Earlier this summer, Governor Jerry Brown signed into law a budget bill that required online retailers like Amazon to start collecting state sales tax as of July 1, 2011.The passage of ABX1 28 (Blumenfield) prompted Amazon to initiate a campaign to place a referendum on the ballot that would overturn the new online sales tax.The online retailer had already spent over $5 million on the referendum campaign and was prepared to collect the necessary 504,000 signatures required within 90 days of filing with the office of the California Attorney General to place the referendum on the ballot. To show its virulent opposition to the bill, Amazon has already cut ties with some 25,000 affiliate businesses in California.
As part of a recent deal, however, Amazon agreed not to go forward with the planned referendum while Governor Brown—in signing AB 155 (Calderon )—agreed to delay the collection of sales tax until September 15 of next year.The delay is estimated to cost California $200 million in tax revenue during the current fiscal year, but the compromise legislation will allow Amazon to continue with business-as-usual at least for the next year.
Amazon, as well as other similar online retailers, was not required to collect sales taxes based on a 1992 United States Supreme Court decision that held that physical presence in a state was required for businesses to have a “substantial nexus” with the taxing state as required by the Commerce Clause.Despite California representing as much as 20 percent of Amazon’s market, Amazon did not have the constitutionally required “substantial nexus” required to collect sales tax for California online sales.
Under the budget bill signed earlier this summer, companies that used marketing affiliates in the state to refer customers or had sister companies in California are required to collect sales taxes from customers—establishing a California standard for determining the “physical presence” of a company.Amazon and other online retailers, however, stated that the budget bill violated the Supreme Court ruling and they were prepared to challenge the legislation through the referendum process.
Any litigation or challenge to the Amazon tax proposal is off the table, at least for now, as a result of the deal that delays the collection of online sales taxes until September 2012.Paul Misener, Amazon’s Vice President for global public policy, stated that Amazon plans to bring 10,000 new jobs to California and invest $500 million over the next few years.