Amazon.com cuts California sales tax deal in stunning turnabout

[Nebor]

The main question I have is how this affects other online retailers. Amazon shouldn't be at a disadvantage to them, either. It should be all of them.

I think the problem is, due to the nature of the internet and the virtually endless number of online retailers enabled by the low barriers to entry, that only the big guys are going to take scrutiny under this internet sales tax law. The smaller companies not in compliance simply will be too difficult to pursue, and not enough revenue would be secured by bringing them into compliance.

I'm not saying that's a good reason not to pass the law, I'm just saying that Amazon and the other big guys just took a competitive hit compared to all the little guys and I'm not sure there's anything that can be done about it.

 

[fskimospy]

Awesome.
Awesome.

And apparently not catastrophic enough to offset the cut their margins would take if they didn't pull out - assuming they took this decision.

The only party I'd have any sympathy for here is Amazon, but even that is limited. I would have about as much sympathy for them as I had for Google pulling out of China. I clench my jaw slightly and say, "Tough decision, but it's for the best. Good on ya."

Wow, talk about some creepy hate going on.

Truly, Amazon is the one to pity here. Online businesses should continue to gain a distorted competitive advantage over physical businesses by having all of their products exempt from sales taxes. We definitely want government subsidizing their business model, right?

Amazon would never stop selling in America's largest market, their revenues and profits would take an enormous hit for no good reason. Unlike you, they don't deal with business like petulant children. Good news for everyone, eh?

 

[nonlnear]

Wow, talk about some creepy hate going on.

Truly, Amazon is the one to pity here. Online businesses should continue to gain a distorted competitive advantage over physical businesses by having all of their products exempt from sales taxes. We definitely want government subsidizing their business model, right?

Amazon would never stop selling in America's largest market, their revenues and profits would take an enormous hit for no good reason. Unlike you, they don't deal with business like petulant children. Good news for everyone, eh?

I wasn't saying I thought it was likely to happen. I was saying that if the business case happens to be so extreme that they made that choice, it would be awesome if they in fact did so.

I don't actually think that online retailers should get any advantage at all. I think that sales taxes should be levied in the state of final delivery. However, given the tactics being used here (most objectionable in my mind is giving one company massively preferential tax treatment), I would love to see such a deal bite a state in the ass.

 

[gotsmack]

Why don't they just consolidate west coast operations to Oregon? There's no sales tax there.

 

[her209]

Why don't they just consolidate west coast operations to Oregon? There's no sales tax there.

Weather maybe. Kind of hard to do business when you're neck high in snow.

 

[CPA]

And in September 2012 Amazon discontinues all sales to residents of California, laughing all the way to the bank.

you understand how sales taxes work right?

Amazon would be stupid to pull out, they lose much more to pull out then to put up with the filing nightmare of state sales taxes. Yes, they will lose some customers but many will still use Amazon for the convenience and the ability to find things you just can't find at a B&M.

 

[rchiu]

How many people here have actually read what's the new California deal is about?

"Under federal law, states can tax sales only if the seller has a physical presence in the state. The California bill seeks to get past that issue by letting the state tax board collect from any retailer with a so-called business "nexus" or connection with an affiliate inside California. Supporters say it would make the tax code more fair, forcing Internet retailers to collect taxes just as brick-and-mortar stores already do."

"In six of the states that have modified their laws, Amazon has severed its ties with local marketing affiliates to avoid being captured by the legislation."

1) Amazon wasn't talking about not doing business in California, they are talking about cutting all these affiliates in California, so they still don't have to pay tax under new deal.

2) Amazon can easily by pass the law, and the result is less jobs in CA.

I will be sitting here watching CA getting further messed up by the clueless liberal politicians ruining that state.

 

[Craig234]

I will be sitting here watching CA getting further messed up by the clueless liberal politicians ruining that state.

That's like OJ Simpson giving marriage advice.

We'll be ok.

 

[manly]

How many people here have actually read what's the new California deal is about?

"Under federal law, states can tax sales only if the seller has a physical presence in the state. The California bill seeks to get past that issue by letting the state tax board collect from any retailer with a so-called business "nexus" or connection with an affiliate inside California. Supporters say it would make the tax code more fair, forcing Internet retailers to collect taxes just as brick-and-mortar stores already do."

