Amazon: Muscling California5 min read

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So now, after all these years, Amazon is really living up to its name. A young, lithe upstart a dozen years ago, it now throws its corporate heft around in ways that might embarrass even the Carnegies, the Rockefellers, the Fricks and their fellow robber barons of a century ago.

The most recent instance, as most of us now know, is Amazon’s move to qualify a California referendum that would perpetually exempt it from the sales tax that all brick and mortar retailers are required to collect – and that a great many on-line businesses do as well.  But the referendum is hardly the first example of Amazon’s strong-arm tactics.

In the late 1990s, when Amazon was launched, then as a book business, there was the contention that, as promising but frail start-ups, on-line businesses deserved a sales tax break.

Additionally, it was also argued, given the thousands of state and local jurisdictions with their different sales tax rates, it was technically too complicated and/or costly to collect the tax. But that was then and this is now.

The immediate prompt for the Amazon referendum was the passage late last month of ABx1 28, the bill that would for the first time require any internet merchant with any physical “nexus” in the state to collect and pay the tax.  The tax wouldn’t begin to close the state’s budget gap, but in generating roughly $200 million annually, it would certainly help.

The “nexus” comes from a U.S. Supreme Court case decided in 1992 that held that only where a retailer had a physical presence in a state could the state require the retailer to withhold sales tax.

In Amazon’s case, which has no stores, and which is now as much a broker as it is a retailer, the nexus had been its thousands of “affiliates”, individuals, commercial enterprises and non-profits whose websites had links to Amazon and who earned commissions when someone bought an item from Amazon through that link.

When the legislature passed the internet sales tax bill, Amazon immediately cut off its affiliates, as it had long threatened to do. In 2009, Overstock.com, another muscular internet business cut off its affiliates when a similar bill went through the legislature; Gov. Arnold Schwarzenegger, labeled it a job killer, vetoed it and immediately called the company to ask for reinstatement of the affiliates.

For voters, the unfairness of a tax structure where brick-and-mortar businesses – book stores, electronics dealers, appliance stores and countless other Main Street merchants – are required to pay sales tax while on-line merchants do not should be obvious. Amazon, which now sells everything from books to toys and appliances, from jewelry and razor blades to shoes and luggage, competes with all of them.  It’s also unfair to buyers who don’t have access to the internet and, of course to the state, the schools and to hundreds of other jurisdictions in lost revenue.

Additionally, Main Street supports the community in countless other ways– as sponsors of Little League teams and scout troupes, as mainstays of the United Way and countless civic and other charitable enterprises.

Yet Amazon’s attempt to muscle the state, an attempt it calls “a referendum on jobs and investment”, has a fair chance of succeeding, not least because ballot language on referenda in California is worded in such a way that the voter, in order to reject the referendum, has to vote “yes” – in effect a vote to retain the challenged statute.

That in itself generates no end of confusion, and since voters who are doubtful about any ballot proposition instinctively vote “no,” – in most other cases a healthy impulse — it gives referenda yet another advantage.

Some deep political thinkers are already predicting that the California referendum may be the beginning of yet another national tax-cutting wave, much like Proposition 13 was thirty years ago.

What’s almost certain is that it will trigger a monstrous fight of deep-pocket internet retailers against downtown merchants and against Walmart, Target, Home Depot and other mall-based discount chains. Since many internet retailers also have brick-and-mortar stores, they already pay the sales tax.

Amazon is already fighting on several fronts. In Texas, it’s moving to close a distribution center and thus sever its “nexus” there. In New York, even as it’s collecting sales tax, it’s pursuing its appeal of a lower court decision that upheld the law that requires it.

There have been many calls for broadening the sales tax base as one of the most promising ways to stabilize public revenues. Ideally that would be accompanied by a federal law creating a national system to collect local and state sales taxes in all the places where local jurisdictions impose them.

That won’t happen in this Congress, which makes it more urgent than ever that the Amazon referendum, which is likely to be on the ballot next year, be soundly defeated. That, too, would send a message. In the meantime, those wanting to do their bit can urge their friends to stop buying from Amazon.   

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Peter Schrag, whose exclusive weekly column appears every Monday in the California Progress Report, is the former editorial page editor and columnist of the Sacramento Bee. He is the author of Paradise Lost: California’s Experience, America’s Future and California: America’s High Stakes Experiment. His new book, Not Fit for Our Society: Nativism, Eugenics, Immigration is now on sale.

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