Amazon Wants to Fight New California Online Sales Tax Law with Referendum

By Tracey E. Schelmetic July 12, 2011

While online retailers for years have enjoyed the ability to sell nationwide without being required to collect sales tax on purchases in states where they have no physical business presence, that may come to an end soon...at least in California. While a 1992 U.S. Supreme Court ruling prohibits states from forcing businesses to collect sales taxes unless the business has a physical presence, such as a store, in the state, with potentially billions of dollars in tax revenue at stake nationwide, many states have looked for a way around the ruling.

California recently enacted a law that redefined the physical presence edict. According to the new law, which came into effect in late June with the state's new budget, a physical storefront isn't necessary: if an online retailer has a related company, such as a marketing or product-development arm, or affiliates in the state – individuals and companies that earn commissions by referring visitors to Amazon from their Websites – the company is fair game for state sales taxes, according to an Associated Press article today.

Amazon, the country's largest online retailer, is not amused, and wants to bring the issue to California voters. The company filed a petition for a referendum on Friday with the state Attorney General's Office.

Paul Misener, VP of public policy for Amazon, said the referendum would support “jobs and investment in California.”

“At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away,” said Misener.

Since the 1992 ruling, states have been trying to find ways around the Supreme Court decision by passing laws that broaden the definition of a physical presence. Online retailers, meanwhile, are resisting being deputized as tax collectors, according to the AP.

In order to succeed in getting a referendum on the ballot, Amazon must collect 500,000 signatures from California residents by the end of September. The issue would then be put to voters in February of next year. If the issue ends up on a ballot referendum, it would seem the outcome is a foregone conclusion: few people would ever voluntarily vote to pay more for the goods and services they purchase.

The new requirement that many online retailers pay tax revenue to the state has some supporters, including many state lawmakers and brick-and-mortar retailers, who complain that online sellers like Amazon have an unfair advantage and can better appeal to customers wishing to dodge paying state and local sales taxes.

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Tracey Schelmetic is a contributing editor for TechZone360. To read more of Tracey's articles, please visit her columnist page.

Edited by Jennifer Russell

TechZone360 Contributor

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