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Amazon Sales Tax


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Overview of pending California legislation to follow New York in adopting what is commonly known as the Amazon (Sales) Tax.

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Amazon Sales Tax

  1. 1. Amazon Sales Tax Legislation BENNET KELLEY April 14, 2009
  3. 3. Part 1 The Problem
  4. 4. <ul><li>Californians are known for thinking big and doing things on a grand scale. </li></ul>
  5. 5. Both the good . . .
  6. 6. Combined FY09-10 Budget ($MM) Source: Governor’s 2009-10 Budget . . . and the not so good.
  7. 7. Projected Deficits FY09-10 ($BB) All states combined - $100.6B
  8. 8. California Constitutional Limitations <ul><li>Two-thirds legislative approval required for tax increase </li></ul><ul><li>Democratic majority two votes shy in each house – as a result any tax increase requires GOP votes </li></ul>
  9. 9. U.S. Constitutional Limitations <ul><li>Quill Corp. v. North Dakota (1) – Due Process and Commerce Clauses limit state taxing authority to entities with a physical presence in state. </li></ul><ul><li>Borders Online, LLC v. State Bd. of Equalization (2) - Borders Online subject to sales tax since it was merely agent for Borders brick and mortar operations. </li></ul><ul><li>504 U.S. 298 (1992) </li></ul><ul><li>29 Cal. Rptr. 3d 176 (Cal. Ct. App. 2005) </li></ul>
  10. 10. Part 2: NEW YORK’S “AMAZON TAX”
  11. 11. California has often looked to New York for talent and resources – with great success.
  14. 14. OK . . . Nobody’s perfect
  15. 15. NY’s Amazon Tax New York Tax Code Section 1101(b)(8) <ul><li>Seller of tangible or personal property subject to sales tax if: </li></ul><ul><ul><li>the seller enters into an agreement with a resident of this state under which the resident , for a commission or other consideration . . . refers potential customers , whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of [$10,000] during the preceding [four quarters]. </li></ul></ul><ul><ul><li>This presumption may be rebutted by proof that the resident with whom the seller has an agreement did not engage in any solicitation in the state on behalf of the seller that would satisfy the nexus requirement of the United States constitution . . . </li></ul></ul>
  16. 16. Amazon Complaint Dismissed v. New York State Dept. of Taxation & Finance , No. 60124/08 (Jan. 12, 2009) <ul><li>The New York law: </li></ul><ul><li>requires a substantial nexus between an out-of-state seller and New York through a contract to pay commissions for referrals with a New York resident along with realization of more than $10,000 of revenue from New York sales earned through the arrangement. The neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax collection burden when using New Yorkers to earn profit from other New Yorkers. </li></ul>
  17. 17. Assembly Member Skinner’s Idea <ul><li>AB 178 – Mirrors NY Bill </li></ul><ul><li>“ I introduced Assembly Bill 178 for two reasons: to create a level playing field for our brick and mortar businesses and to collect sales tax that is rightfully owed, thereby helping our budget shortfall .” </li></ul><ul><li>Support from offline retailers </li></ul>
  18. 18. A Double Solution <ul><li>Not treated as tax increase </li></ul><ul><li>Two-thirds vote not required </li></ul>NO GOP VETO
  19. 19. Now Boarding <ul><li>Connecticut </li></ul><ul><li>Hawaii </li></ul><ul><li>Maryland </li></ul><ul><li>North Carolina </li></ul><ul><li>Minnesota </li></ul><ul><li>Tennessee </li></ul><ul><li>Virginia </li></ul>
  20. 20. Part 3: The Pot of Gold
  21. 21. California has a history of being at the center of Gold Rushes (actual and metaphoric )
  22. 22. Why Amazon? TOTAL REVENUES ($MM) SALES TAX CA $405,610.0 $831.5 $19,170 $0 Sales tax avoidance is part of Amazon’s business model . -- Assmb. Member Skinner
  23. 23. The Pot of Gold $50MM $68MM NY: FY 2010 NY: FY 2009 NY: INITIAL PROJ. CA: INITIAL PROJ. $55MM $68MM $61.3MM
  24. 24. v. <ul><li>7,500 taxing jurisdictions make collecting sales tax too burdensome, complex </li></ul><ul><li>NY law unfair since don’t always know what state affiliates are from </li></ul><ul><li>Amazon provides back-end (including collection of sales tax) for sites such as </li></ul><ul><li>Amazon threatened to terminate its Hawaii affiliates if state enacted NY type law </li></ul>
  25. 25. Who Opposes AB 178
  26. 26. Arguments Against <ul><li>Place California companies at competitive disadvantage </li></ul><ul><li>Chill state’s leadership in e-commerce </li></ul><ul><li>Harm small business growth </li></ul>
  27. 27. Costs of Amazon Tax <ul><li>Result in a net loss of revenue </li></ul><ul><ul><li>Expensive litigation </li></ul></ul><ul><ul><li>CA Affiliates will be terminated </li></ul></ul><ul><ul><ul><li>eBay is threatening to terminate California affiliates </li></ul></ul></ul><ul><ul><li>Loss of 16,000 jobs </li></ul></ul><ul><ul><li>$1 billion in revenue </li></ul></ul><ul><ul><li>(Source: Performance Marketing Alliance) </li></ul></ul>
  28. 28. Publishers Terminating NY Affiliates Acorn Media Amerimark Baby Universe Brecks CafePress CCVideo Celebrate Express Checks In The Mail Checks Unlimited Collectors' Choice Music Compact Appliance CSN Stores Deep Discount DVD Planet Eastwood Company Fingerhut FirstStreet Footsmart eToys Garden's Alive Gurneys Henry Fields Home Shopping Network Jewelry Television J&P Cycles Justflowers Karmaloop KB Toys LampsPlus Leaps And Bounds LinenSource Michigan Bulb Musicians Friend MyTwinn NetShops Northern Tool One Step Ahead Oriental Trading Overstock Palo Alto Software Red Envelope ReStock It Ritz Camera ShopNBC ShoppersChoice Silhouettes Spilsbury Spring Hill Thompson Cigars Tirerack US Toy Co
  29. 29. Meet California Affiliates
  30. 30. Status California AB 178 – hearing postponed (again) until April 27 Hawaii HB 1405 – Stripped from bill Maryland SB 1071 – Still in Committee Connecticut SB 806 – Senate vote as early as today.
  31. 31. Status Minnesota SF 282/ HF 401 – hearing set for April 16 Tennessee SB 1741 / HB1947 stalled in committee, opposed by Dept. of Revenue North Carolina SB 487/HB 558 –no action (combined with download tax)
  32. 32. 100 Wilshire Blvd., Suite 950 Santa Monica, CA 90401 Bennet Kelley (310) 452-0401 [email_address] THANK YOU!