Referendum Likely on “Amazon Tax”

Posted on Wednesday, July 20, 2011 9:36am

There’s a battle brewing between online and brick-and-mortar retailers over a piece of the new state budget that requires companies like Amazon to collect sales tax on purchases within California.  Amazon is gathering signatures for a ballot measure that would overturn the law.

This is all about “nexus,” a business’s physical presence in a state. A company like Borders has dozens of stores in California. So when you buy something on its website, you have to pay sales tax. Amazon doesn’t have stores, so it only collects tax in states like Washington, where it’s headquartered. Bill Dombrowski with the California Retailers Association isn’t surprised Borders announced its liquidation this week. He says Amazon has a competitive edge.

“People come in and use our stores basically as show rooms, and then they go out and buy a $1000 TV off the internet,” said Dombrowski.  ”It’s wrong and it needs to be fixed.”

California’s new budget redefines a company’s “nexus” to include many online retailers. It projects an extra 200 million dollars in sales tax revenue. But critics say the negative consequences are worse.

Board of Equalization member George Runner says, “it instantly put tens of thousands of people out of work in the state of California.”  He’s talking about “affiliates”–small companies or individuals paid to advertise Amazon’s products. Amazon severed its ties with California affiliates after the budget passed. It now hopes to overturn the sales tax measure through a voter referendum. Runner says the law just doesn’t make sense.

“If you think it’s fair for Amazon to have to collect a tax, then you also have to believe that every small retailer who works on the internet in the state of California is responsible for collecting taxes in all the other 50 states,” said Runner.

Bill Dombrowski with the California Retailers Association says there’s a lot at stake for brick-and-mortar stores.  “The idea of being able to go in and touch goods and have instant gratification is still there,” he says.  ”You take away the price advantage and Amazon becomes just another retailer.”

And so we have the makings of an expensive ballot fight: Amazon vs. WalMart – likely coming next year to a TV set near you.

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