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Tuesday, July 19, 2011

Creating More Sales Tax Collectors - More "Amazon" Laws

In 2011, 5 more states joined the existing three that had enacted so-called "Amazon" nexus laws to try to get more Internet vendors to collect sales/use tax. New York started this in April 2008. I have a short article with the background and details of the five states that joined in this year - see Creating More Sales Tax Collectors, AICPA Tax Insider, 7/14/11.

The California legislation (ABX1 28; 6/29/11), had a few modifications from the NY version. First, the CA affiliate nexus rule only applies if the vendor with the affiliates has over $500,000 of sales to CA customers. This was to prevent, apparently, creating a collection burden for any eBay seller with over $10,000 annual sales to California customers. Since eBay earns a commission on the sale, the sellers would be subject to collection.

Second, the California law also expands "retailer engaged in business in this state" to include "Any retailer that is a member of a commonly controlled group, as defined in Section 25105, and is a member of a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations, that includes another member of the retailer's commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with tangible
personal property to be sold by the retailer, including, but not limited to, design and development of tangible personal property sold by the retailer, or the solicitation of sales of tangible personal property on behalf of the retailer." This is another way to apparently try to get Amazon to collect sales tax even if it cancels all of its affiliate arrangements in the state (which it did - see my 7/4/11 post).

Per a CNet article, "California targets Kindle lab in Amazon tax spat" by McCullagh (6/29/11), Amazon has two subsidiaries in California that developed and work on Kindle and other items.

A few interesting items related to this topic:

1. A 7/12/11 news release from California Board of Equalization chair Jerome Horton on how the BOE will enforce the new Amazon/affiliate nexus law in California. He also notes that a referendum petition to repeal the law was filed (still needs to get signatures to get it on the ballot). He also states that "“Once the public learns that non-California companies who currently fail to comply with the law and play by the rules are costing California approximately $12.5 billion in sales and $1.1 billion in use taxes which translates into 37,000 jobs, $52 million in property taxes, and $48 million in income taxes." No details on how these figures were determined.

2. The California Retailer's Association, a supporter of these affiliate nexus laws, issued a press release in March 2011 calling for to stop bullying Californians. Like Mr. Horton, they note that not collecting the sales tax results in the loss of thousands of jobs. The CRA also notes that the New York legislation did result in Amazon and a few other vendors starting to collect the sales tax. But in the other 7 states that enacted similar legislation, Amazon did not start collecting the tax but instead canceled the affiliate contracts so it was no longer subject to the law (but see earlier comment that this may not get them off the collection hook in California).

But - of the 8 states that have enacted the affiliate nexus rule, only New York offered amnesty for prior possible liabilities to those who started collecting. How important was that amnesty to Amazon and why haven't other states also offered amnesty?

I think California should continue to ramp up ways to get buyers to self-assess use tax and join with other states to get Congress to address this matter. California will likely need to join the Streamlined Sales and Use Tax Project at some point.

For more on use tax collection, see my February 2011 testimony for the CA Assembly Revenue & Taxation Committee.

What do you think?

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