California signs "Amazon tax" into law, affiliates take the hit

By on July 1, 2011, 9:00 AM

California just became the latest U.S. state to sign the so-called "Amazon tax" that will enable it to start collecting sales tax from online transactions. The move will likely trigger a response from Amazon, which has made it clear that it will stand its ground against what it considers to be an "unconstitutional and counterproductive" measure that interferes with interstate commerce.

In fact, the giant online retailer already warned its estimated 10,000 California affiliates on Wednesday afternoon that it would have to cut ties with them should Governor Jerry Brown sign the online sales tax bill passed by the Legislature. Brown signed the bill later that afternoon, and we expect Amazon to follow through with its promise.

Previously, Amazon has been protected by a U.S. Supreme Court ruling from 1992, which says companies cannot be required to collect sales tax in states where they do not have physical presence. Amazon collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington, the only markets where it has stores or offices, but states want to get around this by expanding the definition of physical presence to include affiliate partners earning commissions.

So far Amazon has cut ties with affiliates in Texas, Colorado, Illinois, Hawaii, North Carolina, Rhode Island and Connecticut. The measure does not affect customers' ability to purchase items from Amazon, but it means owners of websites affiliated to the giant retailer and other marketers in the state will no longer receive a portion of the sales for funneling customers to Amazon -- which will translate into less revenue for businesses and less taxes for the state.

Supporters of the legislation signed by Brown say Amazon's sales model denies state's treasury and local governments several million dollars a year in tax revenue. Meanwhile, Amazon has claimed the measure is being pushed by big-box retailers seeking to harm its competitors, and that it has turned counterproductive in states were it has been passed.

Online retailer Overstock.com also said that it would end its relationship with associates because of the new law.




User Comments: 23

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Guest said:

Yet another shining example of how stupid elected officials are. I applaud Amazon and any other online retailers taking steps to remove their affiliates from each and every state that this hogwash goes into effect.

Guest said:

I'm interested in seeing how Amazon's former affiliates do, especially in regard to their revenue. Will big-box retailers see an increase or decrease in revenue? How will California's market respond? History is going to have some fun lessons for us, won't it? California has already been declared an economic disaster in the past, I can't honestly see things getting better.

MilwaukeeMike said:

Think about it this way... you own a store in CA and charge your customers sales tax, but your neighbor sells the same stuff through Amazon and doesn't have to, even if it's sold to the same guy who lives down the street? Is that fair? I'm no lawyer, but i can see both sides of this one.

Govt. wants more money, because CA is liberal they do this by raising (or adding) taxes. that's just what they do, tax businesses and rich people. Is that stupid? Maybe, but I can understand why they're doing it. i'm happy I live in a state where the govt understands that taxing can have negative effects.

Amazon is upset because they will now have to charge their customers more if the goods come from CA. And they have to drop the affiliates because they've already done so with the other states who have this law. They say it's 'unconstitutional and counterproductive' but they'll also lose sales, so I think it's pretty easy to see why they're mad.

Guest said:

Maybe we should just give back California to Mexico.

Guest said:

You know how many Chicanos would cheer if California was given back to Mexico? Not many. Most would whine, moan and scream bloody murder. Then Oregon would be the new border to cross and Southern Oregon would have a even more dire drug issue going on, not to mention weapons and human trafficking. I live in Oregon and I'm Mexican, no thanks. Last thing I need is more of my drug dealing cousins.

Guest said:

As a former Amazon affiliate in California, all I can say is that they didn't get any more, tax revenue from the passing of the bill, if anything they lost money due. I can no longer take the money from my referals and spend it here in California. They literally just killed the goose that laid the golden egg.

Benny26 Benny26, TechSpot Paladin, said:

I wonder how long it will be before the UK gets on with something like this...Their after everything at the moment.

Guest said:

its just stupid politicians standing on their soap box stating how much "potential" revenue they will bring in meanwhile they will actually be hurting their state income. those affiliates may not be paying a sales tax but they are paying sales tax on all the products they purchase within the state which will now be cut severely with lost personal income.

I'm sure best buy (who employ lobbyist to push this tax) is dancing in the streets

Guest said:

Amazon Stand Your Ground !!!!!!

Guest said:

Actually, CA will have a lot more in revenue. Let's say Amazon in no longer paying $1,000,000 in affiliate commissions. If those affiliates were being paid an average of 6% commissions, that means the Amazon gross sales were about $16,666,666, in which now CA can collect sales tax on. If sales tax is 8%, that's $1,333,333 in sales tax revenue due to the state of CA.

