California Amazon shoppers rest easy: customers will still be buying on Amazon.com and making online orders without worry of paying sales taxes on purchases. A lot of Californians frequent the "virtual aisles" of the online retailer--so its "no tax" standard for the state isn't changing. The retail giant isn't stupid.
California consumers are in a tizzy over the idea Amazon is pulling out of California, in news that has the state and consumers in an uproar. But it's not state shoppers who are going to be affected: It's California-based "Amazon Affiliates" -- at least 10,000 and up to 25,000 people and businesses that depended on payments and income from the retailer -- that are going to suffer big-time. Those people are going to have to find a new career. And small businesses who operate online are now going to be faced with a major loss that could put many out of business altogether.
The problem is, California's been going after the idea of sales tax -- to garner money that, quite arguably, doesn't belong to the state and never did.
California lawmakers have been trying to find a way around a 1992 U.S. Supreme Court ruling that the state, and many other states, do not like. That ruling doesn't allow states to collect taxes from online retailers. So California lawmakers decided to create their own loophole, in what could prove a legally dangerous scenario.
Governor Jerry Brown has just chosen to sign legislature, creating a new law related to California's online sales tax which, as Amazon phrases it, "specifically imposes the collection of taxes from consumers on sales by online retailers -- including but not limited to those referred by California-based marketing affiliates...even if those retailers have no physical presence in the state."
In other words, Amazon.com doesn't sit in the state of California -- but many of its "Amazon Affiliates" do. That is, until now.
"Amazon Affiliates" are the people who have been participating with the online retailer in a nationwide sales-affiliate program meant to drive online traffic to the Amazon website. Basically, Amazon partially relies on in-state websites -- from each U.S. state -- to help drive customers to its website to make purchases. Amazon.com Affiliates make a living through getting paid by Amazon, receiving a fee from the online retailer each time they funnel website traffic -- i.e., customers -- to Amazon.com.
After all is said and one, Amazon.com Affiliates for each state -- including California -- then pay taxes on that income they've earned from Amazon through the affiliate program. Just like any business, taxes are paid on annual income -- and those taxes add up to a pretty good chunk for each state. Last year, taxes from Amazon Affiliates equaled about $124 million dollars in taxes that were paid to California state.
Who the state of California, Governor Jerry Brown and lawmakers have really hurt is small business in the state. Smaller, online businesses will now be subject to taxes that can and will force closure of many independent businesses that were already struggling to survive during the economic recession. One example, among many, are the independent bookstores and booksellers that have turned to online venues -- the world which has virtually replaced physical, walk-in locations where consumers once bought books. If Amazon was already considered a threat to those bookstores, the state of California has just sealed their doom.
The move by Amazon is not out of the blue: The retailer's dropped six states from its affiliate program before California -- including two states cut very recently -- and Amazon had provided a very clear warning to California lawmakers of that outcome -- if in fact the state's lawmakers chose to push through the tax law argued as unconstitutional. California, and Governor Jerry Brown, went ahead with the new tax law anyway -- in a move that could not mark only withdrawal of Amazon's affiliate program to the state, but even a future lawsuit or legal action against California. New York is already engaged in a bitter legal battle with Amazon.com over similar state legislature as unconstitutional.
Amazon may well have a point, a legal one that could put California state in as bad of a spot as the one in which New York is sitting. While California lawmakers have been pushing the idea the state "loses" up to $1.1 billion dollars per year in "uncollected taxes" related to online and use sales, those "uncollected" taxes California lawmakers are claiming may not actually belong to the state at all.
In fact they probably don't.
In 1992 the United States Supreme Court ruled that only physical, brick-and-mortar, businesses located within a state can be taxed. In efforts to get around that 1992 Supreme Court ruling, California lawmakers -- like lawmakers in other states have recently attempted -- have been working to circumvent the court's decision. For those wondering how to change a court ruling, it all comes down to definition: By changing the definition of what a "physical presence" means, lawmakers hoped to change what funds were due. Basically, state lawmakers figured that if they could claim that Amazon Affiliates being in California defined a "physical presence", they could collect taxes legally.
California figured it had a workaround to garnering some new tax funds, solving its "problem" of that Supreme Court ruling. Amazon returned that idea with its own version of "problem solved", by simply yanking all California state affiliates -- nullifying the state's new definition a "physical presence" in the game of "Affiliates? What affiliates?"
But, to be fair, it's not Amazon's fault. It was California lawmakers who came up with that nifty plan. Amazon.com simply had to have a return response -- a 'game plan' of sorts for what became a bit of a nasty and underhanded game. If the retailer wanted to continue offering its goods and services to Californians, it didn't have a lot of choice. The other option would've been shoppers paying a hefty sales tax on all Amazon.com purchases -- taxes among the highest in the nation, topping off at up to 10.25% in some parts of California.
Californians -- and Amazon Affiliates -- can thank Governor Jerry Brown and his law-making buddies for this whole snafu that's also sure to harm small business in the state, and even put small businesses completely under.
Jerry Brown and California lawmakers had been hoping to garner an extra $200 million in taxes from Amazon.com through the state's new law. But instead, as the online retailer had pointed out before Governor Brown signed in the legislature, California is now cutting off many millions it had already been collecting annually in taxes from Amazon.com Affiliates.
Now that Amazon is yanking its affiliate program to California participants after Jerry Brown signed in the tax collection law, the state has kissed those funds goodbye instantly. Over one hundred million in taxes, that would've been paid by Amazon affiliates, is gone. The state just cut off its nose to spite its face.
As has been continually pointed out, any additional taxes raised from Amazon wouldn't have even come close to solving California's budget problem lawmakers insisted was the reasoning behind the new law. The state is trying to close a gap of billions -- 22 billion, to be exact. The additional taxes California would've gained were in the millions, not billions: The new taxes from Amazon would've garner about an additional $200 million.
Now California doesn't have that $200 million it was hoping for -- or the roughly $124 million it would've been basically guaranteed before Brown tried to push the point. And, as has been pointed out by Amazon and law experts, there just may be a chance that -- if Amazon decided to sue the state over actions argued as unconstitutional -- California could additionally be in hot water with legal bills.
Again, Californians can thank Governor Jerry Brown.
But if you're trying to reach Brown, don't expect it to be easy. Jerry Brown's website already informed Californians it could take up to 90 days for the governor to respond. But look for that delay in reponse time to likely be increased -- just in time to celebrate the new tax law. The governor's greatly reduced chances of "inbox clutter". Jerry Brown's direct email contact form -from the state's own website - seems to be down at the moment.