Amazon Advertising Tax


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Presentation on Amazon Advertising Tax to California Bar Cyberspace Committee

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Amazon Advertising Tax

  1. 1. Amazon Sales Tax Legislation BENNET KELLEY April 14, 2009
  3. 3. Part 1 The Problem
  4. 4. Californians are known for thinking big and doing things on a grand scale.
  5. 5. Both the good . . .
  6. 6. Combined FY09-10 Budget ($MM) $220,000 . . . and $200,000 the not so $180,000 $160,000 good. $140,000 $120,000 $100,000 Revenue $80,000 Expenditures $60,000 Balance $40,000 $20,000 $0 $20,000 $40,000 $60,000 Original Budget Special Session Source: Governor’s 2009-10 Budget
  7. 7. Projected Deficits FY09-10 ($BB) $36 CA $33 $30 $27 All states combined - $100.6B $24 $21 $18 $15 $12 $9 NY IL $6 $3 VA NC CT MN MD TN $0
  8. 8. California Constitutional Limitations • Two-thirds legislative approval required for tax increase • Democratic majority two votes shy in each house – as a result any tax increase requires GOP votes
  9. 9. U.S. Constitutional Limitations • Quill Corp. v. North Dakota – Due (1) Process and Commerce Clauses limit state taxing authority to entities with a physical presence in state. • Borders Online, LLC v. State Bd. of Equalization - Borders Online (2) subject to sales tax since it was merely agent for Borders brick and mortar operations. (1) 504 U.S. 298 (1992) (2) 29 Cal. Rptr. 3d 176 (Cal. Ct. App. 2005)
  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.
  15. 15. OK . . . Nobody’s perfect
  16. 16. NY’s Amazon Tax New York Tax Code Section 1101(b)(8) • Seller of tangible or personal property subject to sales tax if: – the seller enters into an agreement with a resident of this state under which the resident, for a commission or resident, customers, 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]. – 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 . . .
  17. 17. Amazon Complaint Dismissed v. New York State Dept. of Taxation & Finance, No. 60124/08 (Jan. 12, 2009) Finance, The New York law: 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 $10,000 of revenue from New York sales earned through the arrangement. The neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax collection burden when using New Yorkers to earn profit from other New Yorkers.
  18. 18. Assembly Member Skinner’s Idea • AB 178 – Mirrors NY Bill • “I introduced Assembly Bill 178 for two reasons: to create a level playing field for our brick and mortar businesses and to collect sales tax that is rightfully owed, thereby helping our budget shortfall.” • Support from offline retailers
  19. 19. A Double Solution • Not treated as tax increase • Two-thirds vote not required
  20. 20. Now Boarding Connecticut Hawaii Maryland North Carolina Minnesota Tennessee Virginia
  21. 21. Part 3: The Pot of Gold
  22. 22. California has a history of being at the center of Gold Rushes (actual and metaphoric)
  23. 23. Why Amazon? TOTAL REVENUES ($MM) $405,610.0 $19,170 SALES TAX CA $831.5 $0 Sales tax avoidance is part of Amazon’s business model. model -- Assmb. Member Skinner
  24. 24. The Pot of Gold NY: FY 2010 $68MM $68MM NY: FY 2009 $61.3MM CA: INITIAL PROJ. $55MM NY: INITIAL PROJ. $50MM
  25. 25. v. • 7,500 taxing • Amazon provides jurisdictions make back-end (including collecting sales tax collection of sales too burdensome, tax) for sites such as complex • NY law unfair since • Amazon threatened don’t always know to terminate its what state affiliates Hawaii affiliates if are from state enacted NY type law
  26. 26. Who Opposes AB 178
  27. 27. Arguments Against • Place California companies at competitive disadvantage • Chill state’s leadership in e-commerce • Harm small business growth
  28. 28. Costs of Amazon Tax Result in a net loss of revenue – Expensive litigation – CA Affiliates will be terminated • eBay is threatening to terminate California affiliates – Loss of 16,000 jobs – $1 billion in revenue (Source: Performance Marketing Alliance)
  29. 29. Publishers Terminating NY Affiliates Garden's Alive LinenSource Red Envelope Acorn Media Checks Unlimited ReStock It Amerimark Collectors' Choice Music Gurneys Michigan Bulb Ritz Camera Baby Universe Compact Appliance Henry Fields Musicians Friend ShopNBC CSN Stores Home Shopping MyTwinn ShoppersChoice Deep Discount Network NetShops Silhouettes DVD Planet Jewelry Television Northern Tool Spilsbury Eastwood Company J&P Cycles One Step Ahead Spring Hill Brecks Fingerhut Justflowers Thompson CafePress Karmaloop Oriental Trading Cigars FirstStreet CCVideo KB Toys Overstock Tirerack Footsmart Celebrate Express LampsPlus Palo Alto Software Checks In The Mail Leaps And Bounds US Toy Co eToys
  30. 30. Meet California Affiliates
  31. 31. Status California AB 178 – hearing postponed (again) until April 27 Connecticut SB 806 – Senate vote as early as today. Hawaii HB 1405 – Stripped from bill Maryland SB 1071 – Still in Committee
  32. 32. Status Minnesota SF 282/ HF 401 – hearing set for April 16 North Carolina SB 487/HB 558 –no action (combined with download tax) Tennessee SB 1741 / HB1947 stalled in committee, opposed by Dept. of Revenue
  33. 33. THANK YOU! 100 Wilshire Blvd., Suite 950 Santa Monica, CA 90401 Bennet Kelley (310) 452-0401