But CA is giving up the income tax from the affiliates. But even in the highest tax bracket, CA is only collecting 10.3% of that income. So they are giving up the right to collect, at most, $103,000 in income taxes ($1,000,000 in affiate commissions x 10.3% income tax). Even if all $1,000,000 in affiliate income was spent in CA, that would only generate another $80,000 or so of sales tax, and if $500,000 or so of that was profits to CA businesses who then pay income tax on their earnings, at say 25%, that's another $125,000 on those purchases, for a total AT BEST of $308,000.

So CA is giving up the right to collect $308,000 AT BEST between affiliate's income taxes and sales tax and income tax when they spend their income earned, in order to collect $1,333,333 in sales tax CA believes is due to them.

Guest said:

Viva Amazon. No gonna lose except you California

mailpup mailpup said:

So CA is giving up the right to collect $308,000 AT BEST between affiliate's income taxes and sales tax and income tax when they spend their income earned, in order to collect $1,333,333 in sales tax CA believes is due to them.
But Amazon won't be collecting any sales tax for California since they will be cutting the affiliates loose. So California won't be getting either income taxes or sales taxes.

Also, unless I missed it the article did not seem to address the retailers and etailers who sell some of their goods directly through Amazon. Perhaps the new law doesn't cover them but if it does and Amazon cut ties with them as well, there will be a lot more than just commissions lost.

Guest said:

Another Reason why I want to move out of California for the SECOND time in 20 years. They really have turned the state into the LEFTIST Coast. They screwed up this wonderful state. Back to Georgia, Florida, or Texas for me! Two of those states have "NO" State income taxes... Even better yet! California is going to become the most expensive place in the U.S. to live out side of New York City. And for what? A few nicer weather days a year???? Later C.A. and Jerry Brown!

treetops treetops said:

The cable wire to california goes through arizona we want taxes too!

Guest said:

So why not cut the Politian's salaries and some of the social programs equivalent to the sales taxes.

Guest said:

I buy alot from Amazon.......But as soon as they start charging sales tax I won't be...... These greedy states need to fins other ways to fill their pockets.... If I don't see free sales tax and free shiping..I will move onto someone else who has it or buy alot less...I like seeing the price up front...If they "HAVE" to tax...why not tax the products before it even gets to retail...That way its already built into the price and the customer never knows the difference.

Tedster Tedster, Techspot old timer....., said:

Goodbye CA, it was nice having as part of the USA, too bad you went communist.

yRaz yRaz said:

tedster said:

Goodbye CA, it was nice having as part of the USA, too bad you went communist.

even if your comment had something worth noting, how is ANYTHING you said relevant?

Guest said:

Hmm Kind of seems like an inherent and unavoidable step. With more and more brick and mortar stores selling through portals, with time most brick and mortar establishment, bar food and entertainment will move online entirely and their shop fronts will likely close, what then?

Taxes still have to be collected, unless people feel we should pay sales taxes at all :()

This progression is inevitable, even if Amazon gets it's way it's only a matter of time when the need for such tax will win out.

Tedster Tedster, Techspot old timer....., said:

obviously an ignorant reply from an economic and political illiterate.

yRaz yRaz said:

tedster said:

obviously an ignorant reply from an economic and political illiterate.

Another useful and completely inaccurate/irrelevant reply!!! I would argue with you but I want moar ignorant reply's!!!!!!!

If you want to call me illiterate at least tell me how your first post was relevant/insightful and how I am wrong. Cite your sources and I want MLA format! It does need to have the page number in the header with proper margins.

BTW, what point are you getting at?

Obvious ignorance is obvious

Staff
Rick Rick, TechSpot Staff, said:

Goodbye CA, it was nice having as part of the USA, too bad you went communist.

even if your comment had something worth noting, how is ANYTHING you said relevant?

I think what Tedster said was kind of funny although not really accurate (and I'm sure he knows it is not). CA *is* known to be the 'weird' state though and while it is not communist by any stretch of the imagination, I'd venture to say the state government gets involved more than in other states (Recently nullified "violent video game ban" for minors, for example).

obviously an ignorant reply from an economic and political illiterate.

Now, this is just trash. Keep it civil please.

Guest said:

Amazon recently made a deal here in Indiana to build a new warehouse near Indianapolis and the state government agreed not to make them collect sales tax on purchases.

Business friendly states like Indiana will get the business and the rest of the other states will get the shaft. I will keep collecting my thousand dollars a a month affiliation fees. Thanks Amazon

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