updated 04:00 am EDT, Wed September 28, 2011
Replaces earlier law that jeopardized affiliates
Beginning next year, California will require large online retailers to begin collecting sales tax from state residents, a move that will likely cause other states to do the same, ending a prolonged era of relatively light taxation for internet purchases. Governor Jerry Brown signed the measure into law, replacing an earlier regulation that had counted affiliates as "physical presences" for tax purposes, causing web merchants to sever affiliate links in the state.
The new measure does not go into effect until next year, a concession won by Amazon -- which agreed to build distribution centers in the state and maintain a physical presence there at least through 2015, funding both permanent and seasonal jobs. Current federal law allows states to collect sales tax from online merchants if they have a "physical presence," which is generally interpreted as offices, warehouses or other actual buildings or spaces owned or rented by the merchants.
As part of the agreement, which has resulted in the tax bill being dubbed the "Amazon law," the online retailer has agreed to lobby on behalf of a proposed federal law that would allow states to opt for collecting sales tax regardless of whether the company had an in-state presence. The authorization would apply only to those states which had a simplified sales tax collection process known as the SST (more than 20 states use the SST system). Brick-and-mortar retailers are, unsurprisingly, in favor of such laws, which they see as levelling the playing field between themselves and online retailers.
The California law, which could be superseded if a new federal law pre-empts it, includes a provision that excludes retailers doing less than $500,000 in online sales to California residents from having to collect the tax. In light of the repeal of the earlier law, Amazon has now moved to reinstate affiliate links in California.
As both states and the federal government search for new sources of revenue, the long-supported ban on general internet sales tax collection may finally give way after more than a decade of effort by brick-and-mortar retailers. The proposed bill before Congress, introduced by Senator Dick Durbin of Illinois, will benefit from the California initiative and Amazon's new promise to support it.