In its second-largest acquisition, Amazon buys the company for $970 million.
The bill would require Amazon and other web-only retailers to collect sales tax.
Three sales tax bills, which would require web-only retailers to collect sales tax, have been passed by the California State Legislature and sent to Gov. Jerry Brown.
The bills—an “Amazon Tax” bill that requires online retailers to collect sales tax if they get customers from in-state affiliate web sites, a second bill that requires sales tax collection when a web retailer operates corporate subsidiaries in the state for purposes such as distribution centers, and a third bill that clarifies when other types of physical presence require sales tax collection—have been approved and sent to the governor as a new single bill designated as AB 28X. The new combined bill, submitted by Assembly Member Bob Blumenfield, a Democract and chairman of the Assembly Budget Committee, is designated a “budget trailer” bill that follows the governor’s recent veto of the state budget.
Gov. Brown has not said whether he supports the combined bill, and the governor’s office did not immediately respond to a request for comment. In a press conference this week recorded in an audio file on the governor’s web site, however, Gov. Brown, also a Democrat, indicated he might be inclined to approve the bill after a thorough review. “Paying state sales tax is a common sense idea,” he said.
Even if he vetoes the combined bill, however, the original three bills could still be re-submitted to the Legislature and sent to the governor before the current legislative session ends this fall. “We could be looking at a final decision on these bills as late as October,” says David Duran, legislative director of Sen. George Runner, a Republican who has urged Gov. Brown to veto the legislation.
In a June 17 letter to the governor, Sen. Runner contends that the sales tax legislation would result in a loss of business for thousands of affiliates of Amazon.com Inc., No. 1 in the Internet Retailer Top 500 Guide, and other web-only retailers who would cease doing business with California affiliates to avoid the sales tax responsibility. Runner also contends that the legislation would hurt California-based eBay.com Inc., which he says could lose business from out-of-state sellers who might choose to sell through different e-marketplaces.
David London, senior director, government relations, at eBay, says the proposed California legislation would stifle business development for many of the e-marketplace's small sellers. "We believe that putting a tax burden on small businesses and treating them the same as giant retailers is unfair," he says. "EBay is advocating a threshold that accurately defines a small business, so that the sellers that are getting started aren't held back from growing in across the U.S."
A national study released this week by online research firm Compete Inc. finds that just under half, or 48.9%, of consumers would change their online spending habits to avoid paying sales tax collected by retailers. Of these consumers, 13.3% said they would shift some online spending to different online retailers; 10.0% would shift online spending to e-retailers with stores, which would give them the option to pick up orders in store instead of paying for delivery; 10.8% would shift spending to stores and online retailers with stores; 10.6% would spend more in stores and less online; and 4.2% would shift all spending offline. The study is based on a survey of 1,357 consumers.
The California bill’s proponents, however, contend it could raise about $200 million a year in tax revenue that currently goes uncollected. Under federal law, states can only require retailers to collect sales tax if they have a physical presence in the state where a customer resides. Although consumers are required to pay their own “use” tax to their state when retailers don’t collect sales tax, few consumers ever do, state officials say.