September 30, 2011, 12:51 PM

California and Amazon cut a tentative deal to put off online sales taxes for another year

California legislators agreed last month to exempt online retailers from sales tax collection for at least a year, and Amazon has agreed to lobby for a federal law that could lead to online retailers collecting sales tax in many states.

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In a game of sales tax hardball between Inc. and the state of California, the retailer and the state legislature last month reached a compromise that would exempt the e-retailer as well as other online retailers from collecting sales tax from California consumers for at least a year. In return, Amazon agreed to lobby for a federal law that could lead to online retailers collecting sales taxes in many states.

The agreement is part of a state bill that, if signed by Gov. Jerry Brown, would replace earlier legislation that was enacted in June that required immediate collection of sales tax by retailers who received customers via web links from affiliate web sites such as blogs based in California. State officials say the expanded sales tax collection would have brought in about $200 million a year in tax revenue that currently goes uncollected.

But and other retailers had cut their affiliate ties to avoid the tax collection, and Amazon was 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for a referendum on the state ballot next year that would have let voters decide if the law passed in June should be repealed.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. Brown, a Democrat, had not indicated as of presstime if he would 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 to 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.

"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," he adds.

The new California legislation, AB 155, 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 state could require web retailers to collect sales tax as of 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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