"In six of the states that have modified their laws, Amazon has severed its ties with local marketing affiliates to avoid being captured by the legislation."

1) Amazon wasn't talking about not doing business in California, they are talking about cutting all these affiliates in California, so they still don't have to pay tax under new deal.

2) Amazon can easily by pass the law, and the result is less jobs in CA.

I will be sitting here watching CA getting further messed up by the clueless liberal politicians ruining that state.

IIRC Amazon has a Silicon Valley office related to Kindle software dev. It's their choice if they want to get out of SV.

The Supreme Court precedent may not support the pro-tax argument for CA. But let's not lie here and say AMZN hasn't benefited from an apparent "loophole". Consumers can currently use their B&M retailers as showrooms and purchase online at Amazon. I don't agree with your indirect implication that affiliate jobs are more important than B&M retailer jobs.

Even in collecting sales tax, Amazon will remain successful and continue to win market share. I for one will continue to buy regularly from them. And FWIW the U.S. Congress can put in place an online sales tax moratorium of some kind.

 

[Double Trouble]

IIRC Amazon has a Silicon Valley office related to Kindle software dev. It's their choice if they want to get out of SV.

They could simply spin that off into a subsidiary or part owned corporation etc.

I think Amazon played it smart. They will just use the 1 year moratorium as time to make sure they've covered anything that creates a nexus in CA. Then, after the year is up, they can just say they don't have nexus there and continue to not collect anything. Win for them.

I haven't followed this closely, but that's what it seems like, and that would be the smart way to go.

Even in collecting sales tax, Amazon will remain successful and continue to win market share. I for one will continue to buy regularly from them. And FWIW the U.S. Congress can put in place an online sales tax moratorium of some kind.

Yeah, but if one place (amazon) collects sales tax and another doesn't, you'd better believe most people will go with the one that doesn't -- myself included. I currently don't buy anything from a vendor that charges sales tax as part of the transaction.

 

[Doppel]

Eventually all online purchases will collect sales taxes as prescribed by law and we'll look back fondly on a day when we didn't have to pay them. Amazon is forced down the path due to its size.

The truth is that Amazon is literally and massively without equal in the online realm and even with sales taxes most people will continue to purchase from it.

 

[PokerGuy]

The truth is that Amazon is literally and massively without equal in the online realm and even with sales taxes most people will continue to purchase from it.

It depends on the price of the merchandise that I'm looking at. If Amazon sells a TV for $1000 + 8% sales tax, that's $1080. I'd probably buy that item from another vendor that didn't withhold sales tax, that's a difference of $80 on the same product.

 

[Hacp]

They could simply spin that off into a subsidiary or part owned corporation etc.

I think Amazon played it smart. They will just use the 1 year moratorium as time to make sure they've covered anything that creates a nexus in CA. Then, after the year is up, they can just say they don't have nexus there and continue to not collect anything. Win for them.

I haven't followed this closely, but that's what it seems like, and that would be the smart way to go.



Yeah, but if one place (amazon) collects sales tax and another doesn't, you'd better believe most people will go with the one that doesn't -- myself included. I currently don't buy anything from a vendor that charges sales tax as part of the transaction.

Amazon is pretty smart. In that one year, they'll probably move the kindle operations to another state. Then they won't need to pay sales tax.

 

[Craig234]

Eventually all online purchases will collect sales taxes as prescribed by law and we'll look back fondly on a day when we didn't have to pay them. Amazon is forced down the path due to its size.

The truth is that Amazon is literally and massively without equal in the online realm and even with sales taxes most people will continue to purchase from it.

Still, just as I oppose physical stores being at an unfair disadvantage to Amazon, I oppose Amazon being at a disadvantage to other online sellers.

So I'd like to see this implemented as universally as they can. Maybe that means having a law for all of them but mostly enforcing it with larger sites.

 

[Craig234]

IIRC Amazon has a Silicon Valley office related to Kindle software dev. It's their choice if they want to get out of SV.

