

California may be the next state to lose its Amazon affiliates - thaumaturgy
http://www.theunion.com/article/20110405/BREAKINGNEWS/110409893/1066

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hsmyers
"You cannot build your entire business plan on the avoidance of taxes," said
Assemblyman Charles Calderon, D- Whittier, author of Assembly Bill 155 That
would be 'news' to GE...

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bittermang
One. GE didn't.

[http://news.yahoo.com/s/ac/20110326/bs_ac/8148778_new_york_t...](http://news.yahoo.com/s/ac/20110326/bs_ac/8148778_new_york_times_gives_false_information_on_general_electrics_zero_income_tax_bill)

Two. Amazon didn't either.

It's been the same story for ages with catalog orders, phone orders, or any
other intrastate commerce. States either 1) looked the other way, because the
sales weren't large enough to bother with, or 2) passed laws making the state
residents responsible for tracking their sales and paying the appropriate tax,
not the business.

Two things changed. The Internet became a Big Deal, and the volume of sales
became large enough to get legislator's attention for how they could get their
hand in to the flow of money. Then, Amazon actually started doing business
inside of these states in the form of affiliate programs and warehouses. It is
on these two points that the fight is being contested, which state governments
claim absolves them of the long standing taxation between states issue, and
makes Amazon liable for sales tax revenue.

They didn't intentionally build their model around dodging taxes. That was the
law of the land. Don't like it? Change the law.

~~~
thwarted
_Then, Amazon actually started doing business inside of these states in the
form of affiliate programs and warehouses. It is on these two points that the
fight is being contested_

When I was involved with on-line retail, the existence of a warehouse in a
state constituted having a presence in the state. We had a warehouse in NJ
that we shipped from, and that was the only state we had to collect sales tax
for. We delayed opening another warehouse because of the sales tax
implications, but finally opened up up in NV in order to reduce shipping time
and cost to the west coast. We only had to collect sales tax for those two
states (I know because I wrote the code for it).

Now, from what I understand, Amazon tries to get around even that by having
their warehouses owned/run by a subsidiary or other entity that is not
strictly Amazon but ships Amazon's items to other states (not to the state
itself, otherwise this sub-company would have to collect and pay sales tax).
Strictly speaking, Amazon still doesn't have a presence in the state in terms
of warehouses, so until the state laws are changed to recognize these
shipping/warehousing-only companies as one and the same as Amazon, there's
still no sales tax to collect on a pure existence-of-business-entity in the
state in the form of a warehouse. Amazon effectively outsources their
warehousing and shipping to other companies -- this is actually pretty common
(along with drop-shipping) in the mailorder business because running a
warehouse is an expensive, capital intensive operation.

Affiliate programs are outsourced services also, outsourced marketing (lead
generation). Really, this comes down to an attempt to tax outsourced
operations. Maybe a better way for the states to fight it is to change the
zoning and the tax laws so that warehouses are taxed more aggressively
(especially if they ship things out of state -- warehouses that ship
intrastate would have to collect sales tax, warehouses that ship interstate
would pay higher business or property taxes).

IANAL and IANA-Tax-Collector.

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splat
I find it strange that news articles always phrase it as

"The state estimates it loses about $1.1 billion a year in revenue through
uncollected "use taxes" from online sales."

rather than

"It is estimated that consumers save about $1.1 billion a year form online
sales"

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hugh3
Isn't it, strictly speaking, tax evasion for the consumer to not pay it? If I
recall correctly, my California tax return asked me how much stuff I'd bought
in other states, and would I very kindly pay N% of the value of that to the
state now please.

~~~
Schultzy
It depends on what you mean by tax evasion. If you are referring to the legal
charge that can be brought against someone, then no, it is not. If, however,
you used the phrase as a general description, then sure, it may very well be,
but there's nothing wrong with it.

~~~
Semiapies
It's called "tax avoidance" when you do something entirely legal to avoid
paying a tax. Like when you stop and buy something at a store by your office
instead of the stop further up the road, which has a higher sales tax.

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sportsTAKES
It's just insane. The one sector of the retail channel that's really cranking
is online.

And given the many (not the occasional bad experience, the many...) that I
have in shopping at brick and mortar retail, I feel little to no sense of
obligation to shop locally. Either they don't have it or the service is
terrible.

It seems like some government entities argue that w/o the competition of
online business these brick and mortars would be thriving. In what other realm
is 'less' competition a good thing?

And I don't buy for a second that it's not a level playing field. I currently
live in Oregon (came from California will be moving back there again
relatively soon...) where there is no sales tax and retailers still generally
don't have a clue on how to manage their inventory and deliver a good customer
experience.

So sales tax will do nothing to resolve the issue as it relates to local
retailers.

The bottom line is that good retailers that manage their inventory and provide
a great experience will thrive regardless. The bad ones won't survive either
way.

And for those that are always saying they will gladly pay more taxes, I say
got for it. Send your money to the government - literally nothing is stopping
you. Cut and check and send to the state - they can accept those checks.

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adambyrtek
Am I the only one who mistook the domain name for theonion.com? :)

~~~
oconnor0
No, I was wondering how The Onion was going to satirize this topic.

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orijing
I'm not going to argue whether Amazon (and other online merchants) should be
forced to collect sales taxes in California, whether it's an ethical or legal
responsibility, but it's definitely in California's interest to do so, and not
just in the obvious way.

The obvious benefit for CA is that it can collect more sales taxes from online
purchases from companies like Amazon who have historically not collected the
taxes. But a less obvious benefit is that it tilts the playing field so that
merchants currently _based in CA_ are better off (relative to itself without
the tax) competitively. Additionally, companies that have avoided
presence/nexus in California for the sole purpose of avoiding the tax will
have less disincentives for avoiding California. As a result, perhaps more
companies will open branches in California, either for sales, distribution, or
development; and merchants already with presence in California will do
relatively better than otherwise.

I can see why California would want to push for such a tax.

~~~
thaumaturgy
The problem is that it doesn't actually work out that way. The proposed bill
is only expanding the requirements to cover companies with "sister companies"
in California -- i.e., affiliates.

We've already seen this play out a few times. We know exactly what happens if
the bill passes: Amazon cancels all of its affiliate contracts in California.
California residents still do not pay taxes on Amazon purchases, Amazon no
longer has any presence at all in the state, the state makes no extra money,
and the competitive field is still left unchanged for local businesses.

It's a net loss for California.

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earl
Amazon should be paying taxes in CA -- they have a major dev shop here [1].
a2z is right off market street in sf, and while they somehow managed to
finagle their way out of being technically employed by amazon, employees there
(1) receive amazon stock, (2) receive a discount on amazon purchases, (3)
produce software used exclusively by amazon such as the recent online music
player/locker service. As far as I can tell, that's Amazon having a presence
in CA and as such, they should be collecting sales tax for the state. Not that
I'm jonesing to pay sales tax...

[1] <http://public.a2z.com/about.html>

~~~
aphexairlines
Also a search team (a9) office in palo alto.

