September 12, 2011, 11:27 AM

Amazon and California reach a sales tax deal

The deal exempts online retailers from sales tax collection for another year or more.

Paul Demery

Managing Editor, B2B E-commerce

Lead Photo

California legislators have approved a bill that exempts online retailers from sales tax collection for at least a year.

The passage of the legislation, AB 155, replaces an earlier bill, AB 28, that was signed into law in June and had required immediate collection of sales tax by retailers who received customers via web links on in-state affiliate web sites such as blogs. State officials say the expanded sales tax collection would result in about $200 million a year in tax revenue that currently goes uncollected.

But Amazon.com Inc. and other retailers had cut their affiliate ties to avoid the tax collection, and Amazon, No. 1 in the Internet Retailer Top 500 Guide, was actively pushing for a referendum on the state ballot next year that would have let voters decide if the law passed in June should be repealed.

The new legislation, if it becomes law, would take that referendum off the ballot. Gov. Jerry Brown, a Democrat, has not said whether he will sign the new bill.

If he does sign it, Amazon says it will go ahead with plans to build new distribution centers in California and create up 7,000 jobs in the state over the next few years. The online retailer will also reconnect with thousands of affiliate web sites.

“This bipartisan, win-win legislation will allow Amazon to bring thousands of jobs and hundreds of millions of investment dollars to California, and welcome back to work tens of thousands of California-based advertising affiliates,” says Paul Misener, Amazon vice president, global public policy.

The Alliance for Main Street Fairness, a lobbying group supported by large retail chains and other merchants that favor forcing online retailers to collect sales tax, also backs the new legislation. "The vote in the California Legislature in favor of e-fairness sends the message to every state in the nation and the federal government that Main Street businesses won't settle for anything other than a level playing field," says a spokesman for the group. "The agreement reached in California is an admission by Amazon.com that they can and should collect state sales taxes just like every other retailer.”

As part of the tax deal, Amazon will work to win support throughout the U.S. for federal legislation sales tax bill that would authorize states to mandate sales tax collection if they have simplified their tax collection policies as part of the Streamlined Sales Tax Project. About two dozen states participate in the SST. In effect, the new federal law would override existing federal law that says states can’t mandate sales tax collection by retailers unless the retailers have an in-state physical presence, such as stores or distribution centers.

“This [California] legislation also will allow us to continue to work with Congress and the states to obtain a federal resolution to the sales tax issue as soon as possible," Amazon’s Misener says.

In California, the new legislation sets a new timetable for when online and catalog retailers will be required to collect sales tax:

● If a federal law is enacted by July 31, 2012, that grants states the authority to mandate sales tax collection by all retailers regardless of whether they have an in-state physical presence—but California does not move to implement such a law by Sept. 14, 2012—then the sales tax collection provisions of AB 155 would require sales tax collection by Jan. 1, 2013.

● If a federal law is not enacted by July 31, 2012, the provisions of AB 155 would require sales tax collection by Sept. 15, 2012.

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