Have we forgotten that when we purchase things from out of state we still have to pay taxes on them? It's just that the seller doesn't have to collect that tax for our state when they don't have a physical presence here, but that doesn't get us off the hook.
Now, I understand that no one really pays the tax, and that most states will let you pay a flat fee to cover any taxes you might have owed (if they are under a certain amount), but rest assured that if you make a massive (think car, boat, or artwork) out of state purchase, they will be looking for that tax money.
The problem is that California redefined the definition of "physical presence" to include affiliates. So not only would Amazon have to charge taxes on behalf of affiliates, but just by having affiliates in California they'd have to charge taxes for any California purchases. That's what they cannot abide.
And Amazon really won't really feel any pain. Only Californians are being hurt by this in terms of lost jobs, lost income, and lost income tax revenue.
Just because Amazon is a large corporation doesn't mean it won't hurt them to have to figure out the tax laws for all the different counties/cities/and state level. Not only that, but why should Amazon be forced to file taxes in 50 states.
How does this ruling affect other much smaller companies? If I had an affiliate program would I now have to start taking money according to California tax law even-though I am located in Arizona?
The only beneficiary to this is states that don't have this tax condition so that current affiliates incorporate there. Incorporate out of state, file an S-corp election, get some mail forwarding services out of state, done. CA will not lose any rev, jobs or anything.
The whole thing is a giant exercise in paperwork and a few hundred dollars of barrier to entry.
I have no philosophical objection to collecting tax for states other than the one in which my employer is located, provided two things are done first:
1. Rates are simplified. I do not want to deal with every separate county, city, or special tax district that has its own rate. I want to be able to look up the rate I should charge based on just a 5 digit zip code.
2. Reporting is simplified. I do not want to deal with almost 50 different requirements for how to submit the collected taxes. Keep in mind that each state needs to know how much tax was collected in each tax district so that they can apportion it correctly, so at the very least they are going to want some kind of breakdown from me.
My suggestion to deal with #1 would be for the states to get together and create a single source for rate data, updated quarterly, so that merchants could grab all the rate data from one place.
For #2, my suggestion would be for the states to agree to collect for each other. I'm in Washington, so already have to collect tax for Washington sales, and am already set up to report the appropriate data to Washington. So why not make it so when I report to Washington, I report sales from all states? Washington can them break that out by state and send the appropriate money and distribution information to the other states. Same goes for the other states--California merchants would report all sales and pay all collected taxes to California, which would then pay Washington for the sales that were to Washington, and so on.
If it were done this way, it would have minimal impact on merchants. We'd basically just end up getting bigger tax tables than we now get, and submitting more data to where we already submit data.
I realize this might not be a popular opinion, but Amazon is in the wrong here. For years they have been exploiting a quirk of the way our taxes are collected that allows them to avoid paying their fair share. [edit: that was poorly phrased, but the point stands.]
If the people who live in CA have a problem with paying sales tax, they should take that up with their legislators.
The tax is not paid by amazon it's paid by the people who purchase goods from Amazon. The people who purchase goods from Amazon have been exploiting the fact that it's unprofitable for the state to enforce the law on them. The sales tax law has been very clear that people who buy goods out of state must pay CA sales tax on them.
Amazon's position is that they do not wish to burden their business with collecting state sales tax on behalf of their customers. It's obvious interference with interstate commerce on part of the California gov't which is why the state has resorted to tenuous links to in state commerce such as having an affiliate in state.
The blogger should be more upset with her fellow Californians who use Amazon to skirt CA tax law. CA changed the laws because it's much more profitable to enforce against Amazon than thousands of tax evading citizens.
If the blogger wants to use Amazon all they need to do is incorporate in a state with tax laws that are conducive to Amazon's affiliate program. An S-corp or LLC should be fairly revenue neutral for them.
I can understand the argument that you don't want the complexities of dealing with 50 different state taxes to burden the little guy, but what would stop the US Congress from passing legislation that requires any company doing inter-state business over $N to pay sales tax to the receiving state?
I think we need such legislation, with the caveat that there needs to be an easy way to compute the amount of the tax. (Figuring out what sales tax rate would apply at the purchaser's exact location is hard because of county and city taxes. In some cases the 5-digit ZIP code is not even sufficient.) A single tax rate for all such sales is probably too simple, as it would put online retailers at a disadvantage when shipping to a state with no sales tax. A single tax rate for each state might work. At the other extreme, it could probably be done based on the 5-digit ZIP code, but I don't think it would work to go any finer than that. Even at that level, we'd need an online service to do the lookup.
