July 05, 2011 09:22 PM UTC

Amazon Meets California, Population 37 Million

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• by: Colorado Pols

As the Colorado Independent’s John Tomasic updates, the long war between cash-strapped states seeking remittance of lawfully due sales taxes and online e-merchants led by Amazon fiercely resisting them–a battle that has included the state of Colorado, who Amazon has proven somewhat effective at intimidating–may have entered a decisive phase.

Colorado lawmakers staring down an historic recession budget deficit last year passed legislation requiring Amazon.com to finally begin collecting sales taxes in the state. It didn’t go so well. Amazon is still doing business here tax free. A similar battle is waging now in California, only on a greater scale, drawing the eyes of politics and business watchers in Colorado and around the nation. The California case likely won’t go as well for Amazon as the Colorado case did. Amazon does huge online business in California and it also has a physical presence in the state, for example in the Silicon Valley warehouse where it develops its Kindle readers. Indeed, the tide seems generally to be turning against the online retailer, which has grown massive over the past two decades, spreading its roots in the fertile ground of a tax-free internet fairyland.

When Colorado tried to wring sales tax out of Amazon, the company thinned ties with the state as a way to bolster legal standing for its anti-tax position. Mainly, it ended its Colorado affiliate program, where website owners here receive small commissions by referring surfers to Amazon to buy things. Colorado anti-tax conservatives howled that the “big government” legislative action translated directly to job loss. They argued it was a prime example of the way government gets in the way of business and hobbles the economy.

Amazon did the same kinds of things in other states that were looking to tap the vast profits the company was making inside their borders. Amazon threatened Texas, for instance, by saying it would move a major distribution center to a more “business friendly” climate.

The Los Angeles Times takes a read on the battle in California and suggests Amazon is making a lot of noise, but only on its way back into a corner…

That Los Angeles Times story lays out California’s essential case–change a few names and details, and it’s Colorado’s case, and Texas’, and South Carolina’s…

California merchants say Amazon and other online-only retailers have an unfair advantage because consumers can effectively get a nearly 10% discount by buying online. [Pols emphasis]

That discount has helped Amazon thrive at a time when many brick-and-mortar retailers are struggling. Seattle-based Amazon racked up $34.2 billion in sales last year, up from $24.5 billion in 2009. Its stock is up nearly 14% this year, compared with just 5% for the broad Standard & Poor’s 500 index of blue-chip companies.

Supporters of the legislation signed by Brown on Wednesday say Amazon’s sales model denies the cash-strapped state treasury and local governments about $317 million a year in tax revenue. Taxable online sales in [California] are more than double those of any other state. [Pols emphasis]

At least five other states also have laws forcing Internet retailers to collect sales taxes for them, and many others are considering similar legislation.

Look, folks, these are not the days of the Sears catalog shopper, when there was a real disadvantage to mail-order sales both in competition with traditional retailers, as well as logistical difficulty in collecting sales tax in many different tax districts of all descriptions. In fact, both of these circumstances which justify restricting the legal power of states to mandate remittance of sales tax have been turned on their heads–online retailers enjoy significant overhead advantages and a customer base comfortable with online shopping. And the same technology that allows e-merchants to do business can seamlessly and affordably integrate sales tax processing into the workflow. They already do where haven’t been able to avoid it.

This is about one simple thing Amazon is defending: competitive advantage. Local businesses around the nation, and the governments who depend on them for the tax base they need to function, are the losers against giant online retailers who don’t remit tax. This is why we have said repeatedly that the politicians who hold up Amazon as an example of Colorado not being “business friendly,” like Majority Leader Amy Stephens, are actually fighting against Colorado business.

Bottom line: someday and it looks increasingly like someday soon, Amazon and other online retailers are going to lose this battle against states seeking to collect lawfully due sales tax. The most populous state in the nation, California, seems like a good place to start. For one thing, unlike here, some of the web affiliates that Amazon cut off in retaliation in California are significant businesses who may incur losses–one acknowledged this while agreeing that Amazon is not a “good corporate citizen” and calling on them to remit sales tax. Cutting off the affiliates looks even more retaliatory and punitive there, since Amazon already has large corporate facilities in the state. California has recognized that Amazon’s avoidance of sales tax amounts to hundreds of millions of dollars in revenue it needs–but they are certainly not the only state who needs the sales tax that Amazon could be remitting. That would be every state.

This year, legislation to abandon our state’s rather weak-kneed and court mired (and misnamed) “Amazon tax” failed unexpectedly in the Democratic-controlled Senate. In 2012, maybe instead of a repeal…how about a better strategy for collecting this revenue? Amazon will lose faster if the pressure stays on them, and that could be as good for the states who take the lead…as it is bad for Rep. Stephens and Amazon’s “local” defenders.