Gov. Jerry “Jobs Killer” Brown quickly is replacing departed adulterer Gov. Arnold Schwarzenegger as California’s second-worst governor. (Gov. Earl Warren always will be the state’s worst governor for stuffing loyal Japanese-Americans into concentration camps during World War II.)

The Mercury writes about how the “Amazon tax” Brown signed into law destroyed one small business — which is moving to Nevada:

It wasn’t the Great Recession that killed Nick Loper’s business. It was a flick of Jerry Brown’s wrist.

When the governor signed the state’s new online-sales tax law last month, Seattle-based Amazon and other out-of-state Web retailers immediately severed ties with thousands of California affiliates, arguing the move would put them beyond the reach of the state’s taxman. Among the victims: ShoesRUs, Loper’s comparison shopping website for shoes, confronting the Livermore entrepreneur with a life-changing reboot.

After six years of growing what started as a $200-a-month business into a profitable full-time gig, Loper said he had no choice but to shutter his site, suddenly deprived of 70 percent of the commissions he’d earned sending customers to the big retailers via click-through ads on his site.

Loper then made an argument I’ve been making for years. That California, supposedly the epicenter of Internet technology, should be the last place to increase taxes on anything to do with the Internet. It’s as dumb as Michigan favoring a $10-a-gallon new gas tax.

“I always figured that in California, home to Silicon Valley and a million tech startups, they’d never pass a law like this,” said Loper, 28, who’s moving to Nevada, which has no online sales tax, to run his newest online venture, ShoeSniper

Loper never figured that Californians would elect as governor a jobs-killing, business-hating Luddite — Jerry “Jobs Killer” Brown.

The Mercury also provided a concise explanation of what these affiliates do:

Loper’s site is fairly typical of those of affiliate marketers, who set up a website about fly-fishing, say, blog about the subject to draw readers in, then hope they click on an ad for FlyFishUsa, go to that site, and buy a fly reel, generating a commission of up to 20 percent for the affiliate.

Note that Loper doesn’t have any actual, physical stock that he ships. That means moving his business to Nevada means stuffing his laptop into a backpack and getting out of Dodge.

Goodbye, Mr. Loper. And good luck in your new state, whose great new governor, Brian Sandoval, likes businesses and jobs. Here’s what Sandoval did back in January, when Brown was scheming to destroy California businesses with higher taxes and regulations:

CARSON CITY — Moments after being sworn into office Monday, Gov. Brian Sandoval signed an executive order that he said will help show prospective businesses that Nevada is a business-friendly state.

“The key is getting people back to work,” said Sandoval as he signed an order suspending any new executive branch regulations until 2012.

Sandoval said he wants to show business owners considering Nevada that the state will not impose any additional regulations or costs that would dissuade them from moving here.

“The worse thing that could happen is raising taxes in our state,” he said.

In the meantime, he wants state agencies to review regulations and rescind those that harm businesses.

July 29, 2011

By JOHN SEILER

L.A. Times columnist Tim Rutten continues his tax obsession in “Amazon’s shameful California tax dodge.” He just has it in for Amazon.com. He makes a weird comparison:

At the turn of the last century, as the robber barons’ first gilded age lingered on, many Californians came to regard one powerful enterprise as the symbol of oppressive avarice and of big money’s corrupt appropriation of the political process.

That company was the Southern Pacific, whose railways kept a stranglehold on commerce and whose operatives dominated state government. The firm’s malevolent influence was the inspiration for one of California’s first literary classics, Frank Norris’ “The Octopus,” which — along with Upton Sinclair’s “The Jungle” — helped usher in a period of progressive reforms. 

Rutten ends his screed:

If Jeff Bezos, Amazon’s founder and chief executive, has a spare moment there in Seattle, he might go on his website and buy a copy of Norris’ “The Octopus.” (As a resident of Washington state, he’ll have to pay sales tax.) In any event, he might skip to the end of the first chapter and consider how it might feel to have Amazon regarded as the poet-narrator describes the Southern Pacific:

“The leviathan, with tentacles of steel clutching into the soil, the soulless Force, the iron-hearted Power, the monster, the Colossus, the Octopus.”

It’s a happy day when a columnist can show off his literary acumen. But as a journalist, he also should have done some research. Back before the Internet, research was difficult. You had to walk over to the newspaper library, find a reference book, such as one listing the top U.S. retailers, and Xerox the page.

Nowadays, things are much easier. It took less than a minute for me to Google “top retailers” and get this page.

It lists Amazon, for 2010, as the 19th biggest retailer in the USA, with $18.5 billion in sales. The biggest — no surprise — was Wal-Mart, at $307.7 billion.

