The Amazon Empire Strikes Back?­

Yesterday’s airwaves were buzzing with reports that Amazon.com had notified its affiliates that their relationship would be terminated if Governor Brown signed AB­X1 28, designed to boost use tax collections, into law. The good news is that the Governor signed the bill yesterday, giving California what may well be the most comprehensive toolbox for leveling the playing field between in- and out-of-state retailers in the nation.

So, what’s up with Amazon? As we described earlier this year, Amazon’s business model relies on an advantage gained by avoiding collection of sales taxes owed on online sales. By terminating relationships with affiliates – California-based website operators that feature click-throughs to Amazon that generate payments for the affiliate – Amazon hopes to use sympathy for the “little guy” to further its own predatory business model. In fact, the new California law requires Amazon to collect sales taxes on all purchases made by Californians, not just those made through affiliates. This is due to provisions in the new law that require retailers to collect taxes owed if any member of their corporate family – a commonly controlled group ­in “tax speak” – has “nexus” in California. As we reported earlier this year, in the Brief referenced above, Amazon has at least two California-based subsidiaries of critical importance to its retail sales. One developed the Kindle, and the other maintains the company’s online search engine that enables customers to locate products they wish to buy.

We fully expect the new law to end up in court – Amazon has aggressively litigated other states’ efforts to address the problem of sales tax revenues lost to online sales. In the meantime, we join with California’s “brick and mortar” retailers – those businesses that employ Californians and support our local communities – in celebrating one of the few bright spots in an otherwise bleak budget.

— Jean Ross