Will Amazon Win CA Tax Referendum?

Jul 27, 2011 7:45 PM  By

Amazon.com is going all out to counteract new laws that require out-of-state online retailers to collect state and local sales taxes. The ecommerce giant filed a petition earlier this month for a referendum with the California attorney general’s office, asking voters to overturn a new state law that there that requires online retailers to collect sales tax.

Amazon.com must collect 500,000 signatures by the end of September to force the referendum.

Like other tax laws that have cropped up in the past few years, California’s contradicts a 1992 Supreme Court Decision. Quill Corp. vs. North Dakota said states are not allowed to require out-of-state companies to collect sales taxes unless that company has a physical presence, such as a store, warehouse, in the state.

Amazon believes there is support in the state for its position, says Linda Wooley, executive vice president of Washington operations for the Direct Marketing Association. “California has attempted an end run around the Supreme Court’s Quill decision,” she notes. The referendum asks voters to decide whether they want to pay the government another tax.

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The California law is similar to one signed in New York three years ago that has a provision requiring out-of-state online retailers to collect state and local sales taxes. California’s law applies to companies with affiliates whose sales from affiliates are more than $10,000 per year and whose total sales in the state exceed $500,000 per year, Wooley says. It also includes language that could grant the Board of Equalization potentially greater authority in determining what nexus means

What’s more, California’s law contains provisions that convey nexus on remote sellers if they have certain types of corporate sibling companies in the state. The New York law was solely focused on affiliates and had no total sales threshold.

Several states have passed laws to include affiliates in their e-commerce taxing. Consequently, Amazon has shut down affiliate programs in Illinois, Colorado, North Carolina, Arkansas and Connecticut.

What are Amazon’s chances of making any headway in California?

“We have no way of knowing at this point,” Wooley says. If the initiative gets on the ballot, and California voters vote to repeal the law, “then we think it would be a strong signal to other states that voters are skeptical of a scattershot state-by-state approach on the issue of online sales with no physical presence in a state.”