A trailer bill attached to the recently passed California state budget, Assembly Bill 28 X, is being referred to as the “Amazon Bill” because the bill mandates that internet based companies, such as Amazon, with tangible ties to California must begin to collect sales tax on items purchased by Californians.
However, the bill has received attention due to Amazon’s refusal to comply with the new law by continuing to charge no sales tax on purchases made within the state. Amazon, as a result of AB 28 X, has fired all of its California affiliates in order to avoid paying the tax and maintain legal grounds for the company’s non-compliance.
Currently, Amazon does not collect state sales tax from Californians because it does not maintain in-state distributors like other companies, such as Target and BestBuy, who charge sales tax on the items they sell online.
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According to the new law, Amazon may still be legally liable to collect the sales tax despite their decision to no longer employ California based affiliates. Amazon has two research facilities in California, including Lab126 which was responsible for the research that created the Kindle, and these could each be defined as a site that provides “tangible personal property to be sold by the retailer,” which the state has defined as grounds for making companies responsible for paying California sales tax.
George Runner, the Republican board member of District 2 of California’s Board of Equalization, has been a vocal opponent of the bill and said the new law will not provide the state with the $200 million expected tax revenue but will instead result in a loss of revenue for California.
“We’re not going to see the money,” Runner said. “The money is not ever going to happen and certainly not in a number of years.”
Although Amazon has fired its California affiliates, the law may still provide California with a means to force Amazon to pay the tax. However, if the company was to successfully challenge the constitutionality of the law, state law would be superseded by federal ruling.
Amazon was not immediately available to comment on the issue.
According to David Duran, Communications and Legislative Director for George Runner, the state knew that Amazon’s response to the bill was likely because of research Runner had done on the issue in the past.
“Amazon and Overstock both sent letters [to Runner] saying they would terminate affiliate programs [in the event such a bill was passed]” Duran said. “Runner has warned people the tax will cost the state money.”
According to Runner the California lawmakers’ decision to pass this bill despite his warnings resulted from what he called “naivety” on the part of the law makers who did not believe Amazon would take the actions that they have.
Runner said he believes the issue will inevitably end up being decided by the judiciary to determine the constitutionality of the law and whether or not Amazon’s decision to break away from its California affiliates is a sufficient reason for their non-compliance with the state mandate.
“The consequence will be a legal fight,” Runner said. “Amazon will say they don’t owe the state money because [the law] is unconstitutional or that they no longer have these affiliates.”