One of the beautiful things about buying online is that if the vendor is located in a different state from the shopper, state sales taxes aren't collected. That's great for the consumer, but not for the state, especially in these days of shrinking government budgets. Much of the sales tax once collected by brick-and-mortar merchants has gone the way of rabbit ears on television sets, victims of the new world order of technology and e-commerce.
But California, one of many states facing serious budget difficulties, has done something about that. Gov. Jerry Brown has just signed a law that imposes the collection of sales taxes on California consumers by online retailers. California is hoping to collect at least $1 billion a year with this law.
Reaction came quickly by none other than that 900-pound gorilla of online retailers, Amazon.com (Nasdaq: AMZN). It sent notice to members of its Amazon Associates program that it will immediately terminate contracts with all California residents participating in the program. Amazon previously warned its California Associates that the bill was "supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors."
By "big-box retailers," we must assume Amazon is referring to Wal-Mart (NYSE: WMT), Costco (Nasdaq: COST), Target (NYSE: TGT), Best Buy (NYSE: BBY), and the like -- though it didn't give specific names. Those retailers do face an inherent pricing disadvantage from having to collect sales taxes in their physical stores, compared to Amazon and its fellow online marketers, including Overstock.com (Nasdaq: OSTK).
Amazon has already shut down associates programs in other states, including Connecticut, Arkansas, Illinois, North Carolina, and Rhode Island, because of sales-tax collection laws. Amazon chief Jeff Bezos has said he's not against collecting sales taxes, but rather the complications of dealing with 50 different state laws; he backs the Streamlined Sales Tax Initiative and wants federal legislation to deal with sales-tax collection.
Bezos may be getting closer to what he wants. Senate Majority Whip Dick Durbin (D-Ill.) wants to introduce legislation that will make online retailers gather sales tax based on the state in which the consumer lives. He says this is a badly needed law to stop the revenue loss from hurting the states. But laws of this type have been proposed -- and shot down -- in Congress before.
Will Amazon be able to continue dodging sales-tax bullets? Let's hear your thoughts.
