Following a series of events that rival the drama, suspense
and negotiating seen on prime-time TV, it appears as though California’s
“Amazon Law” may soon be no more! At least temporarily, that is!
But before discussing the latest developments, let’s go back to where this
drama began.
If you caught my original post on California’s “Amazon Law”, you’re probably not surprised
by the sequence of events that have transpired as this law was destined for
controversy right from the start! As if I had crystal ball, my concluding thoughts in that post were, “like a well-written soap-opera, this story
is one that will go on for some time. Don’t touch that dial – you won’t
want to miss what happens next in this California “Amazon Law” story.” (See my prior post, “California Enacts Explosive ‘Amazon Law’! ”)
And without a doubt, this drama has lived up its
preview!
What was it about California’s “Amazon Law” (ABX1 28) that
made it prime for drama? On one hand, California’s law contained the same
presumptive-nexus, “web-linking” language found in the “Amazon Laws” enacted in
other states. But ABX1 28 went beyond the typical web-linking language by
expanding the definition of a “retailer engaged in business” in California to
include retailers that were members of a commonly-controlled/California
combined reporting group which also included corporate members that performed
in-state services in connection with the tangible personal property to be sold
by the out-of-state retailer. (e.g., design, development, fulfillment) Still,
it wasn’t so much the language in ABX1 28 that fueled this drama, as what was
at stake for both California and Amazon.
So where did all the drama begin? First, ABX1 28
became effective on July 1, 2011, almost as soon as Governor Brown signed it
into law. But even before the ink was dry on Governor Brown’s signature,
Amazon had informed its 10,000 plus marketing affiliates (“Amazon Associates”)
that it would terminate their contracts and would no longer compensate them for
referrals that came through web-links on their websites. For some
California affiliates, this would translate into a huge loss of revenue, and
California companies, such as Santa-Monica based Savings.com, began exploring
the possibility of relocating elsewhere. (“Savings.com: The California Internet Tax Law and Unintended
Consequences”, SocalTech.com, 6/30/11)
Next came Amazon’s (and Overstock’s) blatant refusal to
comply. Despite the new law’s expansive nexus language and immediate
effective date, both e-tailers thumbed their nose at it and refused to charge
their California customers sales tax. California tax officials didn’t
seem totally surprised. When asked about her thoughts on this development,
Betty Yee, a California Board of Equalization member, was quoted as saying
“They’re not intending to comply, by all indications. So, we’ll bill them at
the end of this quarter, based on estimates either they provide or we come up with
from other data sources. Then, if they don’t come forward and pay, we’ll
consider other courses of action”. (“Amazon, Overstock thumb nose at California tax”, SFGate,
7/3/11)
Then just days after the new law’s effective date, it was
revealed that Amazon was already planning its next course of action – a voter
referendum which would allow California voters to decide whether the law should
be repealed permanently! Amazon was given until September 27th to
gather approximately 505,000 signatures – obtaining these would suspend the law
and make it unenforceable until after a ballot vote in June of 2012. In
the weeks that followed the petition’s approval, Amazon was criticized for
gathering signatures literally on the front steps of its brick-and-mortar
competitors, as well as for pumping in more than $5 million towards its “More
Jobs Not Taxes” referendum. (“Amazon gathering anti-tax-law signatures outside retail stores”,
LA Times, 8/6/11. “Amazon ups the ante in Internet sales tax fight”, LA Times,
8/23/11)
As it became evident that Amazon’s petition efforts would
prove successful (reports were that Amazon would have the 500,000 plus
signatures well before the September 27th deadline), and
California began to realize the potential loss of the $200 million that had
been anticipated to materialize once Amazon and other on-line retailers were
required to assume the role of sales tax collectors, tax legislators took
unusual and extreme action. They re-wrote the law under an “urgency”
clause. If the urgency bill had passed, it would have trumped Amazon’s
efforts towards a voter referendum – but the bill failed, by just five votes,
to garner the two-thirds votes required for the bill to pass. (“In California, Amazon Pushes Hard to Kill a Tax”, New York
Times, 9/4/11)
But Amazon didn’t just sit back casually and wait for the
outcome. As it had done in other states, Amazon offered a negotiation
package that included building distribution centers that would employ thousands
of Californians and dropping its referendum efforts in exchange for postponing
the new law’s sales tax collection requirement until 2014. When
California’s Democratic legislators weren’t impressed, the offer was rejected.
