'Amazon Tax' Would Kill 25K CA Businesses

JUNE 21, 2011


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.

AB 155

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.

Killing Businesses

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.


Write a comment
  1. Ted Green
    Ted Green 21 June, 2011, 21:34

    Thanks for mentioning the Coalition to Protect Small Business Jobs. Today more than 19,000 letters were submitted to Governor Brown urging him to oppose any etaxation legislation that doesn’t adequately protect small businesses trying to make a go of it on the internet.

    Folks can help out by going to our website and signing up:www.ProtectSmallBusinessJobs.com.

    Reply this comment
  2. Craig Powell
    Craig Powell 22 June, 2011, 08:04

    Excellent piece. Most informative article I’ve seen on the subject. Thanks for keeping us informed of the likely consequences of these tax proposals, which our lawmakers all too often blithely ignore.

    Reply this comment
  3. Stop_The_Confiscators
    Stop_The_Confiscators 22 June, 2011, 11:09

    Looks like my business (and my tax dollars) will be heading for Texas.

    Reply this comment
  4. Laura Gadke
    Laura Gadke 22 June, 2011, 11:25

    How would these bills effect Amazon’s Kindle books sales if Amazon withdraws from the California market? I love my Kindle.

    Reply this comment
    • CalWatchdog
      CalWatchdog Author 22 June, 2011, 11:44

      Laura Gadke: That’s a good question. The state tax only would affect “affiliates,” small businesses that use Amazon.com’s marketing system. The affiliates could be fired by Amazon. The state probably would not tax Kindle or its books, if sold by Amazon itself. Except if the books were by the affiliates, they might be taxed. But who knows?

      — John Seiler

      Reply this comment
  5. david kerr
    david kerr 22 June, 2011, 21:43

    Many UPS trucks are half full of Amazon purchases. Adios high paying union jobs.

    Reply this comment
    • Guy
      Guy 29 August, 2019, 13:38

      Good point! Another fourth of them might be ma and pa Ebay sellers!

      Reply this comment
  6. Tina
    Tina 24 June, 2011, 12:24

    Yet again another liberal idiot politician who has no idea how the economy works.
    I as a consumer will just stop shopping online or elsewhere. That = no new tax revenue for the state.
    To the CA politicians:

    Reply this comment
    • LG
      LG 29 August, 2019, 13:43

      Bingo! It is becoming more and more obvious that Gavin Nuisance and the Dem, legislature must actually HATE their constituents! Love pub. unions though!

      Reply this comment
  7. Steve
    Steve 24 June, 2011, 13:39

    It seems liberals continue to play the same old worn out tune of tax & spend. It is liberal politics that has put California in this fiscal crises & the same moronic ideology that wants to continue raising taxes on the people & there businesses. How long do there idiots have to watch our citizens leave this state for greener patures elseware? “Can you say, ‘Right to Work State’ ‘No State Income Tax’ & ‘Balanced Budget Amendment”? It seems no liberal in this state can, & that is why (along with their incidious relationship to “public sector unions”) California is in the shape it is in today. Texas is looking better & better!!!

    Reply this comment
  8. Business Owner
    Business Owner 24 June, 2011, 15:24

    These ignorant politicians need to be voted out of office. A lot of businesses would need to relocate to another state, including mine.

    Reply this comment
  9. Katie
    Katie 24 June, 2011, 15:49

    I’ve read (but can’t find the article) about Texas possibly giving Amazon a 4.5-year tax break IF Amazon locates a center there.

    Governor Brown…..Assemblyman Bradford….Senator Wright….did you see that? TEXAS is willing to give Amazon a tax break to locate THERE!

    Reply this comment
  10. ONTIME
    ONTIME 24 June, 2011, 16:40

    Here again is yet another example as to why this State needs a part time legislature, a end to progressive taxation and a end to government unions. The very size of the government is driven by this cycle to grow and become unmanageable. Control of the money with a flat tax on the ballot every 10 years is voter control, part time legislature with a salary and noperks or retirement is a more honest form of government accountability and a yearly audit on every elected and appointed government servant is insurance for integrity….your choice Ca or you can live in a third world state controlled by communist.

