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It's Amazon vs. California in high-stakes sales-tax fight

August 8, 2011 | 12:49 pm


This is a corrected version of the original post; see the note below.

So, Californians, how do you feel about the prospect of Amazon using you as human tax shields?

Amazon has given a new meaning to chutzpah, evidence the article by my colleagues Andrea Chang and Marc Lifsher.  

Amazon's petition-carriers are trolling for signatures outside the very kinds of brick-and-mortar businesses that its online tax-free sales are undercutting. They're doing it to put a proposed measure on the California ballot that would protect Amazon from a law requiring the company to collect taxes for its online sales.

Let's be clear: This is not a new tax. You already have to pay it. The new law is about who does the collecting. Right now, you are obligated to pay it yourself, via your state income tax.

Here's how it works now. Imagine you went to buy shoes at the mall, or tires at your car dealer, and the store didn't charge you taxes -– you'd still be on the hook to pay them on your income taxes.

That's how it operates with online sales -- on the honor system. That makes you, not Amazon, liable if you don't pay. And that's evidently how Amazon likes it, because it gives the company the appearance of having a bargain over the store down the street that may be charging the same price but has to add on sales tax.

Every time you file your California taxes, you're supposed to state how much money you spent in out-of-state online sales, and pay California that tax.  Because many Californians don't know this, or don't pay the taxes if they do know it, the state doesn't get an estimated third of a billion dollars a year in sales tax on online purchases. (Taxes on intrastate online sales -– say, if you live in L.A. and buy something from a store in San Francisco -- are, on paper at least, charged up front by the seller.]

The law signed by Gov. Jerry Brown declares that online sellers such as Amazon -– not you -– must shoulder the same burden that every brick-and-mortar business in California already has, and Amazon would have to charge you the tax up front, like other businesses.

California is not the only state doing this. Texas has already passed such a law. So has New York. So has North Carolina. All these states say it's the seller's -– Amazon's -– responsibility to collect the tax, just like every other business. Texas figures that it's getting stiffed out of more than a quarter of a billion dollars a year in taxes on online sales.

Amazon has been fighting this like mad. The Dallas Morning News reports that the company has offered to create 5,000 jobs in Texas if the state lets it off the sales-tax-collection hook for the next 4 1/2 years. South Carolina, the newspaper says, has already accepted a similar deal.

In California, Amazon is doing battle with the stick, not the carrot. It cites a 1992 Supreme Court ruling in its claim that California's law is not constitutional. It's the same argument Amazon used when New York declared that it has to collect state taxes upfront.

Amazon says it's not up to the states to pass such laws. Some members of Congress are taking Amazon at its word and proposing a federal law to accomplish the same thing nationwide.

Small businesses -– the same ones politicians praise as the backbone of commerce, and the nation's job creators -- have been unhappy about Amazon's opt-out advantage for a long time. They see potential customers coming into their stores, checking out the merchandise, asking lots of questions of the sales staff -– and then buying the item online to save the tax money.

Saving money is great, but in this case, it could wind up being counterproductive because you pay one way or another. The blowback can kill jobs and profits at thousands of brick-and-mortar stores here in California, from the hardware store your brother-in-law runs to the dress shop that employs your neighbor.

Merchants in the Salinas Valley city of Salinas recently rallied to support the California law to make online retailers charge taxes just as they do.

In response to the law, Amazon has cut its ties with its California marketing partners, and in just a few weeks has put a reported $3 million into a campaign to collect signatures on petitions to put a measure throwing out the law to a vote.

The Times article says Sarah Hrejsa, who manages a women's clothing boutique in Larchmont Village, shooed a signature gatherer out of her store. She has to collect sales tax, she said, and "I don't understand why [Amazon] can get away with not."

Here's part of how Amazon declares on its website that it's your job, not the company's, to pay taxes on your purchase:

"For states imposing sales or use taxes, your purchase is subject to use tax unless it is specifically exempt from taxation. Your purchase is not exempt merely because it is made over the Internet or by other remote means. Many states require purchasers to file a sales/use tax return at the end of the year reporting all of the taxable purchases that were not taxed and to pay tax on those purchases. Details of how to file these returns may be found at the websites of your respective taxing authorities."’

For California voters, this is shaping up as a battle of the titans -– Amazon versus brick-and-mortar retailers in California, led by Wal-Mart, which itself been accused of driving small businesses out of existence.

The tens of millions of dollars that will be spent on ads and consultants if this measure ever gets to the ballot are still nothing compared with the hundreds of millions in sales taxes at stake.

Frankly, I think Amazon owes California. The name "California" is tied to Amazon-like qualities; the word "Califia" [sometimes spelled "Calafia"] comes from an actual 16th-century novel that was found in the library of the fictional Don Quixote. The book speaks of an island paradise called California, and a queen ruling a realm of women who are veritable Amazons.

[For the Record, added 6:15 p.m. August 8: The original post misspelled Marc Lifsher's first name as Mark. It also stated that Salinas is located in the Central Valley; it is, in fact, located in the Salinas Valley. The current version corrects both errors.]


Amazon and its crafty initiative

Amazon to California: Drop dead!

Ted Rall cartoon: Busting Amazon's chops 

Amazon vs. California: Whose side are you on?

-- Patt Morrison

Credit: Rick Wilking / Reuters

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