Amazon Makes Jerry Brown an Offer He Can’t Refuse – Yet He Might
By Kim Rueben :: September 2nd, 2011
After threats and tough talk for most of the summer, Amazon seems to be changing tactics in its battle against collecting sales tax on purchases by Californians. For months, the firm has been bankrolling a ballot initiative to reverse a new state law requiring online retailers to collect the levy. Wednesday, Godfather-like, Amazon made Governor Jerry Brown an offer it thought he couldn’t refuse: Amazon would open new distribution centers in California in exchange for a two-year delay in the law. Yesterday, the governor said he thinks not. He hasn’t made a final decision but he’s signaling no. I’m sure that Amazon and its supporters will now blame Brown for costing the state 7,000 new jobs.
Here’s the back story: In June, Brown mandated collection of the tax. Sales tax collections by out-of-state sellers are governed by a legal principle called “nexus.” In effect, if a business has a physical presence in a state, it must collect taxes. Amazon promptly cut ties with 10,000 California business affiliates to erase any physical presence. It refused to collect the tax and funded the campaign to repeal the law through the ballot box. This isn’t a new fight. We blogged about it last March, when states started proposing laws to collect internet sales tax, and back in 2009, when New York first raised the issue of Amazon paying taxes due to the presence of affiliates within the state.
Amazon offered to bring 7,000 distribution center jobs to California to avoid a ballot-box fight in exchange for a two-year moratorium on the tax. Want to guess how long the jobs stay once the freeze ends? Are 7,000 jobs worth the $200 million-a-year in sales taxes the state figures it will collect (plus another $100 million for local governments)? And would they ask for another delay or blame Brown for sacrificing these jobs? Of course, offering to set up distribution sites has already worked for Amazon in South Carolina and Tennessee.
Meanwhile, the repeal effort rolls on. Amazon has donated over $5 million to collect signatures, and many of the paid signature gatherers were set up in front of its big box store competitors. The referendum, which would repeal the law, requires 505,000 signatures of registered voters to make it onto the ballot. Given California’s record on tax votes, chances are the repeal will go through.
Amazon is bound and determined to avoid collecting sales tax to keep a price advantage over its competitors, even though in doing so it is effectively encouraging its buyers to break the law. Other e-tailers seem to have no problem calculating and collecting the tax.
What does this mean for California’s budget? It obviously doesn’t help. State revenues already appear to be coming in below projected levels, which means more budget cuts later this fall. But that might be a blog for another day.
Meanwhile, Amazon’s move may signal the end of my love affair with my Kindle. As convenient as shopping at Amazon is, I’m going to buy things from sites that charge their customers sales tax. While I did pay use taxes in California (where you report it on your income tax return) I haven’t figured out how to do the same in DC (my current residence). Amazon’s refusal to collect taxes encourages customers to avoid the taxes they owe. I’ll stop feeding my Kindle because, in the end, I think a customer boycott may be the only way to get Amazon to behave.