The complexity of dealing with 50 different state sales taxes isn't much of a problem. It's the tens of thousands of county, city, and local sales taxes that make it a problem.
The core issue for me is that placing a sales tax on affiliate clicks is illogical. Lets say a Californian has a website with Amazon affiliate links. I live in Oregon, which has no sales tax. I click one of the affiliate links and buy from Amazon, a Washington based company. Why should the sales tax go to the State of California? The sale wasn't made between a vendor or a customer located there. The affiliate earns a commission, which the State of California can charge an income tax on.
I think you're slightly off here. As I understand it, what these states are trying to do is consider Amazon's independent affiliates a physical presence for Amazon in that state. What that means is that Amazon then becomes responsible for collecting sales tax on items purchased by residents of that state; how they found their way to Amazon and made their purchase isn't relevant. In your example, no sales tax would need to be collected because you're a resident of Oregon and, presumably, Amazon does not have a physical presence there.
Amazon doesn't currently charge sales tax to things shipped to California under the exemption that they don't have a presence in California and therefore their commerce is strictly inter-state.
California has a new law which effectively creates a de-facto presence if someone who lives in California can be an agent for a sale of something from Amazon. (those are the affiliates) and it is the intention of the state to use the existence of those 'agents' to close the tax loop hole that Amazon is currently exploiting.
So when it goes into effect, Amazon terminates its relationship with all affiliates who live in CA(or have their checks sent to California), thus keeping the loop hole open for them, and causing pain to some segment of California voters who may (or may not) be motivated to tell their representative to reverse their stance.
You, up in Oregon, don't see a change except that if you bought from someone in California through Amazon before, well you won't be able to do that now. You'll have to go directly to their web site.
Might be easier to charge the sales tax only on people who clicked the affiliate links. Trying to tax the people who didn't sounds unfair, considering Quill Corporation v. North Dakota.
"The thing is, Jeff, that we are Californians. Paying taxes to our state benefits us and our family. If we didn’t have you, we would shop more at local retailers that DO pay taxes in California and DO reinvest in our local area. The more successful you are, the less our money stays in the area and the fewer funds we have for our local infrastructure."
If Amazon is detrimental to CA residents than as a CA resident why would they put Amazon affiliate links on their site in the first place? Aren't they helping Amazon to be successful? The argument seems inconsistent. They seem to only have adopted this view only after being kicked off the program, if they were still on I'm sure we'd see no open letter regarding not collecting CA sales tax.
Also, if a CA resident buys something from Amazon and doesn't pay CA sales tax doesn't the sales tax money remain with the consumer which means there is no difference for money staying in the community and being available for community investment. What I mean by this is if a CA resident buys a TV from Amazon and saves $200 because they evaded tax, then the person still has $200 to go buy coffee from a local retailer.
flietz, nice points but a bit facetious. Of course I only wrote the post because CA's law and Amazon's response directly affect our site. I might have thought it but not taken the time to write it if it wasn't so personal.
Amazon is a net good, I think. It's made products from anywhere available to anywhere readily, reliably and cheaply. It also had created a wonderful ecosystem for small businesses. This is why we chose to affiliate our site with Amazon.
That said, there's no question that Amazon's success further decimated / continues to decimate small independent booksellers and other retailers who contributed more readily to regional economies - creating local jobs, supporting local events, paying local sales tax, etc.
Your local consumer may have more money for local coffee if she doesn't pay sales tax, but her local government has less. Beyond that, her local economy has less from any profit on the TV going into circulation in Washington State rather than staying with a locally-owned business.
That said, I value Amazon's right to compete with local businesses, and the value and innovation their success brings to me, my city, our nation, and the world at large.
Whether or not you agree with sales tax is one question - the one addressed by your points above. But if it exists for some, how is it fair for it not to exist for all?
(The argument that the consumer is expected to pay it either way is not a valid point - the reality is the consumer is escaping it with one retailer and coughing it up at another.)
I don't think she is trying to avoid the taxes and stay in business. I think she wants CA to receive the taxes and have local retailers on a level playing field.
Now, I understand that no one really pays the tax, and that most states will let you pay a flat fee to cover any taxes you might have owed (if they are under a certain amount), but rest assured that if you make a massive (think car, boat, or artwork) out of state purchase, they will be looking for that tax money.