Sep 19 2011 Not Pleased with California Internet Sales Tax Legislative Compromise


A fork lift in an warehouse NOT in California

I alluded to the fact that I thought was compromising with California Democrats over internet sales taxes for other than principled reasons.

In the meantime, will more than likely create a physical nexus in California anyway (7/11 distribution) – but they bought themselves some time and lobbying clout.

But, now is speaking up over the legislative deal (AB 155) as California Governor Jerry Brown gets around to signing the bill (likely any day now – he has until October 9).

“States should not be legislating to benefit one company, and that is what California has done,” Overstock President Jonathan Johnson told me by phone.

The issue is a little complicated. But remember back to the start of the summer when Brown signed the original legislation requiring that Internet retailers start collecting sales taxes.

The fundamental issue revolves around whether the e-retailers have a physical presence, otherwise known as “nexus,” in the state. If they have that connection, they must collect sales taxes.

Internet retailers reacted to the original legislation by firing so-called affiliates, thousands of individuals who operate websites that carry Internet retailers’ ads.

The state had argued that the use of those affiliates amounted to a physical presence in the state, triggering the legal requirement that they collect sales taxes.

Maybe the state was right under the law. Maybe not. Whatever. The new legislation would grant Amazon a year’s reprieve from having to collect sales taxes. Amazon could rehire affiliates without worrying about having to collect sales taxes in the interim.

That’s good for Amazon and maybe its affiliates. But other Internet retail companies aren’t part of the deal. If they hire back their affiliates, they might run afoul of California tax authorities.

“We’ll still do our best to compete,” Johnson said. “But we’re not going to create nexus because we don’t want the burden of being a tax collector in a state where we don’t have nexus.”

Johnson knows plenty about Internet retail, and assumes that Amazon is giving up little in exchange for agreeing to the legislation.

He notes that Amazon intends to open distribution centers in California, to speed shipping to consumers. Once those centers open, Amazon clearly would have a physical presence, and would need to collect taxes.

“I’m guessing, but Amazon either already has nexus or is intending to create nexus in California. This deal is like taking off sleeves from their vest. They’re not giving up much,” Johnson said.

But, is not in business for If Amazon can save a few hundred millions of dollars and build distribution centers in California (thus creating a nexus for sales tax purposes) to compete against Overstock and Wal-mart, then all is fair in love, war and business, right?

If wants to fight this issue in California, it will probably have to sue in the federal courts – which is what everyone thought would do – until they changed their mind.

Maybe Amazon and Overstock had an understanding. But, who knows?

Amazon gets a huge tax break when Jerry Brown signs AB155 and gets to lead a principled fight by hiring many attorneys and spending $millions.

In the meantime, even more $ millions will be spent in D.C. on attorneys and lobbyists hoping to achieve a national internet sales tax solution.

Bet, it doesn’t happen next year…..


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