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Saturday, August 27, 2011

Affiliate nexus, California and Amazon - the saga and oddities continue

A few unusual things have occurred since California enacted its "Amazon" - affiliate nexus law (ABX1 28; Chapter 7) at the end of June 2011. I mean unusual in that I don't think we have seen them in other states that have enacted these so-called "Amazon" laws aimed at trying to get remote sellers with affiliates in the state (generally people who get a commission for advertising the seller's website). (For background, see my 7/4/11 post, 7/19/11 post, and this short article.)

Here are some of these unusual things:
  1. Amazon got approval to try to obtain signatures to try to get a referendum on the ballot so that voters can decide to repeal the affiliate nexus law. They need to get 504,760 signatures by 9/27/11. See item #1489 on the California Secretary of State website - here.
  2. The Los Angeles Times reports that Amazon has invested $5.25 million to get the signatures ("Amazon ups the ante in Internet sales tax fight," 8/23/11). This is a lot of money!
  3. Jobs and small businesses - both sides of the debate say it is about protecting jobs and small businesses! The Los Angeles Times article ("Amazon ups the ante in Internet sales tax fight," 8/23/11) refers to a group called More Jobs Not Taxes. At their website, they say they were formed to opposed the Internet tax law that will "hurt small businesses, kill jobs and undermine chances for any economic recovery in California." I'd guess that the reference to hurting small businesses is because Amazon and perhaps other Internet vendors cancelled their affiliate arrangements in California which means many will earn less commissions. Is it a job killer? I don't see that. And there are many small businesses operating in California that find it difficult to compete with Amazon because many of Amazon's customers don't know that they owe use tax when they buy taxable items form Amazon or any out-of-state vendor who does not collect sales tax. For example, see information from the American Booksellers Association (here) and Stand With Main Street (here). These groups say that not having online sellers collect sales tax is hurting small, main street businesses (the opposite of what the More Jobs Not Taxes group says). The California Retailers Association also supports the affiliate nexus law (see their 6/20/11 press release). This group says the law promotes jobs (the opposite of what the More Jobs Not Taxes group says).
  4. The Health and Human Services Network of California is pushing a grassroots effort to get 2,000 signatures of people telling Amazon to collect the California sales tax - part of a "Think before you click" campaign. As noted in a KQED report (8/15/11), they also call for a boycott of Amazon.
  5. A Los Angeles Times article of 8/25/11 - "California lawmakers try to head off Amazon sales tax referendum,"reports that the Senate Appropriations Committee is taking action to modify the original legislation to make a referendum impossible, thus ending Amazon's effort to get voters to overturn the law.
All of this is really odd and unfortunate. It will not lead to effective laws, an equitable and transparent tax system, and good use of money!

AND - it seems to continue the confusion many taxpayers have that when they buy taxable goods from Amazon or other out-of-state vendors, that no tax is owed. This is not correct - these customers must self assess and pay the use tax, which most can do right on their California income tax form. I'd guess that most people who sign the petition to get the referendum on the California ballot think they are signing to eliminate sales tax on these sales (rather than to just ensure that they must collect use tax rather than having the state try to get Amazon to collect it for them).

A better approach to all of this:
  • California should work with Congress to enact legislation (currently S. 1452, the Main Street Fairness Act) which would allow for a uniform approach for states to collect sales tax from remote vendors. Amazon has stated that it supports this approach (see Mark Hachman at PCMAG.com of 7/26/11)
  • California should consider adopting the Streamlined Sales & Use Tax (which it would be required to do under S. 1452 if it wants to be able to collect from remote vendors).
  • Continue to educate people about the use tax. Even under S. 1452, small vendors would be exempt so there would still be a requirement for consumers to self-assess and pay use tax. This will be easier though starting in 2011 when most can use the look-up table (see proposed table at last page of this BOE document).
And, there are even easier ways to collect the tax - have it collected at the same time the buyer's credit card or Paypal account is charged for the taxable purchase. Retailers would no longer have filing and collection obligations, customers would not have to worry about use tax recordkeeping and reporting and states would get their money quicker (for more on that, see my blog post and testimony - here).

What do you think?

4 comments:

sales audit defense said...

There is no real number showing any job creation or job lost over the new enacted "Amazon" law at this point. Two sides (supporters and opposing groups) make their arguments using different assumptions.
One thing for sure, UPS, FedEx and USPS are benefiting of the additional business from internet sales regardless it's from states enacted "Amazon" or not.

Unknown said...

Sales of goods from California companies delivered to California addresses are already taxed.

What the new law has done is to say that affiliates are Amazon employees thus satisfying the taxable test of having an in-state presence.

The question is not if taxes are due or if the change in number of jobs but really does the address of an affiliate or a contractor with a company cause a change in the business location of that company.

The shops in every other state cannot be expected to calculate and may payments to every county and every state in which they make a sale when the referral came from Amazon or some other online marketplace.

They do apply sales taxes for their own respective counties and states.

Last thoughts. Who is responsible for collecting California Sales Tax from B&H or Adorama in NY who made a sale through Amazon from a product reviewed in an affiliate blog like backscatter.com where the click was originally generated from google? Who is responsible for recovering that tax across state lines? sounds a little bit like a federal sales tax to me.

Anonymous said...

Good Idea and i totally agree.

Ganga Devi said...
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