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Brown of California whips Bezos of Amazon in game of financial chicken

by Alan Markow, published

In a game of financial chicken between the state of California and the world’s largest online retailer, Amazon blinked first.  Or, perhaps that was just Amazon CEO Jeff Bezos winking at Governor Jerry Brown.

The agreement that the state has wrested from Amazon is to begin collecting taxes in September 2012.  The revenues are not insignificant:  at least $200 million in new state taxes alone, possibly more if localities are able to levy local fees.  For brick and mortar competitors, it’s an issue of fairness, as Amazon’s no-sales-tax advantage means a nearly eight percent leg up on the competition before taking into account the efficiencies of a national online enterprise.

But there’s a lot of time between now and September 2012, and a lot of legislative maneuvering to be done at the federal level before the California law goes into effect.  Congress is besieged by brick and mortar lobbyists seeking ways to fix what they view as an injustice at the national level, although such actions may fly in the face of Republican “no tax” pledges and may also be viewed as an intrusive invasion into states' rights by the federal government.

Meanwhile, the California-Amazon agreement will alleviate the threat by Amazon to cost the state 7,000 jobs ancillary to the online retailer's operations – jobs that we could ill-afford to lose. 

     "We intend to bring jobs to California, create jobs here in the state, and we anticipate within the next few years those jobs will number on the order of 10,000 full-time jobs with comprehensive health care," Amazon Vice President Paul Misener told the Sacramento Bee. 

Some of those jobs may come in the form of staffing for new distribution centers that Amazon has hinted it may open in California.

In reality, it was an easy call for State Senate President Darrell Steinberg and the Governor to make.  The positive consequences are immediate – no loss of jobs, no immediate increase in sales tax, and a return of sales relationships with a number of Amazon “partner” companies in the state.  Best of all, the long-term decision on web-based sales tax is more likely to be the co-opted by the feds before the September 2012 deadline occurs.

All the players are happy with the current compromise and the promise of a future resolution.

     "Today is a momentous, victorious day," said Bill Dombrowski, president of the California Retailers Association. "Today marks the end of out-of-state retailers using loopholes in our laws to skirt collecting sales tax revenue."

So both sides were probably doing the old political “nod and wink” as they shook hands over the agreement to pull out of a headlong race toward political disaster.  And if two people wink, that could be construed to be a blink anyway, couldn’t it?

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