AB 155 – A Compromise Solution
What happened next emphasizes just how important it was for
both California and Amazon to reach a compromise. In the very
last hour of the 2011 legislative session California legislators, by
an overwhelming majority, voted in favor of AB 155, a compromise bill. The highlight of AB 155, which modifies California Revenue and Taxation Code
Sec. 6203, is that it temporarily and retroactively repeals
the nexus expanding provisions of ABX1 28! How long this repeal will last
– or should I say, how long before Amazon and other remote retailers that meet
certain thresholds have before they are required to start collecting sales tax
– depends on several factors; 1) whether federal legislation,
such as the Main Street Fairness Act now pending in Congress, is passed,
2) when federal legislation is passed, and 3) whether California
elects to implement an enacted federal solution. More specifically:
- If
federal legislation authorizing the states to require a seller to
collect taxes on sales of goods to in-state purchasers without regard to
the location of the seller is enacted by July 31, 2012,
and California does not, by September 14, 2012, elect to
implement the federal legislation, the repeal of ABX1
28′s nexus expanding provisions will remain in effect until January
1, 2013.
- However,
if federal law is not enacted on or before July 31,
2012, the repeal of ABX1 28′s nexus expanding
provisions will only remain in effect until September 15, 2012.
What this means is that Amazon could enjoy at least a one
year reprieve from collecting California sales tax even if the company
re-commissions its in-state marketing affiliates immediately. Another
significant change introduced by AB 155 is that it increases the “$500,000 in
California sales in the prior 12 month” threshold in ABX1 28 to $1,000.000.
That is, once the repeal of ABX1 28 is lifted, remote retailers will be
presumed to have sales tax nexus by virtue of a commission based web-linking
arrangement if they made total sales of $1,000,000 or more of tangible personal
property to California customers within the prior twelve months and paid more
than $10,000 in commissions to their California affiliates.
Sylvia’s Summation
The compromise solution isn’t a done deal yet. The
suspense continues as AB 155 is currently on Governor Brown’s desk awaiting
his signature. While he’s publicly voiced his disappointment in the outcome
(understandably, given California’s huge deficit and unemployment issues), the
general feeling is that he’ll approve the bill by the October 7th deadline
given the overwhelming support it has drawn, not just from the California
legislature, but from Board of Equalization members, such as George Runner, who recently disclosed that not a single
out-of-state e-tailer had registered to collect sales tax since California’s
“Amazon Law” was passed, and of course from Amazon, who considers the
compromise bill a “win-win” and has promised to support a federal solution. But
here’s an interesting note, the pending federal solution currently in Congress
is the Main Street Fairness legislation (S. 1452 and H.R. 2701) introduced by Congressional Democrats in July.
Although a few Republicans, such as Senators Bob Corker (TN) and Luke Kenly
(IN), have voiced their support of the Main Street Fairness
legislation, no Republican has formally added their name to
the roster of supporters on either bill! Another note is that the Main Street
Fairness legislation, even if passed, would only grant the authority to require
out-of-state retailers to charge sales tax to full-member Streamlined Sales & Use Tax Agreement (SSUTA)
states. California is not currently one of the 21 SSUTA
full-member states. So at least at this time, the Main Street Fairness legislation
wouldn’t apply in California. While these latest developments may have
been the season finale – one thing is for sure, this drama isn’t done yet!
____________________________________________________________
The above post, "California's 'Amazon Law' Drama Continues: An Update on Recent Developments", is based on Sylvia Dion's SalesTaxSupport.com post, "Amazon Law (& Order). The California Season Summary...", published 9/14/2011. The content from her SalesTaxSupport.com post has been re-produced in this post for the benefit of the "Buzz's" readers.
See the side-bar for more about Sylvia's E-Commerce/Internet Sales Tax contributions to the SalesTaxSupport.com site.
See the side-bar for more about Sylvia's E-Commerce/Internet Sales Tax contributions to the SalesTaxSupport.com site.
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