So, Amazon.com’s sales are 1/17th those of Wal-Mart. If there’s an “Octopus” here, it obviously is Wal-Mart.

No doubt Amazon has sold more so far in 2011. It grew 40 percent in 2010, and probably is growing that fast this year. But it still would enjoy but a fraction of Wal-Mart’s sales.

The Biggest Octopus

Moreover, there are a lot bigger octopodes that even Wal-Mart. A century ago, governments still were pretty small. Americans lived in freedom.

Today, just for California, Amazon sold about $2 billion in 2010. California’s state budget now is $86 billion, or 43 times as big.

And as to Amazon’s $19.5 billion in U.S. sales last year, the U.S. federal budget now is $4 trillion — 205 times as big.

Rutten is upset that Amazon is using the initiative process, created a century ago by the progressives who battled Southern Pacific, to thwart the recent Amazon tax. (The tax actually hits 25,000 small “affiliates” a lot more than it does Amazon because Amazon and other companies fired their affiliates.) But until now, Amazon has had close to zero political involvement in California. It’s only involved because it was attacked by Rutten and crew.

Wal-Mart and Property Rights

By contrast, Wal-Mart long has been deeply involved in California politics. As a reporter, Rutten should know that.

I’ve written about Wal-Mart’s actions for years, especially during my 19 years as an editorial writer at The Orange County Register. Sometimes I have defended Wal-Mart, as when unions have thwarted its expansion plans because the company mostly is non-union.

But I’ve also attacked Wal-Mart when it has used its immense powers to manipulate local governments to abuse eminent domain and other political tricks to its advantage. My principle is simple: the same property rights for everybody. Wal-Mart should not use its clout to trample on the little guys’ property rights. But powerful unions shouldn’t revoke Wal-Mart’s property rights.

Rutten also is upset that federal laws and court decisions prevent sales taxes being grabbed across state lines, unless a company has a “nexus” — a physical location — in the taxing state. He says this means California loses $2 billion in tax revenue a year.

The number is dubious because, if inter-state sales taxation were allowed in the United States, then shipments from California to other states would be taxed more often, reducing the sales of our companies. But Rutten thinks statically, not dynamically. He’s living in a 1993, pre-Internet world.

Commerce Clause

But he should have noted that the law and court decisions are firmly grounded in the “Commerce Clause” of the U.S. Constitution, which was designed to prevent the states from erecting protectionist borders against each other. The Founding Fathers saw how Europe’s numerous small states attacked one another with protectionist barriers, and wanted to prevent similar battles here. That’s one part of the Constitution that has worked well, and has been a foundation of our national prosperity.

He also should have noted that, with Republicans in charge of the U.S. House of Representatives until at least 2015, there’s no chance they would pass a law allowing inter-state taxing of sales. And even Democrats, when they ran all of Congress from 2007-2010, didn’t dare allow that tax increase.

Moreover, the  five states with no sales tax are represented in the U.S. Senate by eight Democrats and just two Republicans. Those eight Democrats — including Sen. Max Baucas of Montana, chairman of the powerful Senate Finance Committee — would join with all 47 Republicans in the Senate to block any change in tax law that could potentially slam their states.

As to the Amazon initiative here in California, it’s not a sure thing anyway — something “Octopus” Rutten should have pointed out. Two-thirds of initiatives fail. Powerful opponents of an Amazon initiative would include Wal-Mart and other major retailers, the L.A. Times and other liberal newspapers and the state’s powerful government-worker unions — always salivating like Pavlov’s dog for more of our tax money.

On Amazon’s side is its good image and the convenient service it has provided to millions of Californians, anti-tax groups, the vast majority of those 25,000 fired affiliates who would want their livelihoods back — as well as the negative image voters have of Gov. Jerry “Jobs Killer” Brown, the greedy unions, the state Legislature and government in general.

Voters — over-taxed, over-regulated and under-employed — are in a foul mood. They’re starting to understand that government, the real deadly octopus, is not their friend, but their enemy. And that raising taxes only feeds the octopus.

Finally, Rutten says Bezos should go to the Amazon.com site and buy a copy of “The Octopus”: “As a resident of Washington state, he’ll have to pay sales tax.” That’s more defective research. Amazon.com offers a free copy, on which no sales tax is charged anywhere — for now.

What do California-based companies Adobe Systems, eBay, Electronic Arts, Oracle and Twitter have in common? All have expanded over the past two years not in the Golden State, but in neighboring Utah.

Utah Gov. Gary Herbert makes no apologies for pursuing California companies. “We are lowering taxes and making the state business friendly,” he told Forbes magazine, “while California is doing the opposite with higher taxes and regulations that are nonsensical.”

