A ballot referendum being pushed by the nation's largest online retailer, Amazon.com, Inc., might let California voters review a legislature-approved tax intended to increase state revenue and level the playing field between online merchants and brick-and-mortar retailers.
Part of the state budget package signed by Governor Jerry Brown in June required out-of-state internet retailers to collect sales tax on goods purchased by Californians if said merchants maintain a physical nexus presence within the state. Legal battles over exactly what constitutes a “physical presence” are ongoing in other states that have instituted similar laws. In California, Amazon is opting to let the voters decide the matter by ballot referendum.
In a prepared statement Monday, Amazon described their ballot proposal as “a referendum on jobs and investment in California,” a reference to the Seattle-based firm's decision to sever ties with its 20,000-plus California business affiliates in response to the law's passage. Amazon had paid these individuals, companies and nonprofit associations a commission for referring customers to their site. Dozens of other online retailers have followed Amazon's lead and cut affiliate relations, including Overstock.com. Shuttering these businesses could potentially cost the state hundreds of millions in lost state-income taxes, say opponents of the “Amazon tax.”
"At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away," said Paul Misener, Amazon's vice president of public policy in a statement. He added, "Amazon looks forward to working again with tens of thousands of small business affiliates in California that were harmed by the new law's effect on hundreds of out-of-state retailers."
Amazon will be relying on loyal affiliates to help gather over 500,000 signatures to help its measure qualify for the ballot. If accomplished, the state would have to suspend the online tax until the next statewide election determines its fate. The vote could take place as soon as February of next year, but a pending bill would push this election to June.
When California residents purchase goods from out-of-state retailers, they are supposed to pay a use tax, but few follow the law which is extremely hard to enforce. The legislature enacted the online tax measure with hopes that it would generate $200 million in new revenue. Lawmakers claimed that the new law would close a “tax loophole” and end the “unfair” pricing advantage online retailers had gained over brick-and-mortar stores.
The California Retailers Association echoed these points in a public statement condemning Amazon's efforts:
"Amazon's actions clearly demonstrate their No. 1 priority is to continue to use California resources at the expense of taxpayers and small businesses at all costs. Their actions show that they will do anything to keep their unfair advantage which only harms California small businesses."
Assemblyman Charles Calderon (D-Whittier), author of one of three bills that were merged to form the online tax law, called Amazon's decision "an odd tactic." Indeed, the company will face opposition from a bevy of California businesses whose prices are undercut by Amazon.