California Governor Jerry Brown and Democratic lawmakers have struck a deal to close the state’s estimated $15 billion budget deficit, including provisions to force online retailers like Amazon.com to collect sales tax from customers.
Jerry Brown
California lawmakers approved an online sales tax bill earlier this month and sent it to the governor’s desk, but Brown did not immediately sign it into law. The tax would bring in an estimated $200 million a year. The bill would allow California to collect taxes from any online retailer that has nexus with an affiliate site in California. Amazon.com and Overstock.com have been dropping their affiliates in several other states in a bid to fight against such laws.
The bill also includes two other bills that were also passed by the California State Legislature that would require online retailers that have corporate subsidiaries and distribution centers in a state to collect sales tax from customers, along with another bill that clarifies when other kinds of physical presence require a sales tax to be collected. The three bills were combined into one and sent to Brown's desk earlier this month.
The budget deal reportedly struck by Brown and Democratic lawmakers Monday was brokered without support from Republican lawmakers, but the Democratic legislators may be able to provide enough votes to get it passed, according to the Los Angeles Times. Brown had planned to call a special election later this year with tax increases on the ballot, but reportedly has abandoned that idea for now. He had wanted voters to approve the extension of several temporary tax increases that were due to expire this month, including an extra 1 percentage point sales tax increase. However, he was unable to attract the two Republican votes he needed in both the State Assembly and the Senate to allow a budget with those tax increases to go forward.
The tax increases may go on the ballot in November 2012, when they are more likely to pass with more voters heading to the polls for the presidential election.
The budget deal relies on an extra $4 billion in tax revenue that is expected from the state’s gradually improving economy. However, if the extra tax revenue does not materialize, there would be drastic cuts to programs such as education.
Other parts of the budget reportedly include an extra $12 fee for automobile owners to register their vehicles, and a new firefighting fee for residents in areas prone to wildfires. With the extension of the temporary tax increases left out of the bill, Democratic legislators were able to pass the budget deal on Tuesday with a simple majority vote.
5 Comments
Having lived in Arizona for more years than I like to think about, I've watched as 25% of the people who move here with their businesses come form California. They want the ability to live and work here without too much red tape. As a business owner who at one time had offices in California, I know first hand the difference of the business climates in both states and I much prefer the business climate in Arizona, though the weather climate in California is better most of the time.
Sales tax is a basic form of tax collection that every state has and uses. The idea of not paying sales tax on items coming from another state has bothered politicians, tax collectors, and regulators since the beginning. Catalog sales also require sales tax be collected from those who live in the state where the catalog company is located, but not their suppliers. Why then are Amazon and Overstock being singled out for using drop shipping of items purchased by customers simply because the catalog is on the internet and names the supplier.
Amazon uses the idea of drop shipping from suppliers to the end customer to avoid having to warehouse everything they sell lowering he cost dramatically It also allows direct bidding by those suppliers directly to amazon's customers to reduce the over all costs customers pay. California and the California suppliers to Amazon would lose regardless if Amazon continued to allow those merchants to be part of the suppliers of products as the tax costs when added to the sales price make the item non-competitive to those with out the tax. Folks who use Amazon look for the best price in almost every instance as well as availability. If only a California supplier has it, they would get the order. But with almost every item available from two to twenty suppliers, why would one buy from someone whose price is higher because of the tax? Amazon knows this and it's the primary reason as to why they will not carry the items from California suppliers. Additionally, the extra burden of determining the tax owed to California each month adds a cost burden on Amazon that they can avoid by excluding California merchants. They will still have more than enough suppliers of products. It just good business sense to do what they have done.
Posted by: bobf7544 | July 4, 2011 6:26 PM
Report this Comment
The result is fairly simple: Amazon and Overstock can easily shift all of the online work to Nevada and neighboring states, along with the jobs. Thousands of workers and millions of dollars in profits have been leaving California for several years. So what's new about this? Nothing. Just the same old same old anti-business sentiment choking small businesses into oblivion. Don't believe me? The state's unemployment rate speaks for itself.
Posted by: lammip | July 1, 2011 7:10 AM
Report this Comment
Given that Amazon and Overstock, etc, would not have affiliates unless they made profits off of them despite paying commissions to these same affiliates, they are essentially giving up profits. cutting off their noses to spite their faces. Let them go and let the State provide funding to "market" those companies that help provide the State with fund for Education, Roads, Health Benefits, Safety, etc. for all citizens.
Would too many so-called "good citizens, good mericans (sic)" still go out of state to shop? Of course. Ain't nuttin you can do about 'em.
Posted by: Tedego | June 29, 2011 3:58 PM
Report this Comment
The tax bill won't bring in $200m from online sales. The assumption was based on retailers like Amazon and Overstock not canceling their affiliate relationships and leaving town.
Given that Amazon and Overstock, etc. have stated publicly that they WILL cancel those relationships if the bill becomes law, continuing to count this money before it is collected is pretty fraudulent.
Posted by: mhwine | June 29, 2011 1:17 PM
Report this Comment
This will probably force those retailers over the border to Mexico or Canada and the jobs with them.
Posted by: benusmc | June 29, 2011 8:26 AM
Report this Comment
Add Your Comments...
Already Registered?
If you have already registered to Accounting Today, please use the form below to login. When completed you will immeditely be directed to post a comment.
Not Registered?
You must be registered to post a comment.