Amazon Tax 101
WHAT IS THE AMAZON TAX?
The Supreme Court has adopted a bright-line rule for determining the extent to which a state may tax out of state businesses based on the Due Process and Commerce Clause of the Constitution — which put simply is if you have a physical presence in a state (e.g., retail location) there is sufficient nexus to permit a state to tax or require that a business collect taxes.
Thus, in a California resident bought products online from a Rhode Island retailer with a physical presence in California (CVS) and a retailer in Nevada without a physical presence, sales tax would be collected in only the first case. The consumer, however, would still have a duty to pay the tax in both cases and the California BOE does conduct periodic audits (I am currently responding to one).
In 2008, the state of New York passed a law that interpreted having a physical in-state to include online retailers who pay commissions to in-state affiliate marketers that in the aggregate exceed $10,000 per year. It was called the Amazon Tax because the purpose of the bill was to require certain large retailers such as Amazon to collect and remit sales tax to New York.
It has since been adopted in Arkansas, Connecticut, Illinois, North Carolina, Rhode Island and Vermont. The California legislature has passed an Amazon Tax before only to be vetoed by Governor Schwarzenegger.
WHAT ARE THE DETAILS OF THE CALIFORNIA LAW
In general, it requires retailers selling over $500,000 per year in state who have over $10,000 per year in sales generated by in-state affiliates to collect sales tax. The bill also has provisions extending the obligations to out-of-state retailers with in-state subsidiaries or distribution centers.
As in other states, Amazon has announced it will terminate all of its in-state affiliates. This “collateral damage” has been estimated to offset at least half of the anticipated revenue gain.
IS THIS CONSTITUTIONAL?
The New York law has been upheld in part, as the New York courts have found that it is not unconstitutional on its face but has remanded the case for a determination as to whether the law is unconstitutional as applied to Amazon.
ISN’T THERE A 2/3rds VOTE REQUIREMENT FOR NEW TAXES?
Yes, but this is not considered a new tax but rather just a clarification of existing provisions. The partisan divide in Sacramento made passage of the Amazon tax inevitable since the parties could not reach any agreement on other sources of revenue.