Tuesday, August 16, 2011

Today's Reminder of Why Amazon Won't Do Business in California

When Amazon and other online retailers cut ties with their California affiliates within hours of the state budget being signed, we were less than surprised. Mostly because these firms had, you know, given repeated warnings that they'd do just that if California tried to force them to collect sales taxes on purchases by residents. In our view, the Amazon tax is exactly the sort of terrible idea that our spending-addicted Legislature can't help but embrace: it cost Amazon and others valuable relationships with thousands of California affiliates; it destroyed economic opportunities for thousands of Golden State residents; it had little hope of generating anywhere near the $200 million in tax revenues the Legislature wanted; and yes, it's almost certainly illegal. But if Amazon has been tempted to long for the days when it happily did business in California, the latest development in the Amazon tax saga should be a forceful reminder of why it's better off without us. According to the LA Times, a group calling itself Think Before You Click is urging Californians to boycott Amazon until the company drops its referendum aimed at overturning the tax. The group, comprised of advocates for public health and welfare services, argues that the tax's proceeds are needed to preserve state funding for such services.

Not even the Times thinks the boycott has much chance of succeeding, which is good: people need the bargains these days, and the boycott is nonsense. For one thing, this claim by its sponsors is very suspect: "The $200 million in annual revenue that [the state of] California loses each year through Amazon's tax loophole would have been enough to prevent the $90-million cut from California's Adult Day Health Care program." Are we really supposed to believe that Sacramento would use 200 million more dollars to restore service cuts, rather than finding new things to spend the money on? We suppose there's a first time for everything. For another thing, the state could've prevented this cut just as easily by suspending things like high speed rail construction in the middle of nowhere, redundant stem cell research, and land acquisition; why focus the outrage on Amazon? Moreover, it's a bit rich to blame Amazon for the hole in California's budget when most of that gap is attributable to Sacramento's foolish decision to backfill its revenues from the RDAs, as well as its equally foolish decision to build $4 billion worth of stock-market speculation into its spending plans. Together, those choices could leave the state billions in the red, and neither is Amazon's fault. Fourth, insofar as the tax was passed without a two-thirds majority in the Legislature, in violation of California law, and constitutes state regulation of interstate commerce, Amazon has excellent reason to oppose it. And finally, it sends Amazon the message that California views it as a milk cow for government spending. Granted, they've probably already figured this out, but it certainly isn't going to entice them back.


  1. The LA Times article says:

    Amazon, however, is refusing to comply with a new law by collecting those same sales taxes, calling it unconstitutional and a barrier to interstate commerce.

    I have seen this elsewhere, usually the same phrase about refusing to comply. I object to this, Amazon is arranging its affairs to put itself in the group that the Supreme Court says does not have to collect state sales taxes.

    If Amazon actually refused to comply with a California law, the Attorney General would be right there with a lawsuit, you can be sure. So I can only conclude that Amazon is still complying with the law, just under new circumstances.

  2. That's a good point, and you're almost certainly right. It's technically the taxpayer's responsibility to comply with use taxes if the business has no nexus in California. By cutting ties with its CA affiliates, Amazon took care of most of its nexus here.

    It does, however, still have offices in Studio City that control its online movie library, and the company that makes Kindles is in Cupertino. It's not certain whether that constitutes a nexus or not; if not, then Amazon is fully compliant with the law. If so, I'd expect it to sever those ties in short order.

    The argument about constitutionality, however, is pretty cut-and-dried, IMO.


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