    Reply this comment
    • LG
      LG 29 August, 2019, 13:55

      It sounds like an interesting idea. Unfortunately, I think the corruption is too embedded at this point. I PERSONALLY know many folks who have already fled to TX, NV, AZ and a few to ID!

      Reply this comment
  11. JMB
    JMB 29 June, 2011, 23:48

    This is ridiculous! Not only do I want to move out of California, I WANT TO STOP SELLING TO CALIFORNIA. How does California expect to enforce this law? My understanding of it is, that if any company sells any item online to a resident of CA they are to collect CA sales tax? There is no way for these mom and pop shops out of state to even know about the law, or have any reason to comply with the law. Who does CA think they are?!

    California continues to trample on the rights of it’s citizens with little hesitation. The politicians in Sacramento need to get their heads screwed on straight and get their heads out of their b-holes. We are taxed to DEATH in this state, and it’s unrelenting and not going away. I’m about an hour and twenty minutes from the Nevada border and it may just be worth it. Once I can sell online I can sell anywhere and I won’t sell to people in CA just so I don’t have to deal w/ their abstract, arbitrary, and unenforceable laws.

    Reply this comment
  12. JAS
    JAS 30 June, 2011, 08:57

    Just one more way to put the screws to small businesses. When is the US going to figure out that businesses are leaving the country because of high tax rates, and that taxing the remaining businesses more is a downward spiral? Great way to stimulate the economy, government greed.

    Reply this comment
  13. Courvo
    Courvo 30 June, 2011, 09:11

    If you place any value on your ability to continue doing business in California you need to “Wake Up” and relocate to another state that values your business. I moved to Texas in 2006 after 50+ years in California. The economics was simple, a 33% reduction in my COL, no state income tax, dirt cheap real estate, low business and registration fees etc. It is possible that Texas may pass a law similar to this law but what Texas wants from Amazon is new investments into Texas that creates new jobs. Otherwise remove your retail dollars from the merchants that lobbied for this law(i.e. Target, Walmart, Macys etc.). If you continue to shop these merchants, you have rewarded them for their misguided behavior.

    Reply this comment
  14. Michael Everett
    Michael Everett 27 July, 2011, 15:25

    There are around 1000 magazines published in the U.S. Amazon is just one of several online retailers that sells magazine subscriptions. The retailer or the magazine itself will have to constantly track the hundreds or thousands of separate sales taxes they must bill for subscriptions. This would no doubt drive some marginal publications out of business, but if they were excused from paying sales tax, so too should Amazon and the others.

    The LA Times, which has been vocal in its support for the taxes should set an example by charging sales tax to its out of state subscribers.

    Then there are the big New York camera stores like B&H where you can spend $15,000 on a lens. So far the advocates of the Amazon tax have been silent on the camera stores, perhaps because digital and video are part of the media and overlap into film/tv production.

    I don’t know how they would deal with Walmart which has strategically located its stores in sales tax-free Oregon across the state line from cities like Boise and Vancouver, and pretty much anywhere where a bridge across the Columbia links the states of Oregon and Washington. I guess Washington border guards could rummage through every car or truck that enters their state along with setting up customs departments in Washington airports.

    As they say, the devil’s in the details.

    Reply this comment
  15. Alan
    Alan 12 August, 2011, 09:00

    Liberals never learn. The Cali gov’t will keep creating and increasing taxes until every productive person and business has fled the state. There will be no one left but the politicians, because the mooches, bums and welfare queens will also flee to greener pastures once the social programs dry up. Then the state gov’t will sit there and complain about corporate greed or a lack of compassion or whatever the current whine-line happens to be at that time.

    Any thinking person should be able to look at Cali and realize that it’s the world’s greatest example of how NOT to run an economy.

    Reply this comment

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