The flight of five of California’s best known tech companies is not an aberration, according to Joseph Vranich, an Irvine-based business relocation expert. Companies are “disinvesting” in California at a rate five times greater than two years ago, he estimates.

That includes companies leaving the state altogether, establishing divisions elsewhere or choosing not to set up operations within California.

“California is such fertile ground, ” Vranich relates, “that representatives for economic development agencies are visiting companies to dissect our high taxes, extreme regulatory environment and other expenses to show annual savings of between 20 and 40 percent after an out-of-state move.”

The disinvestment trend Vranich identifies has risen to a level where it has gotten the attention of high-level state officials. Indeed, Lt. Gov. Gavin Newsom, chair of the state’s Economic Development Commission, currently is developing a plan to address California’s unfriendly business climate, which he will unveil by month’s end.

“California has got to get its act together,” he said this week, “when it comes to economic development and job creation.” Toward that end, he added, the state will establish a new agency later this year devoted to those purposes.

But what can Newsom do, what can a new agency accomplish, when lawmakers in Sacramento continue to enact legislation that raises the cost of doing business in California far beyond competing states like Utah?

The ‘Amazon Tax’

Just last month, for instance, Gov. Jerry Brown signed a state budget that forces online retailers to collect California sales taxes by expanding the definition of having a physical presence within the state.

Previously, “physical presence” meant bricks and mortar. It applied to retailers with actual (rather than virtual) stores that customers could visit in some shopping center or another.

Now, if a retailer even has affiliates in the state — individuals or companies it contracts with to steer prospective customers to its web site — the Franchise Tax Board considers that a physical presence subject to taxation.

The immediate result of California’s new law is that Amazon.com, one of the nation’s leading online retailers, severed ties with thousands of affiliates it had here in the Golden State, business partners that earned commissions of as much as 15 percent of each sale they brought to Amazon.

That is but one example of the kind of laws California has added to its books that are driving California businesses to states that don’t impose the higher taxes and nonsensical regulations to which Utah Gov. Herbert referred.

Jobs Killer Bills

Even now, the California Chamber of Commerce is tracking dozens of what it refers to as “job killer” bills, proposed legislation that threatens to hurt the state’s job climate and hamper its economic recovery.

Among the job killers are measures that would mandate an automatic annual increase in the state minimum wage, authorize the state’s 58 counties and more than 1,000 school districts to impose or increase taxes on products and services (subject to voter approval), ban food vendors from using polystyrene foam food service containers and eliminate the right of businesses to appeal court orders denying or dismissing petitions to compel arbitration.

Those measures would mean higher labor costs, higher local taxes, the elimination of manufacturing jobs and more in-court cases (rather than less costly out-of-court mediation).

And while most of the several dozen bills deemed unfriendly to the state’s business community will not be enacted this year, some will. And many, if not most, of those that fail this year will be reintroduced in the Legislature next year.

All of this plays right into the hands of Gov. Herbert of Utah, and officials in such states as Arizona, Nevada, Colorado and Texas, all of which are poaching overtaxed over-regulated California businesses.

The Golden State’s loss is their gain.

— Joseph Perkins

By JOHN SEILER

Amazon.com didn’t waste time in working to repeal the so-called “Amazon” tax. The tax was passed last month by the Democratic-controlled Legislature and signed into law by Democratic Gov. Jerry Brown. The tax is supposed to raise $200 million a year.

But Republicans, in particular Board of Equalization member George Runner, pointed out that the tax would kill thousands of businesses, which then would stop paying income, sales, property and other taxes. Effectively, it’s a negative tax — destroying more revenue than it brings in.

In my article on the Amazon tax — which is what Democratic staffers in the Capitol call it, even though it also affects many more companies — I wrote about my friend Gary Metz, an Amazon affiliate. Along with 10,000 other affiliates, after the tax was imposed Amazon “fired” him. Another 15,000 affiliates were “fired” by out-of-state companies other than Amazon.

Metz just forwarded to me the letter Amazon is sending fired affiliates like him. It reads (boldface in original):

Comment on California Jobs Referendum from Paul Misener, vice president, Amazon Global Public Policy

This is a referendum on jobs and investment in California. We support this referendum against the recent sales tax legislation because, with unemployment at well over 11 percent, Californians deserve a voice and a choice about jobs, investment and the state’s economic future.

At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away. Amazon looks forward to working again with tens of thousands of small business affiliates in California that were harmed by the new law’s effect on hundreds of out-of-state retailers.

As Governor Brown has made clear, it is important to directly involve the citizens of California in key issues and we believe that Californians will want to vote to protect small business and keep jobs in the state.

Amazon’s Strategy

Amazon obviously is not a dumb company. It’s being polite toward Gov. Jerry Brown, even though he has attacked the company.

