After being signed into law yesterday, California's so-called Amazon Tax goes into force on Friday. As we've discussed before, the state's budget math for the coming fiscal year assumes that $200 million will be collected from Amazon, Overstock, and other online retailers, who will now be compelled to collect sales taxes on Californians' purchases. Yet the ink was barely dry on ABX1 28 before Amazon and others began to push back. Now, it's looking very likely that the tax will have the expected effect of driving businesses out of California, resulting in nowhere near $200 million being collected by the state.
we and others reported yesterday, Amazon has terminated its contracts with its 25,000 California affiliates; apparently, according to the San Jose Mercury News, Utah-based Overstock has done the same. Many of these affiliates, who paid a combined $152 million in state income taxes last year, will presumably either leave the state or go out of business. Also possibly on the chopping block are Cupertino-based Lab126 Inc., which develops Kindle e-readers, and Amazon's Studio City-based office, which houses its Internet Movie Database. Amazon also hinted that it might sue to overturn the law; in 1992, the Supreme Court ruled that states cannot tax businesses outside their borders, because interstate commerce is a federal matter, so they probably have a case to make. We would also note that this tax was passed without a two-thirds majority vote. But the loss of the affiliates, and the thousands of jobs they create, is exactly the kick in the stomach that California's economy doesn't need these days. You know the implications are grim when a member of the Board of Equalization is criticizing a tax hike, yet here we have George Runner blasting it: "Even as Governor Jerry Brown lifted his pen to sign this legislation, thousands of affiliates across California were losing their jobs. The so-called 'Amazon tax' is truly a lose-lose proposition for California. Not only won’t we see the promised revenues, we’ll actually lose income tax revenue as affiliates move to other states." Yep; that's pretty much where we're at.