The Supreme Court precedent may not support the pro-tax argument for CA. But let's not lie here and say AMZN hasn't benefited from an apparent "loophole". Consumers can currently use their B&M retailers as showrooms and purchase online at Amazon. I don't agree with your indirect implication that affiliate jobs are more important than B&M retailer jobs.

Even in collecting sales tax, Amazon will remain successful and continue to win market share. I for one will continue to buy regularly from them. And FWIW the U.S. Congress can put in place an online sales tax moratorium of some kind.

Is there any indication that moving Kindle would cancel this deal?

 

[uhohs]

Didn't amazon already spin off or is in the process of spinning off it's Kindle operations/department? Lab126 or something.

 

[sactoking]

Didn't amazon already spin off or is in the process of spinning off it's Kindle operations/department? Lab126 or something.

It already did.

The issue here is not that the CA bill said "Out of state internet retailers have to collect and remit sales tax"; CA can't do that per USSC decision. The issue is that the USSC decision said states could force online retailers to collect and remit sales tax if they had a "physical presence" in the state. That physical presence has been called "nexus".

The problem is that the term "nexus" was not ever defined. There were several rules-of-thumb applied in "nexus tests" but they all typically required home or regional home offices, warehouses, etc to establish nexus. Companies like Amazon got around the rule-of-thumb tests by divesting their operations to subsidiaries and affiliates, to the point that Amazon.com Inc. is almost just a shell company, and then claiming that none of the subsidiaries and affiliates count for nexus.

CA, and TX and NY before them, basically said "Well, since the USSC didn't define nexus, we'll go ahead and do it". Then they passed bills, like the CA one in question, that say "In California nexus includes all affiliate and subsidiary business relationships." So, even if Amazon spun off Kindle to Lab 126 (which it did) it would still constitute nexus for California purposes.

This isn't a situation where Amazon is trying to but time to weasel out of the CA nexus definition; it was written so that they can't weasel out. Instead, CA said "We will give you 12 months to convince Congress or the USSC to define nexus on the federal level. If you can do that it will trump our definition and we will live with that. If you can't you will be subject to our definition and you will live with it."

Basically. if Amazon can't get Congress or the USSC to define nexus in the next 12 months they will either have to collect and remit CA sales tax or pull out of CA 100% with no subsidiaries or affiliates left.

 

[her209]

It already did.

The issue here is not that the CA bill said "Out of state internet retailers have to collect and remit sales tax"; CA can't do that per USSC decision. The issue is that the USSC decision said states could force online retailers to collect and remit sales tax if they had a "physical presence" in the state. That physical presence has been called "nexus".

The problem is that the term "nexus" was not ever defined. There were several rules-of-thumb applied in "nexus tests" but they all typically required home or regional home offices, warehouses, etc to establish nexus. Companies like Amazon got around the rule-of-thumb tests by divesting their operations to subsidiaries and affiliates, to the point that Amazon.com Inc. is almost just a shell company, and then claiming that none of the subsidiaries and affiliates count for nexus.

CA, and TX and NY before them, basically said "Well, since the USSC didn't define nexus, we'll go ahead and do it". Then they passed bills, like the CA one in question, that say "In California nexus includes all affiliate and subsidiary business relationships." So, even if Amazon spun off Kindle to Lab 126 (which it did) it would still constitute nexus for California purposes.

This isn't a situation where Amazon is trying to but time to weasel out of the CA nexus definition; it was written so that they can't weasel out. Instead, CA said "We will give you 12 months to convince Congress or the USSC to define nexus on the federal level. If you can do that it will trump our definition and we will live with that. If you can't you will be subject to our definition and you will live with it."

Basically. if Amazon can't get Congress or the USSC to define nexus in the next 12 months they will either have to collect and remit CA sales tax or pull out of CA 100% with no subsidiaries or affiliates left.

Very good explanation. Amazon has a large EC2 datacenter in Northern CA. They're going to have to move that too.

 

[werepossum]

I actually agree with Craig on this; they should all pay it. I favor sales taxes over income taxes for funding government, so it would be hypocritical for me to not pay sales tax simply because I'm using an out-of-state vendor. I preferentially buy from sites like NewEgg and Books-A-Million that do collect sales tax for that reason.