California Governor Jerry Brown signed a bill into law Wednesday requiring online businesses to collect state sales tax, calling it “a common sense idea,” but Amazon and other large online retailers said they no longer see the business sense in staying in the Golden State.
Amazon and Overstock.com both announced shortly after the bill was signed that they will be closing all of their affiliate programs in California. Affiliates are small websites and businesses that sell products through sites like Amazon and receive a small commission.
The new law requires online retailers with local affiliates to collect and file state sales tax on purchases made by California customers. California hopes to raise an estimated $317 million a year in new state and local government revenue through the added sales tax collections.
The State Board of Equalization has estimated there are 25,000 affiliates in California — about 10,000 of them making money through Amazon.
Not anymore, though.
“We oppose this bill because it is unconstitutional and counterproductive,” Amazon said in an email to its affiliates. “It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.”
Paul Misener, Amazon VP of Global Public Policy, said in a statement: “This legislation is counterproductive and will not cause our retail business to collect sales tax for the state.”
Overstock.com, a large Utah-based online retailer, sent a similar email to its California affiliates.
“We think this law is unconstitutional,” said Mark Griffin, Overstock’s general counsel, in an interview with the San Jose Mercury News. “We sent a final note to our California affiliates today. It’s a business decision that we had to make.”
Supporters of the law say it is merely leveling the playing field between brick-and-mortar stores and online retailers. The Alliance for Main Street, a lobbying group which has argued for similar laws in other states, applauded the news.
“The reality is this is about collection, not a tax issue,” said Danny Diaz, an Alliance for Main Street spokesperson. “All these online businesses are doing is passing the liability onto the public. The only requirement now is that they operate the same way as every other business in America does.”
Of course, many of the Alliance for Main Street members aren’t exactly mom-and-pop operations. Alliance for Main Street members include many big-box retailers such as Wal-Mart, Target, Best Buy, Home Depot and Sears.
The California Retailers Association chimed in as well.
“We thank Governor Jerry Brown and the leaders in the California State Legislature who have demonstrated their leadership and commitment to California businesses by passing and signing e-fairness into law,” the association said in a statement. “Small and large businesses across the state have been held at a major disadvantage by the current law that out-of-state online companies like Amazon.com and Overstock.com have exploited for years. This has cost us jobs and revenues.”
In 1992, the Supreme Court barred states from collecting sales taxes on businesses that did not have a presence in the state. The Court ruled that such laws amounted to regulating interstate commerce –a power granted only to the federal government.
California’s new law dodges that ruling by claiming companies like Amazon have a presence through affiliates and related companies operating in the state. New York passed a similar law in 2008. Amazon is currently suing the state of New York.
California is the seventh and largest state in the nation to pass such a law.