This document summarizes legislation related to requiring Amazon to collect sales tax in various states. It discusses how New York passed a law targeting Amazon by requiring out-of-state sellers to collect sales tax if they have affiliate marketing agreements with New York residents generating over $10,000 in annual sales. California is considering similar legislation which could generate over $50 million annually for the state. However, Amazon and some others oppose such laws, arguing they place online retailers at a competitive disadvantage and could result in lost jobs. The status of similar proposed laws in other states is also mentioned.

1. Amazon Sales Tax Legislation
BENNET KELLEY
April 14, 2009

2. Today’s Story
CALIFORNIA PROBLEM
NEW YORK SOLUTION
POT OF GOLD

3. Part 1
The Problem

4. Californians are known for
thinking big and doing
things on a grand scale.

5. Both the good . . .

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. 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. 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. 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. Part 2:
NEW YORK’S
“AMAZON TAX”

11. California has often looked to New York
for talent and resources – with great success.

12. THIS INCLUDES INDUSTRY . . .
ARTISTS . . .

13. AND ENTERTAINMENT

14. AND ENTERTAINMENT

15. OK . . .
Nobody’s
perfect

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. Amazon Complaint Dismissed
Amazon.com 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. 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. A Double Solution
• Not treated as tax
increase
• Two-thirds vote
not required

20. Now Boarding
Connecticut
Hawaii
Maryland
North Carolina
Minnesota
Tennessee
Virginia

21. Part 3:
The Pot of Gold

22. California has a history of being at the
center of Gold Rushes
(actual and metaphoric)

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. The Pot of Gold
NY: FY 2010 $68MM
$68MM
NY: FY 2009 $61.3MM
CA: INITIAL PROJ.
$55MM
NY: INITIAL PROJ. $50MM

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 Target.com
• 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. Who Opposes AB 178

27. Arguments Against
• Place California companies at
competitive disadvantage
• Chill state’s leadership
in e-commerce
• Harm small business growth

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. Publishers Terminating NY Affiliates
Garden's Alive LinenSource Red Envelope
Acorn Media Checks Unlimited
Geeks.com Luggage.com ReStock It
Amerimark Collectors' Choice
Music Gurneys Michigan Bulb Ritz Camera
Baby Universe
Compact Appliance Henry Fields Musicians Friend ShopNBC
Backcountry.com
CSN Stores Home Shopping MyTwinn ShoppersChoice
Binoculars.com
Deep Discount Network NetShops Silhouettes
Blair.com
DVD Planet Jewelry Television Northern Tool Spilsbury
Bodybuilding.com
Eastwood Company J&P Cycles One Step Ahead Spring Hill
Brecks
Fingerhut Justflowers OnlineShoes.com Thompson
CafePress
Karmaloop Oriental Trading Cigars
FirstStreet
CCVideo
KB Toys Overstock Tirerack
Footsmart
Celebrate Express
LampsPlus Palo Alto Software uBid.com
Gaiam.com
Checks In The Mail
Leaps And Bounds US Toy Co
eToys

30. Meet California Affiliates

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. 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. THANK YOU! 100 Wilshire Blvd., Suite 950
Santa Monica, CA 90401
www.internetlawcenter.net
Bennet Kelley
(310) 452-0401
bkelley@internetlawcenter.net