Planning is Peace of Mind

The Party’s Over! Amazon California Tax Begins – Business Law

Business news – For California shoppers, Amazon.com has enjoyed one significant advantage over brick-and-mortar businesses – no sales tax. That all changes on Saturday September 15, 2012.

The U.S. Supreme Court decided in 1992 that retailers do not have to collect sales taxes in states where they have no physical presence, such as a store, office, or warehouse. That case dealt with a catalog mail-order company but the ruling has been applied to all out-of-state sellers, including online retailers.

This decision is why Amazon’s home office is in Seattle and not in California – the state with, arguably, the most customers. California lawmakers have tried to get around the Supreme Court decision in order to cash in on the estimated $150 million in annual tax revenue. California brick-and-mortar businesses also complained that online retailers had an unfair edge by not collecting tax.

California lawmakers passed two bills taxing e-commerce that were vetoed by former Governors Gray Davis and Arnold Schwarzenegger. Governor Brown at last sided with lawmakers in 2011 by signing a bill stating that retailers’ California “affiliates” satisfied the physical presence requirement of the Supreme Court decision (“affiliates” are websites that earn fees by referring visitors to Internet retailers).

Amazon refused to collect the tax and fired its affiliates. It also launched a ballot fight to overturn the law. California and Amazon then compromised – Amazon would collect the tax, following a one-year grace period that runs out September 15, 2012. Amazon rehired its affiliates and promised to bring 10,000 jobs to California, announcing warehouses in Patterson and San Bernardino which will employ 2,000 workers combined.

It will be interesting to see how long other online businesses will hold out on this issue. In any event, this is good news for local business and our state’s coffers. The rest of us will have to shell out more in taxes.

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