Late Friday, the California Assembly gave final legislative approval to a deal that requires Amazon.com to begin collecting sales tax from state residents on Sept. 15th 2012, unless Congress passes by July 31 of next year a federal law authorizing states to collect taxes from Internet sellers. An earlier California law, which the just-passed legislation repeals, had required certain Internet sellers, including Amazon, to begin collecting the state’s sales tax on July 1, 2011.  After the original law passed in June, Amazon went on the warpath; it immediately began collecting signatures for a voter referendum to repeal the law and severed relationships with its California-based “affiliates” –web sites which receive a commission for sales they direct to Amazon through links and banners. But less than two weeks ago, Amazon changed tact and offered to create 7,000 jobs in California by building big “fulfillment centers” there if the state would agree to delay sales tax collection until 2014. After Democrats rejected that offer, Amazon agreed to the September 2012 date.  In an e-mailed statement, Amazon Vice-President for Global Public Policy Paul Misener said: “This bipartisan, win-win legislation will allow Amazon to bring thousands of jobs and hundreds of millions of investment dollars to California, and welcome back to work tens of thousands of California-based advertising affiliates. This legislation also will allow us to continue to work with Congress and the states to obtain a federal resolution to the sales tax issue as soon as possible.” The company had no further comment.  Amazon and big bricks and mortar retailers such as Wal-Mart, Best Buy, Home Depot and Target Corp. are all supporting the “Main Street Fairness Act” – a bill introduced by Sen. Dick Durbin (D-Ill.) in July which would allow states that abide by the Streamlined Sales and Use Tax Agreement (21 now do) to force Internet sellers to collect their taxes. But the bill has no Republican sponsors and little chance of passing the fervently anti-tax Republican controlled House.  Nevertheless, the new California legislation gives the state an out if a federal deal passes and it doesn’t like Congress’ terms; according to the new bill (legislative analysis here), if California opts out of any new federal law it will begin enforcing its own new state law on January 1, 2013. That’s significant, since a Federal deal, should one pass, might delay sales tax collection well beyond that date.  Under a 1992 Supreme Court ruling, a state can’t force a retailer to collect its tax unless the retailer has some physical connection or “nexus” to that state. (Buyers still owe the tax to their states, but few bother to pay it voluntarily.) The California legislation asserts that a retailer has the required nexus if it either has corporate affiliates located in California (as Amazon does) or if it sells through marketing affiliates based in the state (what’s commonly called “click-through” nexus.) The new click-through nexus only applies to out-of-state sellers who made than $1 million in taxable sales to California residents in the preceding year, up from $500,000 in the original California law.  While Amazon hailed the deal, Rebecca Madigan, executive director of the Performance Marketing Association, Inc., a trade association representing affiliates, told the Associated Press, it is “very disappointing to the 25,000 small online businesses whose incomes were devastated when the affiliate nexus tax first passed in June.” That group’s members don’t just work with Amazon. Other Internet only sellers, including Overstock.com, have also ditched their California affiliates. But they, unlike Amazon, don’t have physical facilities—or the ambition of building warehouses—in California. That means they still have no incentive to reinstate affiliates.
Internet giant says it will restore thousands of California affiliates and invest in state.  Policy in other states still unclear.