Amazon is located in Washington State, where initiatives and referendums also are common, and decide major issues. So Amazon knows how the process works — although California’s process, of course, is a little different from Washington’s.

Amazon has a ready-made anti-tax constituency: those 10,000 fired affiliates. It has their emails. It easily could get their testimonies for TV ads boosting an initiative.

Moreover, Amazon knows that the whole country, even California, is in a foul, anti-government, anti-tax mood. Governments at all levels — federal, state and local — are badly managed, have spent and borrowed way too much, and now are seeking to put the thumb screws to taxpayers once again.

It’s true that, in California in November 2010, that anti-government, anti-tax sentiment was severely diluted. The Tea Party anti-tax movement hardly made a wave here. Democrats, after the election, said California’s “firewall” stopped the Tea Partiers at the state border.

But eight months is a long time in American politics. Last November, anti-tax activists here were handicapped because the sitting Republican governor, Arnold Schwarzenegger, had increased taxes. And the Republican candidate to replace him, Meg Whitman, ran one of the worst campaigns ever.

All that’s in the past. Arnold has become an object of ridicule for treating his marriage vows as seriously as he did his vows to Californians that he never would raise taxes. His 2009 tax increases were supposed to solve the state’s perennial budget shortfall. They didn’t.

And this year, unlike in 2009 when four members defected to the pro-tax side, Republicans in the Legislature stood solid against tax increases. Where Arnold could seduce some of them to stray, Jerry Brown couldn’t.

Next Year

The Associated Press reported on Amazon’s plans for next year:

A petition for a referendum was filed Friday with the state Attorney General’s Office so that voters can decide on the requirement, which was included in a state budget signed into law in late June.

Supporters must now gather around 434,000 signatures to qualify it for the ballot, according to the state Attorney General. A vote could occur during the next statewide election in June 2012.

The big battle will be between Amazon and the big-box stores that favored the Amazon tax, especially Walmart and Target. The big-box stores say that it’s unfair for Amazon to avoid the California state sales tax, effectively giving Amazon an 8 percentage-point advantage in pricing.

But these big-box stores themselves manipulate the government. They sometimes use eminent domain and redevelopment to get sweetheart property deals. And I remember how Walmart, a decade ago, manipulated the Huntington Beach City Council to get a 75-year lease on an unused school property — which included a clause that Walmart could opt out any time it wanted, but the city and school district were locked in.

And Walmart complains when unions manipulate the government to stop new openings of Walmart stores because the company mostly is not unionized. But when it comes to using California’s government to clobber an out-of-state rival, Walmart is all for that.

Amazon’s TV ads for the initiative no doubt will feature victimized affiliates. They’ll be Mom and Pop types whose livelihoods were destroyed by Gov. Brown’s new tax.

Walmart and the other big-box stores will fund ad campaigns talking about “fairness” and how state needs the tax money to fund schools, roads, police, firemen, etc.

This is a tough one to call. About two-thirds of statewide initiatives fail in California. But I think this one likely will win because there’s been a lot of buzz on the issue. Here at CalWatchDog.com, our articles on the Amazon tax have gotten a record number of comments from readers.

Even though most people aren’t affiliates, millions of Californians do buy from Amazon, and like the company. And today’s anti-tax mood will be even stronger next year.

Finally, if Amazon really wanted to play hardball, it could start a movement to recall Gov. Brown. Put that on a June ballot with an Amazon tax cut, and the fireworks really would begin.

recall

The “Amazon” tax imposed Gov. Jerry “Jobs Killer” Brown and the Democratic Legislature, at the behest of the government unions that control them, already is killing scores of California businesses. Reports Jan Norman of the Orange County Register:

Thousands of small-business owners — not to mention schools and nonprofits — are scrambling to figure out how much revenue they’ll lose as hundreds of online retailers cancel their affiliate programs in response to California’s new Internet sales tax law.

Note that it isn’t really Amazon that’s being hurt here, even though everybody calls it the “Amazon tax,” including Democratic staffers I talked to in the Legislature. It’s the little Mom and Pop stores that are being destroyed.

Killing Charities

Also note that charities also are hurt. Your local soup kitchen might put up a link on its Web site to some products on Amazon. When folks buy those products, the soup kitchen gets an affiliate commission. Now, they won’t get that money.

So, the poor will have to depend even more on government, adding another expense to the state budget.

Norman also provides the best description I’ve seen of how things work with these little affiliates — the Mom and Pops and the charities “Jobs Killer” Brown destroyed:

Here’s how it works: Let’s say you are a California resident with a website. You don’t even sell anything online. But you sign up to be an affiliate of  a retailer and put a  link to that retailer’s e-commerce site on your own website.

