By Eileen Kuo and Charles W. Swenson *
On September 23, Governor Jerry Brown of California signed legislation that would give Amazon until September, 2012 before the State starts to enforce its so-called "Amazon Law," which requires Amazon to collect sales taxes on sales made through its affiliates in California. The intent is to give Amazon time to potentially persuade Federal lawmakers to enact Federal legislation which would limit the Amazon Law...
California Compromise: Amazon Fights to a Draw
On June 28, 2011, California Gov. Jerry Brown signed legislation expanding the definition of "retailer engaged in business in the state" to include any retailer entering into an affiliate agreement with a California resident.
Amazon initially responded to this new law by terminating its California affiliate program, but has now collected the 500,000 signatures required to put a referendum on the ballot next June that would ask voters to reverse the affiliate nexus tax. Once the signatures had been submitted, the law requiring Amazon to collect CA sales tax would have been suspended until the vote.Amazon offered to construct two new distribution centers in California if the state would exempt the online retailer from affiliate nexus for two years...
In September 9, 2011, Amazon reached a compromise with California legislators , which was passed by Gov. Brown's signing of AB 155, on September 23, 2011. The bill delayed the imposition of the Amazon tax until September 15, 2012 at the earliest, given that no federal law is enacted on or before July 31, 2012 that authorizes states to require an out-of-state retailer to collect sales tax on sales made to state residents regardless of the retailer's location...
Implications for Remote Retailers
Superficially, it may seem inconsistent for Amazon to so vehemently oppose affiliate nexus laws while concurrently supporting the Main Street Fairness Act [HR 5660, 111th Congress (2010)]. The key difference is that the MSFA would apply uniform rules for sales tax collection across all retailers without regard to the question of nexus, whereas Amazon laws require sales tax collection from only remote sellers with affiliates residing in that state; Amazon alleges that current affiliate nexus laws discriminate against online retailers without a physical presence in the state and favor brick-and-mortar retailers without a physical presence in the state.As definitions of what constitutes nexus continue to evolve, companies need to constantly monitor changes in both legislation as well as company operations in order to avoid inadvertently triggering sales tax nexus. Although it may appear that the major stakeholders will soon reach contentment with the anticipated passage of the Main Street Fairness Act, similar legislation has been introduced in Congress in the past and has subsequently died before reaching the floor for votes. Nonetheless, the recent nationwide controversy surrounding the Amazon law just may be enough to impel Congress to seriously consider the necessity of a federally uniform policy.
New Research: Amazon Law Hurts Small Business
In a recent study ["The Economic Losses Caused by Amazon Laws" Working Paper, Marshall School of Business, University of Southern California] 2011], Swenson found that small business sales declined precipitously in states after enacting Amazon legislation. Some of these firms actually disappeared and there was a resultant job loss and related loss in tax revenues to the state. Lawmakers who are considering enacting Amazon Laws should consider these potentially harmful effects to their states, especially given already high unemployment rates.
* Eileen Kuo is a Master of Business Taxation student at the Marshall School of Business at the University of Southern California. She will be entering law school in Fall 2012. She can be reached at firstname.lastname@example.org. Charles Swenson, CPA, PhD, is Professor and Leventhal Research Fellow at Marshall. He is General Editor of the treatise Bender's State Taxation: Principles and Practice (2009). He can be contacted at email@example.com.
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