For Californians, the days of avoiding paying sales tax for items purchased on the Web ended Wednesday night.
California Gov. Jerry Brown passed a portion of the state budget on Wednesday night that would require Internet retailers with affiliates in the state of California to collect sales taxes from customers living there.
In retaliation, Amazon.com reportedly sent letters to its affiliates in the state, terminating its relationship with them.
The so-called budget trailer bill, ABx1 28, was authored by Assemblymember Bob Blumenfield (D-San Fernando Valley).
The law would require businesses on the Internet with affiliates in California to report and pay sales tax. California residents are required to pay so-called use taxes, but they are rarely, if ever, collected.
"Generally, if sales tax would apply when you buy physical merchandise in California, use tax applies when you make a similar purchase without tax from a business located outside the state," according to the California Board of Equalization's Web page. That includes Web sites like Amazon, which would lose that profit to the state. According to the Los Angeles Times, the savings would be about $200 million.
The Times also reported that Amazon.com had sent notices to its California affiliates, terminating its agreements with them. That's because the bill has a provision that triggers the sales tax clause us a California state resident refers a purchase to the retailer, including via an Internet link or Web site.
Amazon representatives could not be immediately reached for comment.
However, while Amazon may be the highest-profile company affected by the new law, other smaller Web retailers and service providers weren't happy, either.
"While the government has been trying to target Amazon and the big guys that they say are costing them hundreds of millions in tax revenue, Ebates has been arguing since the beginning that you're going to collect zero from them and hurt the 25,000 small businesses in the process," Rob Smahl, chief marketing officer for Ebates, said in an emailed statement. "What we're worried about now is the loss of jobs, loss of revenue for a bill that won't collect a dime."
A similar bill to enforce the collection of taxes by online affiliates of Amazon and others passed the California Senate in 2010, but Governor Schwarzenegger vetoed the bill. Similar bills have passed in New York, North Carolina and Rhode Island.
In Texas, the state comptroller has attempted to charge Amazon $269 million in what she claims is unpaid Texas state taxes. In response, Amazon sent a letter threatening to close a distribution center, according to The Austin Daily Statesman.
In February, Barnes & Noble launched a program to woo Amazon affiliates affected by Amazon's decision.
There are certain exceptions to the new California state law: small businesses who recorded less than $500,000 in revenue for the last 12 months wouldn't be subject to the law, provided that "total cumulative sales price from all of the retailer's sales" didn't exceed $10,000, the law says.
But that wouldn't apply to Amazon, whose revenue topped $5 billion for the most recent quarter.
Editor's Note: This story was updated at 7:42 PM Pt with comments from Ebates' Smahl.
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