Amazon’s Sales Tax Battles Affecting ‘Affiliates’
The fight over whether online retailers with a physical presence in a state need to collect sales tax continues in a big way in California. The state passed a law at the beginning of the summer making such collections a requirement, and Amazon has decided to take them on. They deny that its subsidiaries in the state, which, according to a New York Times article Sunday, “include a unit that designed the Kindle,” constitute such a presence. But they are also in the process of collecting a half million signatures to get a measure on the California ballot next February to repeal the new law. Once those signatures are submitted and verified, the law will be suspended until the vote, according to the Times.
The new California law is the most recent—and perhaps the most high-profile—of moves in the nationwide debate over the collection of state sales taxes on Internet purchases. Under a 1992 U.S. Supreme Court decision, states can’t charge sales tax unless a retailer has a physical presence in the state. States such as Connecticut, Illinois and California have attempted to collect the tax by proving a physical presence—partnerships or “affiliates” the companies might have. The companies have countered by ending the partnerships or moving out of state—thus causing a big job loss.
According to the Times article, Amazon is fighting a similar measure in the New York courts. On the other side of the fight are large retailers like Wal-Mart and Target and what remains of neighborhood bookstores. Another opponent in this fight looks to be the “little guy” which would include some SIPA members. According to the Times, “Immediately after the law was passed…Amazon cut off its California affiliates. [This number may be as high as 10,000.] These were the thousands of Web sites that referred customers to the retailer’s site in return for a cut of the transaction. If they constituted a physical presence under the law, Amazon wanted to be rid of them.” These include self-published authors as well.
The commission that Amazon paid these companies was quite substantial in some cases, most likely forcing business owners to move from California to Nevada and Arizona. In addition, if Amazon loses their fight in California, other states could be persuaded to try to start collecting online sales taxes.
Often, you can go on a company’s website and read their side of the story, but Amazon doesn’t seem to provide that. Their latest release, on Aug. 25, announced that they are introducing New York City residents to AmazonLocal, their version of Groupon. In early July, they announced the opening of a fourth facility in Arizona in the fall. In California, Amazon was reportedly asking for a sales tax exemption for putting a facility there. I don’t know if they have that exemption in Arizona, but there may be some incentive in place considering their large commitment in the state (more than 4 million square feet).
According to an Arizona Republic article, several Internet retailers have bought or leased real estate in the Phoenix area for order-fulfillment and distribution centers, and this new tax would likely accelerate that activity.
It will be interesting to see where this battle goes and the strange bedfellows it continues to produce.
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This will be just one of many issues
up for discussion at next Tuesday’s
Washington, D.C. Chapter Marketing Breakfast Roundtable,
Sept. 13, 8-9 a.m. at the Potbelly Sandwich Shop
1660 L Street NW, Washington D.C.
(near Farragut North Metro)
It’s the first of quarterly ‘Breakfast Idea Jams’
in the D.C. area. (The hope is that other chapters follow.)
It’s a happy hour for early risers! Members will
share ideas and gain solutions to put into place now!
RSVP to Donna Lawton at dlawton@aishealth.com.
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