California will become the latest state to collect sales tax for online purchases made from out-of-state retailers. The law goes into effect tomorrow and coincides with a 1% reduction in the state’s basic sales tax rate as a result of the end-date of a two-year-old temporary tax increase.
“Getting the taxes, which consumers typically don’t pay to the state if online merchants don’t charge them, is ‘a common-sense idea,’ said Gov. Jerry Brown, who signed the legislation into law Wednesday.
The new tax collection requirement — part of budget-related legislation — is expected to raise an estimated $317 million a year in new state and local government revenue.”
California will become the seventh state in the country to pass a law requiring out-of-state retailers to collect sales tax. New York was the first in 2008; followed by North Carolina and Rhode Island in 2009; and Illinois, Connecticut and Arkansas this year.
Unsurprisingly, some online retailers aren’t pleased.
Seattle-based Amazon.com responded by yanking its affiliate program from California residents shortly after the law was passed. The program provides a percentage of sales generated from product links listed on participating websites, but website owners with California mailing addresses found themselves unceremoniously dropped from the program this week.
Influential SEO blogger Danny Sullivan wrote a sarcastic open letter to Amazon CEO Jeff Bezos saying, in part:
Thank you for your letter today, informing me that after seven years of being one of your affiliates — and having earned for you about $150,000 in that time — that you ‘deeply regret’ unilaterally terminating my contract with Amazon to be an affiliate. I also especially appreciated the part where you reassured me that this action wouldn’t affect my ability to keep buying from your company. Nice touch.
I deeply appreciate that after so many years of supporting your company, and earning my 4.5% cut over those years (as I figured today, looking at my stats), that you’ve decided that I should be a pawn in your fight with my state.”
Sullivan also points out that Californians who don’t go to the trouble of removing Amazon affiliate links from their websites will still be generating revenue for the company, except that it’ll no longer have to pay a percentage of each sale out to those affiliates any more.
Retailers with stores located in California support the new law, of course, with California Retailers Association president Bill Dombrowski telling the L.A. Times, “You can’t give one segment of retail a 10% discount every day. It’s just not fair.”
At issue is a Supreme Court ruling from 1992 stating that out-of-state retailers “can’t be forced to collect sales tax unless they have a physical presence in the state,” says the L.A. Times.
While Amazon will keep selling products to California residents—and collecting sales tax on those purchases—it’s decided to draw a line in the sand when it comes to its affiliate program. Overstock.com has also pulled its affiliate program from California, as well.
For some affiliate members like Sullivan, it’s an annoyance and “an extra ten thousand bucks per year” in lost income. For others who rely much more heavily on Amazon’s affiliate program, it means having to leave California altogether. A San Diego man who owns a photography website told the L.A. Times that he’ll be moving out of state, saying, “Will it be Las Vegas or Scottsdale or Ensenada? It’s a question of where, not if.”