If a visitor to your site clicks on that link and buys something, the retailer pays you a small commission.

If the online retailer has a physical presence in California — such as Walmart or Target, which have been supporters of the new law — it must charge California sales tax from California buyers.

But many of these online retailers have no physical presence (stores, warehouses, headquarters etc.) in California. And they have not been collecting California sales tax.

Understand that retailers don’t pay sales tax. They collect it for the state or local government entity.

So, let’s say your little Mom and Pop book review site links its reviews to the books sold on Amazon. The purchaser might be in Massachusetts. And the book bought might be shipped from Nevada. The actual physical object — the book — never even comes to California.

But because the Mom and Pop store is located in Taxifornia, and electrons pass into and out of their business computer, that’s considered a “nexus,” that is, a physical presence of Amazon — or some other store — in California. How absurd.

Norman cites a couple of victims:

Tom Messick, owner of employeemall.com in Yorba Linda, provides employee discount programs for hundreds of companies nationwide. He has affiliate relationships with 300 companies that pay him a commission when employees use their products or services, such as yoga. He estimates the revenue is about 25 percent of his business.

Amazon is not one of the companies Messick is affiliated with. But to date, 15 of these companies have terminated their affiliate programs with Messick and other California firms “and the notices are coming in on a daily basis,” he said.

Amazon wasn’t even a player in “Jobs Killer” Brown’s attack on Messick’s business.

“It’s not so much the loss of revenue,” Messick said. “What bother me is having a competitive disadvantage with companies in other states that provide employee discounts.”

SurfMyAds.com in Santa Monica will be hit even harder. The company operates an international network of shopping sites such as PromotionalCodes.com, CouponWinner.com, myShoes.com and Coupons.ca. Affiliate commissions are the company’s primary source of revenue.

“So far we have received termination notifications from just over 100 of our merchant partners,” said Alexis Caldwell, director of affiliate and partner marketing. “However, we expect this number to increase over the coming weeks as more merchants receive word from their legal teams that they must sever their ties with California affiliates.”

Ebates in San Francisco is another online shopping site that has an active affiliates program. It has received more than 60 termination notices from online retailers. “We will see what the impacts are on our business over the coming weeks,” said Ebates official Rob Smahl. “If we cannot restructure our working relationships with the retailers who terminated their affiliate programs, then we will consider all options as necessary up to moving out of state.”

Loren Bendele, CEO at Savings.com in Los Angeles, said, “Essentially this is a California small business tax, so ultimately it hurts businesses like ours. When Illinois passed this law, all the major players in our industry moved out of the state. I’m afraid this will have a similar impact on California and cause the tech industry to migrate to other states.”

‘Nexus’ Absurdity

It’s also absurd for “Jobs Killer” Brown and the Democrats and unions to believe the Amazon tax will bring in $200 million a year. It’ll easily kill that much more in tax revenue the Mom and Pops used to pay in income, sales and property taxes. But we probably won’t have real data on the cost until next year.

And keep this in mind the next time “Jobs Killer” Brown, the Democrats and the unions say we need higher taxes to help the poor. But they just killed the affiliate program money that private charities used to help the poor.

July 10, 2011

Note: If you were fired as an Amazon affiliate, please email me your story to be included in a future article: writejohnseiler@gmail.com

JULY 1, 2011

By JOHN SEILER

“I was fired today,” my friend Gary Metz wrote me just after Amazon.com notified him on Thursday of the action. Amazon fired him right after Gov. Jerry Brown signed into law the new “Amazon tax,” as it was widely referred to on Capitol Hill, although it affects other companies as well.

Metz’s main job is as a network engineer in Southern California, “helping people with Websites and businesses.” But for several years now he has supplemented his income by about $100 a month through Amazon.

“For me, it was additional income,” Metz told me. “So it wasn’t that big a deal personally. For anybody who is making a living on the Internet, and there are a growing number of people in California who are dong that, this is disastrous. If you want to put those people out of work, too, that’ll do it.”

Metz said he operated a Website and blog on foreign policy, Regime Change in Iran. If you check out the site, you’ll notice that on the right side he lists some foreign policy books. If someone clicked on one and bought it through Amazon, he would get a portion of the sale.

“It was nice additional income,” Metz said. “There are probably thousands of people in California for whom it’s important supplemental income. And for other people, this is how they make their living. For those people, this will force them to either act like they’re in another state somehow, or actualy physically move.”

Or go broke, go in welfare and apply for food stamps and Medi-Cal, thus costing the taxpayers money, whereas before they were taxpayers themselves.

