Amazon Deal Smacked Down

Amazon.com, the giant online retailer, is embroiled in a sales-tax mess with the state of California. And it’s under attack from “brick and mortar” retailers, including big-box retailer Wal-Mart.

Amazon has been working to get out from under a new law requiring sales tax on purchases from California residents, sold by in-state affiliates. After the law was passed, a referendum was started to repeal it. Amazon, a Seattle-based company, has contributed $5.25 million toward the initiative. And Amazon quickly collected the 500,000 signatures necessary to qualify the initiative on the June 2012 ballot. Because, after all, California residents would end up paying an additional 7.25 to 9.25 percent sales tax for online purchases.

However, legislative Democrats countered with an urgency bill, a tool not used very often by the Legislature.

Wal-Mart, the world’s largest retailer, has been leading the attack against Amazon for refusing to collect sales taxes on online sales. But it was recently revealed that Wal-Mart doesn’t always collect sales tax on its online sales.

It would appear that both giant retailers are under a tax assault by the California Legislature.

The Amazon sales tax took effect on July 1. It requires sales tax to be charged on online orders made through California-based affiliates. The bill states that if someone has advertisements on California Web sites, then there is a nexus in California, and the business needs to pay taxes on all revenue collected in the state.

But thus far, Amazon has refused to collect the tax on California purchases.

Adding an interesting twist to the situation, last week Amazon offered to put the referendum on hold, but only if California lawmakers and the governor agreed to a deal. The online retailer offered to create two new distribution centers in California, which would employ 7,000 workers, in exchange for a two-year exemption from collecting the sales tax.

With more than two million California residents out of work, Amazon’s offer sounds enticing, and perhaps is just what California needs right now, after enduring the worst economic downturn in state history.

But the state’s Democratic leadership rejected Amazon’s offer, instead opting for anticipated tax revenue from the new tax. Democrats and Gov. Jerry Brown are banking on $200 million in tax revenue from the online sales tax to help balance the state’s budget. As the New York Times even recently commented, “The struggling state of California thinks it has found gold in taxing e-commerce. But that money is proving much more elusive than it seemed just a few months ago.”

Talking about taxes instead of jobs is not a very good idea, given that California’s unemployment rate is the second highest in the country. As businesses flee the state in search of tax and regulatory relief, it is all too apparent that our state’s budget problems are directly related to a jobs shortage.

“Amazon’s proposal would repeal the sales tax collection requirement for retailers making capital investments of at least $250 million in California by 2013 or $400 million by 2015 and creating 3,600 full-time jobs with health insurance by 2013 and 7,000 full-time jobs by 2015,” the Los Angeles Times reported.

“Amazon is also offering to drop the referendum drive and send its California customers an annual statement of their Amazon purchases that might be subject to the state use tax, which is equal to the 7.25 percednt to 9.25 percent sales tax, depending on location,” the Orange County Register reported.

Shunning New Jobs

On Friday, Board of Equalization member George Runner sent a letter to the Governor and legislative leaders asking for their consideration of Amazon’s proposal and that they re-evaluate the projected budget revenue associated with the “Amazon Tax,” AB 28X.

In the letter, Runner described the proposed deal as a “win-win for California” because it would bring both jobs and millions in new tax revenue to the state.

Runner said that the projected revenues associated with the “Amazon Tax” will not materialize because Amazon affiliate terminations have already significantly reduced the number of online sellers required to register, the ongoing referendum effort could suspend the law until a vote next year and pending litigation could result in the law being struck down.

Real Taxes Collected

In contrast, the Amazon jobs proposal will lead to the collection of taxes due on sales to California, while creating much needed jobs for Californians. Allowing job creation would go much further in California than the online sales tax on the state’s residents.

Distribution center employees are paid from a low of the minimum wage up to $25.00 per hour, depending on experience. The average hourly wage in warehouse and distribution center jobs is $14.42 per hour. Full-time employees paid $14.42 per hour make $30,000 annually. On average, 7,000 distribution center jobs would total $210 million annually to employees.

For California to get an infusion of $210 million would be a boost to the staggering economy, particularly as the Amazon tax would affect existing California’s residents.  And these 7,000 employees would spend that $210 million in California on housing, groceries, cars, retail outlets, taxes, and yes, at Wal-Mart.

“It would be a terrible mistake to reject thousands of jobs for Californians on a faulty budget estimate,” Runner said in a press statement. “Please re-examine the AB 28X budget estimate to ensure that we do not miss a historic opportunity to help struggling California families get back to work, as well as drawing significant new business investment and tax revenue to our state.”

But the Democrat-controlled Legislature and Democratic Gov. Jerry Brown appear not to be interested in Amazon’s offer.

“The BOE analyses of AB 28X and related bills, however, warned that these budget dollars were always questionable because of ‘probable behavioral changes’ by online retailers,” Runner said in his letter.

Runner said that no additional online retailers that have registered with the BOE to collect sales tax since the Amazon tax was passed. Instead, the total number of out-of-state registrations with BOE in July 2011 was 180. That was 31 lower than 211 in July 2010. It was approximately a 12 percent drop.

Pitting Amazon and Wal-Mart against each other is a bad idea. While each giant retailer is scrambling right now to avoid paying or enforcing additional state sales taxes, they could instead join forces and turn their attention on lawmakers. That could be an assault worth supporting.

(Katy Grimes is a columnist for Calwatchdog.com, the journalism center of the California-based Pacific Research Institute)

Comments

  1. So if California cannot recieve tax money served up ust the way Sacramento prefers it, then California (meaning we residents) will just do without . Wonder why our economy, the eight largest economy in the world, is 20 million in debt?

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