tax Technology

California Seeks Amazon Tax (ABX8 8)

Following in the footsteps of New York, California seeks to imposed its own version of the Amazon tax. Specifically, ABX8 8 seeks to amend Section 6203 of the Revenue and Taxation Code, which covers the collection of sales tax in the State of California.

(5) (A) Any retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refers potential purchasers of tangible personal property to the retailer, whether by a link or an Internet Web site or otherwise, provided that the total cumulative sales price from all of the retailer’s sales of tangible personal property to purchasers in this state that are referred pursuant to all of those agreements with a person or persons in this state, within the preceding 12 months, is in excess of ten thousand dollars ($10,000).

Here’s the bill analysis:

Expanded sales tax nexus . A contentious issue in sales and use tax administration relates to the extent to which a state may compel an out-of-state retailer to collect use taxes from its in-state customers. The issue is of considerable importance because, although Californians are required to self-report out-of-state purchases for use in this state, the compliance rate is very low.

In general, an out-of-state retailer must have sufficient business presence in the State (also known as “nexus”) in order to be required to collect and remit the tax. Under current law, a retailer is considered “engaged in business in this state” and required to collect the California use tax on sales made to California consumers when it maintains storage or warehousing facilities in the state or it has a representative or independent contractor operating in this state for the purpose of selling, delivering, installing, assembling, or the taking of orders for the tangible personal property.

Current Board of Equalization regulations specify that the use of a computer server on the Internet to create or maintain a web page or site by an out-of-state retailer is not considered a factor in determining whether the retailer has a substantial nexus with California. The regulations further state that an Internet service provider or other Internet access service provider, or World Wide Web hosting services shall not be deemed the agent or representative of any out-of-state retailer as a result of the service provider maintaining or taking orders via a web page or site on a computer server that is physically located in this state.

This bill provides that the term “retailer engaged in business in this state” includes any retailer that enters into an agreement with a California business or other entity under which the California entity, for a commission or other consideration that depends on actual sales, directly or indirectly refers potential customers of tangible personal property to the retailer. The referral can be by a link or anInternet Web site, or some other means, provided that the cumulative sales price from sales by the retailer to customers in California who are referred pursuant to these agreements exceeds $10,000 during the preceding 12 months.

The measure does not apply to advertising on television, radio, in print, on the Internet, or any other medium, unless the payment for advertising consists of a commission or other consideration that is based on sales of tangible personal property. Thus, banners and “click-throughs” on internet sites, such as Google, which are based on models other than sales commissions for referrals, would not create nexus with California. However, the bill could apply to out-of-state sellers using California-based marketplace sites, such as e-Bay.

The bill is based on legislation enacted in the state of New York in 2008. That law has been challenged on Constitutional grounds, but the challenges were dismissed at the trial court level. Currently, three states (New York, North Carolina, and Rhode Island) have enacted laws requiring remote sellers using on-line affiliates to collect use taxes, and lawmakers in several other states have introduced similar legislation.

I’m not sure about the part about Google though since they do have an affiliate network.

3 replies on “California Seeks Amazon Tax (ABX8 8)”

Sears chairman takes aim at Amazon over sales tax issue
Eric Engleman on Tuesday, February 23, 2010, 5:00pm PST has come under pressure from various state legislatures that want the online retail giant to collect sales tax — just like brick-and-mortar retailers. Now the chairman of Sears, one of the nation’s largest brick-and-mortar retailers, is weighing on the issue, saying states should level the playing field when it comes to Amazon.

Sears Chairman Edward Lampert made the argument in a letter to shareholders posted online today. Here’s an excerpt:

Amazon’s domestic business has grown to $12.8 billion in revenues for the year just ended. If you were to apply a 6% sales tax to this revenue (reflecting a rough average of sales taxes across multiple jurisdictions), that would amount to almost $800 million in sales and use taxes owed to state and local governments that is likely not being paid.

He later writes:

If state and local governments are going to require retailers like Sears and Kmart to collect sales taxes and not retailers like, they should recognize that over time their sales tax base will erode significantly and that they place companies who have chosen to locate stores locally at a competitive disadvantage. This will lead to a loss of revenues, the closing of local businesses, the loss of tax revenue, and ultimately to the increase in other types of taxes to compensate for the lost jobs and revenues.

Amazon successfully fought off a wave of state bills last year that tried to make the company to collect sales tax based on its ties to local marketing affiliates (the idea being that affiliates give Amazon a physical “nexus” in those states). Now lawmakers in California and other cash-strapped states are looking at such legislation again.

Sears and Wal-Mart have been boosting their ecommerce efforts in recent months and competing more aggressively with Amazon online.

As some have pointed out, Amazon has collected sales tax in most states on behalf of Target for years (Amazon runs Target’s ecommerce site), so Amazon has the technology to do this.

It will be intereresting to see if states do pass new bills this year, how Amazon responds, and if the longterm effort to streamline sales tax across the states makes any headway.

If the states and/or government weren’t so spend happy, taxation wouldn’t be so out of control as it is and this wouldn’t even be an issue. Sears ought to be complaining to Governor about the insane sales tax rate. A rate that is getting so high that it is worth the gas to drive to a state right across the border to avoid sales tax.

In an economy when people need to save every penny they can while providing the necessary means to survive, taxes only hurt the people and economy overall. Why not just abolish sales tax altogether and raise income taxes? As it is, sales tax is unconstitutional based on the fact that it is a double tax on your earnings. You are taxed when you make it, and you are taxed when you spend it. That’s double taxation and is unconstitutional.

I went to California recently and it had been a while since I did some basic grocery shopping. I bought a case of soda pop. Price sounded good at the sale price. In the end, I paid the price, redemption fees, and 9.25% tax. It cost me just about as much for the added fees as the actual item did. Is that any way to run things? It is if you want to keep the economy from growing.

It’s time for the government to grow up and walk the talk. They tell us how we overspend and how so many are in debt. What about them? Spend more wisely and you won’t have to wine about tax money that you don’t deserve and can lower taxes on your current business so they can increase sales.

My Rant on this “use” tax BS.

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