“These kinds of laws will destroy one of the few areas where our economy is growing and is strong,” Metz observed. “So they make a few dollars on some taxes. At the same time they drive the businesses out of business. They destroy the means to make money, which would be spent in the local economy.”

I hope the Legislative Analyst does a study of the Amazon tax. Because it’s clearly a negative tax — it reduces taxes at a higher rate than it collects them. The businesses destroyed will not be paying income, sales and property taxes in California. That amount will be more than that “collected” under the new tax.

Destroying businesses is insane in a state still suffering 11.7 percent unemployment. But, alas, par for the course under Gov. Jerry “Jobs Killer” Brown.

Businesses Destroyed

Katy Grimes’ article on CalWatchDog.com, “Brown Signs Punitive Amazon Tax,” also has drawn comments from Californians whose livelihoods he has destroyed with the stroke of a blood-filled pen.

These are all the “little people,” the Mom and Pop businesses that keep the state going. But Jerry “Jobs Killer” Brown doesn’t care about them. Bill Clinton used to say, “I feel your pain.”

Jerry Brown screams: “I inflict your pain.”

Soquel by the Creek wrote:

I’m a fourth-generation native Californian, a former Amazon Affiliate, and I fully support Amazon’s position in the matter. Amazon did far more for my small business than the state of California ever has, especially for the privilege of spending an additional $800 annually on California corporate taxes.

I fully expect that the California law will eventually end up in the Supreme Court, at taxpayer expense our course. Only the United States Congress has the authority to regulate interstate commerce, not the California Legislature.

The state will never collect their projected revenues from this flawed policy.

For anyone in the “producing class”, California is a high tax state already. California ranks near the bottom on general business climate and in business tax climate. It should come as no surprise that California also enjoys the nation’s 2nd highest unemployment rate.

Casey wrote:

By the time I gave up for the night, I was down by 94 merchants, one of which was Amazon. I don’t blame Amazon or any of my out-of-state merchants for the decision to distance themselves from us here in California.

I’ve said this elsewhere and I’ll say it here: These tax nexus laws make as much sense as removing a car engine to improve gas mileage. Yes, the mileage will be vastly improved (on paper) but you’re not going to get very far very fast.

I want my engine back.

Rexanne wrote:

I was born and have lived in Southern California most of my life. This law has just destroyed my small business that is the only means of support for myself and 2 children and one that has taken me 12 years to build into a viable means of income.

The state of California will not see ANY money from this law. Merchants are simply dropping their CA affiliates so there is no “nexus” (presumption of physical location) and they will therefore not have to pay this unconstitutional interstate tax (taxation without representation).

The budget that Gerry Brown signed is in no way “balanced” and those who created it and stuffed it on the CA people (including Governor Brown who signed and validated it) are now getting their paychecks again. Meanwhile 25 thousand CA businesses are suffering and losing money that would be taxed and spent in the state.

This is not only a blow to California affiliate marketers but a blow to the people of California.

Amy wrote:

I didn’t spend today being productive. Instead we read 100s of e-mails from stores around the country. They are terminating their relationships with us. We had to figure out how to deal with the situation.

When we discovered that most of them made the terminations effective immediately, we had to scramble to get them off of our sites. It’s almost 9pm and we are not done.

I expect that there will be more tomorrow and that they will trickle in through next week.

We won’t be generating income from these stores anymore. Someone in another state will and that state will collect income tax. California won’t get the income tax from those sales.

Oh, and California won’t be receiving sales tax collections from these stores either. Just lost income for the state and its residents.

If you think that people should pay sales tax on what they buy no matter where they buy it, you’re right. That’s the law. Unfortunately this bill won’t make that happen and just hurts businesses like mine.

Amy added later:

And in case anyone thinks that we are going to any satisfaction by being able to say “I told you so” to the legislators and governor, it won’t. It still sucks that we have to go through this even though we knew that our businesses would be devastated by the passage of this law and spent over TWO YEARS telling the legislators and their staffs exactly what would happen.

Today is the day, ladies and gentlemen of the California State Legislature… you ordered this up. Where is your $150 million that the lobbyists for the unions and big box stores promised? Oh yeah, you trusted Walmart when its lobbyist told you that this was about Main Street fairness. Did you bother to see what Walmart did to Main Streets across the country?!?

It’s not too late to repeal this bill. Once our businesses move out of state or close, then it’s too late.

If you want to see what it looks like when affiliate publishers move states, watch this video:http://www.youtube.com/watch?v=ckP0HWl_w3c

Amy again:

It’s almost midnight and I’m not done yet but I can’t look at this screen anymore. It’s just too depressing. The dead stores on our sites will have to stay there a little longer.

With the economy down, is there anything else that the California Legislature wants to put in the way of our small business having any chance of success? Isn’t California where the tech revolution is supposed to be? Shouldn’t our governement be HELPING, not HURTING internet startups?

