than $500,000, instead of the $10,000 limit originally written into the bill.
Many opponents of online sales tax wonder why eBay doesn’t just use its size, weight and influence to kill the bills.
Amazon, on the other hand, seems to be fighting much harder. “We’re no different from other big chains of retailers,” Amazon CEO Jeff Bezos recently said. “They don’t collect sales taxes in states where they don’t have [employees], either.”
Ebay sellers currently remit taxes in states where they have physical locations, but do not remit sales and use taxes in states where they do not have a physical store.
Nationwide stores including Wal-Mart, Macy’s, Bloomingdale’s and Target have complained of Amazon’s “unfair” advantage because the online retailer rarely pays tax. But many of the large retailers only pay sales tax in states in which they have a physical presence, such as Macy’s and Bloomingdale’s.
However, Bezos has stated that Amazon would not oppose a nationwide tax on Internet sales, applied to all retailers selling in the country, instead of in just some states.
But politicians aren’t listening.
One of the online tax bills is AB 155, authored by Assemblyman Charles Calderon, which would change the definition of a “retailer” to include any group “that performs services in this state in connection with tangible personal property to be sold by the retailer.”
The bill states, “Qualifying services include, without limitation, the design and development of tangible personal property (merchandise) sold by the retailer, or the solicitation of sales of TPP on the retailer’s behalf. Imposes a sales tax on retailers for the privilege of selling TPP, absent a specific exemption. The tax is based upon the retailer’s gross receipts from TPP sales in this state.”
Calderon even included a “complementary use tax on the storage, use, or other consumption in this state of TPP purchased from any retailer.”
That about covers everything a retailer does.
However, the bill specifies that the use tax is imposed on “purchasers” — the customer.
But many businesses cannot pass along additional costs to customers, particularly during a recession, when they are happy just to keep selling merchandise.
Opponents of the Internet tax bills say that the motive behind the tax is an attempt to increase state tax revenue, as well as campaign contributions, from big-box retailers such as Walmart, Target and Home Depot. They have supported online sales taxes and complain about unfair competitive advantages by online retailers.
Mysteriously, eBay has not fought the online tax with much vigor, although the online e-commerce company does officially oppose online sales taxes. “Given the economic challenges facing small businesses and families, now is not the time to impose new tax burdens on American consumers and small business owners, or do anything to hamper the growth of e-commerce,” states eBay’s Internet Sales Tax policy paper.
California’s Board of Equilization would administer AB 155, but states “the board would incur costs to administer this bill.” The BOE says the online sales taxes wouldn’t raise much revenue either — particularly if affiliates and out-of-state retailers stop selling in California altogether, causing the loss of the existing sales tax revenue.
The BOE’s position is that the revenue impact is subject to “considerable uncertainty.” Changing the definition of a “retailer engaged in business in California may cause a delay of revenues because of anticipated litigation arising from enactment of this provision, and violation of the U.S. commerce clause.”
Amazon has already said that it will terminate its relationship with its 10,000 California affiliates should the California Legislature pass the online sales tax bills, which would put an immediate end to the $124 million in state income taxes paid by affiliates in 2009 — an amount which many say has increased since 2009.
Other Tax Bills
The other online tax bills are AB 153, referred to as a “nexus tax,” authored by Democratic Assemblywoman Nancy Skinner of Berkeley, and SB 234, authored by Democratic Sen. Loni Hancock, also of Berkeley, which enacts a “long arm” nexus.
Skinner’s bill states that small California businesses (affiliates) that advertise with out-of-state retailers would give the retailers “nexus” in California. The bill would specifically force out-of-state online retailers who use websites in the state to collect and remit California sales and use taxes.
This bill would directly target large online retailers with eBay, Amazon and Overstock, which have said they will end all advertising relationships with California affiliates should the Legislature pass the bill.
Once the affiliates are terminated, the “nexus” goes away and the state has no authority to compel retailers to collect the tax.
“If enacted as written, AB 153 could harm thousands of small Internet-enabled businesses and potentially pose a significant risk to California based marketplace companies like eBay where those small businesses sell goods to California consumers,” states an eBay opposition form, designed for sellers to print out and send to Skinner.
More than 20,000 California affiliates stand to lose their business relationships with out-of-state online retailers. Or they could have all of their California business sales charged a sales tax, rendering them non-competitive with states that do not charge sales tax.
For this reason, Performance Marketing Association Executive Director Rebecca Madigan said her association opposes Skinner’s bill. PMA represents 25,000 California small-business affiliates who earn revenue by placing advertisements for online retailers on their Web sites.
Madigan said they will be forced to move or terminate their businesses if AB153 is signed into law. “That’s 25,000 small businesses that will be lost to California’s already struggling economy,” said Madigan.
“The bill states that if someone has advertisements on California Web sites, then there is a nexus in California, and the business needs to pay taxes on all revenue collected in the state,” Madigan said.
Hancock’s bill would allow the Board of Equalization to force anyone it chooses, regardless of who they are or where they are located, to collect and remit to California sales and use taxes.
Supporters of online sales taxes claim the state will earn an additional $150 million in tax revenue. But former state senator and current Board of Equalization member George Runner says that the punitive online tax bills would cut into the $124 million in tax revenue paid last year in by small California business affiliates, and would chase the online affiliate businesses out of California forever.
Charlie Hollander, a New York diamond seller and online affiliate, does business with both Amazon and eBay. Hollander explained that the two online retailers do business a little differently. “Amazon invoices the client directly, while eBay requires the seller to invoice and collect. And Amazon pays affiliates directly, minus a commission.”
But, Hollander said, Amazon deals with American sellers, while eBay has international sellers. “How are eBay sellers going to pay taxes to all of the countries, much less to all of the American states?” he asked.
The online sales tax bills were wrapped into budget trailer bills, and passed by Democrat majority along with the budget last week.
But a new group recently formed and announced that more than 17,000 small businesses in California have written letters to their state legislators in opposition to this legislation. The Coalition to Protect Small Business Jobs urged Governor Brown to veto the Internet tax bills.