July 13, 2011, 8:59 AM
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Let’s see if retail chains can sell sales taxes to online shoppers

Don Davis

Editor in Chief

Online retailers have been on the defensive on the sales tax question for the past year. With states short on cash, several legislatures have passed laws aimed at forcing online retailers to collect sales tax from shoppers. Amazon.com Inc. has challenged the New York State law in the courts—so far unsuccessfully. So now the leading online retailer is taking the battle to a potentially much more favorable arena: asking California’s voters—who are also consumers—whether they want online retailers to collect sales tax on their purchases.

That’s right. Amazon says it’s going to collect the roughly 500,000 signatures it would take to put the sales tax question on the California ballot in the next state election, which is set for February 2012.

Any guess how Californians are going to vote? At first blush, it seems the answer is obvious. Voters are in no mood to raise their own taxes these days. On the other hand, the retail chains that for the most part have been pushing for states to force web-only retailers to collect taxes, so that their own web sites don’t charge more than the web-only retailers do, would find themselves in quite a pickle if Amazon really does put the question on the California ballot.

They would seem to have two choices. One would be to mount an expensive campaign trying to convince voters that paying taxes on online purchases is a good idea, probably a losing proposition. Or they could give up and let Amazon win a stunning victory, which would not only reinstate what has been the status quo in California but give Internet retailers a powerful argument against extending online sales taxes in every other state where the issue is raised.

But my guess is that this will play out differently. I don’t think Amazon is committed to petitioning and putting this question on the ballot. Amazon is good at many, many things, but collecting signatures on petitions does not seem to be a core competency. And I’d be surprised if the retail chains are looking forward to seeing this question on the California ballot.

So maybe there’s a deal to be made. California could back off on its fairly strict sales tax law and Amazon could drop the referendum idea. Both sides could save face by calling a joint press conference and agreeing there should be a study of how online purchases might be taxed on a national level, instead of e-retailers like Amazon having to figure out the tax rates and rules in thousands of jurisdictions.

That would be a good solution from the point of many web-only retailers that don’t want to cut off their California affiliates, but also don’t want to charge sales tax on California residents, which they would have to do under the new law if they continue to work with affiliates based in the state. And maybe that’s how it will work out.

Or maybe we will see a referendum on the question put to California’s voters in February. That would really be an opportunity for the retail chains’ marketing mavens to prove how good they are.

Comments | 1 Response

  • Unfortunately the editor doesn't understand sales tax law. The California law isn't just a battle between web merchants and brick and mortar merchants. This is a battle between those required to collect and those who are not required to collect. Every web-only merchant located in California is required to collect the California sales tax and competes with every merchant, web and non-web, who does not collect the tax. This is a government sanctioned competitive advantage for some, regardless of whether or not they are web-only. For California web retailers the result will be exactly the same if the law is voted out. The question should be either everyone collects or no one collects and I doubt California citizens would choose not one.

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