The state will collect more from the success of Facebook, LinkedIn, Pandora, Twitter, etc. than it could ever hope for from this bill. How about some perspective people?!? HELP the people who are generating income tax revenue and jobs!!!

Amy’s final word:

One last thing that I just noticed… we lost partnerships today that we have had for TEN YEARS!!! We have had good working relationships with many of these companies and worked closely with them.

This is so sad.

Here’s the YouTube Amy linked to, about affiliates leaving Illinois after it imposed an “Amazon tax”:

.

.

Amazon Firing Letter

And here’s the letter Amazon sent to Gary Metz and other affiliates:

Hello,

Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule.

You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect your ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

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Regards,

The Amazon Associates Team

Our Katy Grimes first wrote a story, two days ago, about how the tax-ravenous Legislature’s attempt to tax Amazon, a company based in Washington state, also would slam eBay, which is located right here in San Jose. The Sacramento Bee caught up with her today, reporting:

California lawmakers thought they were targeting Amazon.com, the out-of-state giant, when they voted last week to force Internet retailers to collect sales tax.

It turns out eBay Inc., California’s own golden child of e-commerce, isn’t so thrilled about it, either.

The San Jose online auction company says the legislation would hurt its business model, which relies on thousands of entrepreneurs who sell goods on its site.

The intent may have been to go after Amazon, but “we’re literally caught in the crossfire,” said David London, senior director for state government relations at eBay.

Another question is what to do with foreign sales. Over the past decade, I’ve bought several items from Europe from Amazon and eBay, all of them low-priced books or music, maybe one a year. I’m currently bidding on some cassette tapes from Ireland. The price if I “win,” in U.S. dollars, is about $6.78. The shipping is about another $10. Not much in either case.

I’m buying from a private seller through eBay’s auction system. Should the Irish seller, from what I can tell a small Mom and Pop outfit, be forced to collect California sales tax from me on the purchase price, which would be about 60 cents, and remit it to the Board of Equalization? Should eBay be forced to figure this out?

What benefit does the small Irish company get from paying 60 cents to the state of California? Do they get to use our crumbling freeways or our sub-par schools? How about the lavish pension system for government workers? Nope. They get nothing because they live 5,000 miles from here.

This example demonstrates the absurdity of the situation. But our leaders in the Legislature don’t understand business, especially not small business. Both Assembly Speaker John Perez and Senate President Pro Tem Darrell Steinberg are government union hacks. They only look to see how to grab private-sector wealth, not how to foster its creation.

Let’s hope Gov. Jerry Brown, who fostered small-business creation as Oakland’s mayor, has more sense and vetoes the Amazon-eBay tax.

June 23, 2011

By JOHN SEILER

Sometimes I wonder if the politicians, special interests and most media in California have a suicide pact among themselves — with 37 million Californians forced to go along. It’s an updated version of the Jim Jones cult, in which the “Rev.” Jim Jones (actually a non-religious con man) hypnotized or forced 918 followers to drink Kool-Aid laced with cyanide at the 1978 Jonestown Massacre in Guyana.

Jones and his Peoples Temple cult followers were mostly Californians.

This year’s Kool-Aid is a proposal by the Peoples Tax Cult to tax sales on Amazon. As tax-increase cheerleader George Skelton explains today, Amazon doesn’t have to charge taxes on purchases. That gives it an advantage over Walmart, Target and other stores that operate here in bricks-and-mortar buildings.

Skelton writes:

It is a growing national problem that several recession-plagued states — New York, Illinois, Texas and Colorado, among others — have been fighting.

Federal law requires e-tailers and mail cataloguers to collect sales tax only if they have a physical presence in the state — a nexus — such as a traditional brick-and-mortar store or a warehouse.

New York found a way around the law, and so far it has survived court tests. Skinner’s bill, which on Monday cleared its first committee, is patterned after New York’s law. It would redefine physical nexus to include a dot-com’s “affiliates” — website operators that provide a link to the e-tailer — in return for a commission on sales.

Unfortunately, Skelton doesn’t note the reason Amazon and other out-of-state businesses don’t pay taxes here is that they don’t get any benefits here. Their workers live in other states, and so don’t benefit from California’s schools (ranked 49th in the nation), roads (crumbling) and other state services. So why should they pay for them?

The Interstate Commerce Clause of the U.S. Constitution stipulates that only the federal government can pass laws concerning commerce that crosses state borders. That’s a key reason for America’s prosperity the last 220 years: there are no tariffs among the 50 states. It’s a vast, free-trade area with 310 million producers and consumers.

