States continue to try to find ways to get Internet retailers to collect sales tax from in-state customers rather than relying on customers to self-assess and pay their use tax. (Of course, there are exceptions, such as I just posted about the other day where South Carolina carved out an exception for Amazon and other large Internet vendors willing to make a large investment in the state.)
The pending bill in California, passed in June by Assembly and Senate, is ABX1 28. It would broaden the definition of retailer engaged in business in California, for sales tax purposes to include:
"retailer engaged in business in this state any retailer entering into agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers, whether by an Internet-based link or an Internet Web site, or otherwise, to the retailer, provided the total cumulative sales price from all sales by the retailer to purchasers in this state that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and provided further that the retailer has cumulative sales of tangible personal property to purchasers in this state of over $500,000, within the preceding 12 months, except as specified. This bill would also provide that a retailer entering into specified agreements to purchase advertising is not a retailer engaged in business in this state and would define a retailer to include an entity affiliated with a retailer under federal income tax law, as specified. This bill would further provide that these provisions would not apply if the retailer can demonstrate that the referrals would not satisfy specified United States constitutional requirements, as provided."
So it is similar to the 2008 New York legislation that makes an Internet retailer subject to sales tax collection based on in-state activities of "associates" (those with a link on their website where they get paid if someone places an order by starting with that link). One big caveat, likely directed to help eBay and its users, is the $500,000 amount. Otherwise, eBay is like an "associate" for those selling items on eBay (because eBay gets a commission on the sale) causing hundreds of thousands of eBay users to have to collect California sales tax.
Also, the rebuttal approach of New York is greatly modified. The vendor would need to show that requiring them to collect California sales/use tax would be against the Due Process and/or Commerce Clauses of the US Constitution.
Will this bill be signed by Governor Brown? Perhaps. If yes, Amazon is likely to cancel its associate agreements as it has threatened to each time this type of legislation comes up in California (see 3/3/11 CBS article), and as it has done in states other than in New York (New York offered amnesty, don't know if that was the reason why Amazon started collecting sales tax in New York - see 3/9/11 post).
So, if Amazon (and perhaps other large Internet vendors) cancel their contracts, what does California gain? For my answer, see 3/9/11 post, and consider:
- Wouldn't additional efforts to educate consumers about their use tax obligations make more sense?
- Is it time for California to take a new look at the Streamlined Sales & Use Tax Agreement and considering modifying our tax law system to match it and then strongly encouraging Congress to reverse the Quill decision for states that have adopted it? Vendors would have some free software tools available to help with compliance and there would be greater uniformity among states for vendors. However, there would not be the most sought after uniformity - one rate per state.
What do you think?