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California to begin collected sales tax from online retailer

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The California law, which could be superseded if a new federal law pre-empts it, includes a provision that excludes retailers doing less than $500,000 in online sales to California residents from having to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.

by MacNN Staff




  1. macjockey

    Joined: Dec 1969


    about time

    with all the states going broke it's time other states to join in. I know our state sales tax goes to pay for schools. With the United States having the lowest world academic scores we are raising the largest number of stupid people in the world. I know you haters are going to down me, but it is the truth.

  1. FoxFour

    Joined: Dec 1969


    Why should we have to collect tax for your failed

    I mean, seriously - why should retailers located in a successful state be required to collect tax on behalf of a failed state?

    Go collect it from your own residents yourself. I mean, if you're having hard times, people would be glad to chip in, right?

  1. lamewing

    Joined: Dec 1969


    Brick and Mortar

    Well, there goes any need (short of availability or a person's aversion to crowds) to use an online retailer. Online is often cheaper, but now with shipping AND taxes, the prices will likely equal out. Time to hit the brick and mortar stores again.

  1. macjockey

    Joined: Dec 1969


    time to buy at home

    check out

  1. DiabloConQueso

    Joined: Dec 1969


    About time

    It seems that a common line of thinking is, "If I order a product from an entity that does not have a physical presence in my state, then my purchase is completely tax-free!"

    ...which is false. ALL purchases, no matter where they're made (as long as they are from an entity in the USA) are subject to tax -- it's just a question of who bears the responsibility for paying the tax.

    Many entities charge sales tax, as they should... but when they don't, that does NOT mean that the purchase is tax-free -- it simply means that the burden of paying the tax has now shifted from the entity selling the product to the consumer purchasing the product in the form of "use tax."

    Many people don't pay this tax, though, and it's damn near impossible to enforce the end-user to pay it what with all the commerce that goes undetected online. It doesn't mean that there are any tax-free purchases (except in those states that do not have a sales tax) -- it just means that in addition to your $19.99 "tax-free" purchase, you now have the burden of paying a "use tax" directly to your state government, instead of whomever you purchased the product from paying "sales tax."

  1. Rance

    Joined: Dec 1969


    nice headline...

    Engrish much?

  1. apple4ever

    Joined: Dec 1969


    re:about time

    No, that is the correct thinking. Why should states get a piece of something I bought in another state? Its a complete cash grab, and it goes against the Constitution and common sense.

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