Expanding the Tax Definition

One way some states are trying to get around this is to expand the definition of the “nexus” of business location a state. California has about 25,000 Internet “affiliates” of Amazon and other companies. These can be big stores. But commonly, they are small, Mom & Pop operations that work out of their homes.

Skelton backs AB 153, a bill by Assemblywoman Nancy Skinner, D-Oakland, that would tax affiliate sales in California. He writes that “her bill would net between $250 million and $500 million annually for the bleeding state general fund.” (Yeah — bleeding because of the immense pension burden the governor and Legislature refuse to reform.)

It’s not just Amazon that benefits from the lack of tax collection. Skelton quotes George Runner, a Republican member of the Board of Equalization (tax collectors). Runner said:

There are as many as 25,000 Internet affiliate businesses in the state that could be wiped out by this bill. The bill simply won’t work. Out-of-state retailers will cut ties with their California affiliates and continue selling to California consumers.

Runner also says that, in 2009, affiliates paid $124 million in state income taxes. It’s probably more now that the economy has recovered a little (at least outside Taxifornia).

Already, Amazon has fired its affiliates in Illinois and Colorado after those states imposed taxes similar to those in AB 153. And Amazon has threatened to do the same to New York if that state’s tax prevails in court.

Skelton contends, “Barnes & Noble, which does collect the sales tax, has offered to pick up some of the Amazon affiliates. Other online retailers could, too.”

How does he know? Does he run a small business in which the burden of changing to a new affiliate sponsor might mean the death of the business?

And how about Skinner? According to the biography on her Website, she’s spent her whole life as a Berkeley environmental activist. She doesn’t know what it’s like to be a small, Mom & Pop outfit trying to pay the family bills as the state bears down on its business with higher taxes and regulations.

Skelton also quotes a study saying the real loss to the state in lost Internet taxes is $1.7 billion. But that would include taxing all such sales, not just the affiliates affected by Skinner’s bill. And there’s no way the Republican-controlled U.S. House of Representatives is going to let that happen.

Whatever their many faults in other areas, Republicans at the national level are allergic to any new taxes. If they forget that, the Tea Party activists will remind them. And last December, even President Obama considered it prudent to extend the Bush tax cuts.

Static Thinking

Moreover, the Legislature’s own analysis of AB 153 found:

In a purely static world with full retailer compliance, BOE [Board of Eqalization] estimates increased state and local revenues of $152 million in fiscal year (FY) 2011-12 and $317  million in FY 2012-13. These estimates are based on the combination of (1) the amount of revenues currently being  collected in New York, adjusted for California’s larger economy, and (2) increased revenues associated with out-of-state retailers that sell to California consumers on eBay that would have a use tax collection obligation under this bill.

So, instead of the up to $500 million Skinner says might be collected, it might be just $152 million. And notice the key word “static.” That means the estimate assumes Amazon won’t fire its affiliates; and the affiliates won’t be hurt and many of the shut down, or move to more accommodating states.

Let’s do the math: If only $152 million is collected, but $124 million in income taxes are lost (as Runner says), then the net would be just $26 million. That’s less than $1 per Californian.

Another California Suicide Attempt

Now, here’s where the California suicide attempt comes in.

Despite its many problems, California remains the world center of Internet technology. Apple, Intel, Facebook, Google and many others dominate software and hardware from Silicon Valley.

And down in Orange County, Conexant and Broadcom dominate the crucial Internet switching systems that send “packets” of bits and bytes around the globe.

California’s policy on the Internet should be: frictionless Internet activity. The more activity on the Internet, not just in California but around the country and the world, the more people everywhere will buy Apple computers, Intel microchips, Facebook advertising, Google advertising and Conexant and Broadcom switches.

The more all those things are bought and used, the more jobs are created in California. And the more all those things are made in California, the more income, sales and property taxes will be paid by our workers and businesses.

Moreover, if Skinner’s tax goes through, that will just be the beginning of more taxes imposed on the Internet. Not just in America, but around the world.

Soon, the Internet will slow down to the crawl suffered by drivers on California’s underbuilt, clogged roads and expressways.

It’s impossible to calculate the amount of business, and tax revenue, that would be lost should the Internet get bogged down in more taxes and regulations. But California, as the epicenter of Internet innovation and evolution, would be hit as hard as Japan just was by the Tohoku earthquake, tsunami and nuclear crisis.

It would make as much sense as Detroit favoring higher gas taxes. Or Hollywood backing a new, $5 tax on movie tickets. Or George Skelton favoring a special tax on political pundits.

That is, California pushing an Internet tax would be suicidal. The state doesn’t need to drink the Kool-Aid of another tax increase, but to start making California once again a friendly place for business, jobs creation and innovation.