Amazon Fighting California Tax Law at the Ballot Box

By: - August 16, 2011 12:00 am

For years now, the question of whether online retailers should have to collect state sales taxes has been a source of disagreement in legislatures and courtrooms. Now, the dispute will likely have a new venue: California’s ballot box.

California approved a so-called “Amazon law” earlier this year, requiring online retailers to collect the state’s sales tax, which ranges from 7.25 percent to 9.25 percent, depending on the jurisdiction. The state’s budget is counting on million this fiscal year as a result of the change, with local governments collecting even more. In California, though, critics of newly passed laws can challenge them via statewide referendums. That’s what Amazon is trying to do. The Sacramento Bee reports that if opponents of the law can gather around 500,000 signatures by September 27, the referendum will take place next June. The law wouldn’t be enforced pending the vote.

That referendum would be a costly showdown between online retailers such as Amazon and brick-and-mortar retailers who argue that the online companies gain an unfair advantage by avoiding sales tax. Early polling suggests the vote could be close. A poll sponsored by the Los Angeles Times and the University of Southern California found that 46 percent of registered voters in California supported charging sales tax to online retailers, while 49 percent were opposed.

California is one of several states that have tried to force the online companies to collect the taxes. New York has had the best luck so far. Amazon is collecting taxes while it battles the state in court; New York won the initial round.

Most of the state efforts haven’t been as successful. Under a 1992 U.S. Supreme Court ruling, Quill v. North Dakota , retailers have to collect sales taxes only in states where they have a physical presence. That’s given Amazon an out: It can end its relationship with affiliates in a state, then declare it has no physical presence and doesn’t need to collect taxes. It’s used that approach in Illinois, North Carolina, Rhode Island and, as of June , California too. But California is trying to collect the tax from Amazon anyway, arguing that the company does have a physical presence in the state, in the form, for example, of a subsidiary that helped develop the Kindle.

The Los Angeles Times reported earlier this month that Amazon campaign consultants are confident the measure will qualify for the ballot. Their hired petition workers were busy gathering signatures from shoppers entering and leaving stores such as Target-stores that already collect sales taxes.

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.