California E-Commerce Tax Fight Heats Up
The California legislature could take a decisive vote on taxing out-of-state e-commerce retailers in the next couple of weeks.
This could be the next chapter in a tough battle of wills between a state legislature scrambling for revenue and out-of-state e-commerce retailers seeking to preserve their exemption from collecting sales tax.
The latest round started on Aug. 25, when, in a detailed legal action, the California Senate Appropriations Committee approved a bill, AB155, which demanded out-of-state retailers collect sales tax. It also repealed a recently passed law, ABX1 28, which also demanded out-of-state retailers collect taxes. However, ABX1 28 was the target of a campaign to repeal the law, which was supported by prominent Seattle-based e-commerce retailer Amazon.com.
A spokesperson for the referendum campaign said that there are no plans to shut it down. “We’re confident we’ll collect more than enough signatures to qualify the referendum for the June 2012 ballot,” said Ned Wigglesworth, who manages ballot campaigns for the company Goddard Claussen West.
AB155 might come up for vote on the floor of the state Senate anytime from Aug. 31 to Sept. 9, when the current legislative session ends. AB155 also includes an amendment to increase the small-business exemption in the collection of e-commerce sales taxes. In a previous law, only business with annual sales of less than $500,000 were exempt. In AB155, small businesses with annual sales of $1 million or less are exempted from collecting sales tax.
AB155 is required to get two-thirds approval from the California Assembly and Senate before it can be signed into law by the governor. It will need at least two Republican votes in each voting body. This might be tough to do because Republicans nationwide have adamantly vowed to not raise taxes this political season.
But the bill stands a chance of passing because the measure is popular with bricks-and-mortar retailers, said Scott Hauge, president of advocacy group Small-Business California. “I have not found too many who say that they don’t like this,” Hauge said. “[Bricks-and-mortar retailers] obviously want a level playing field.”
Before ABX1 28 was approved, out-of-state e-commerce companies did not collect sales tax. It was part of a loophole that was instituted in the early days of e-commerce, when online retailing was a struggling industry. California law demands that consumers pay tax for the items they purchase from an out-of-state e-commerce retailer.
When ABX1 28 was approved in June, Amazon.com and other e-commerce retailers cut ties with California affiliates and publishers of websites that post advertisements and coupons for e-tailers on their websites. Affiliate ties will be restored when the law is repealed, said Rebecca Madigan, executive director of Performance Marketing Association, a trade group for affiliates. “When ABX1 28 passed, 25,000 small businesses in California had their incomes devastated,” she said in a statement.
According to published reports, Amazon offered to build at least two distribution centers in California and hire thousands of workers in exchange for Sacramento politicians dropping efforts to force the ecommerce giant to collect sales taxes. The Sacramento Bee reported that Gov. Jerry Brown thought Amazon’s offer was bad. “Look, we need more revenues unless we’re going keep curbing schools, courts, corrections,” Brown told the paper.
