SAN FRANCISCO – Approving a landmark legislative compromise that creates jobs and ensures that online retailers do not receive an unfair tax advantage over brick-and-mortar businesses, Governor Edmund G. Brown Jr. today signed a bill that requires Amazon and other internet retailers to collect sales taxes starting next year.
AB 155 (Calderon) paves the way for a nationwide solution by giving internet retailers time to push for passage of a federal bill that mirrors California’s legislation.
“A prolonged, costly ballot battle is a benefit to no one,” Governor Brown said. “This landmark legislation not only levels the playing field between online retailers and California’s brick-and-mortar businesses, it will also create tens of thousands of jobs and inject hundreds of millions of dollars back into critical services like education and public safety in future years. It’s time for Washington to follow our lead and forge a bipartisan national solution.”
AB X1 28, passed by the legislature and signed by the Governor in June as part of the budget, affirmed that out-of-state online retailers like Amazon must collect sales tax. Today’s compromise legislation delays those tax collection obligations to give online companies time to seek an alternative national solution. In exchange for the additional window of time the bill provides, Amazon has pledged to create at least 10,000 full-time jobs and hire 25,000 seasonal employees in California by the end of 2015. This will generate an estimated half billion dollars of capital investment in California. Amazon will also drop its referendum challenge to AB X1 28.
“Amazon is grateful for Governor Brown’s support of this bill and enactment of federal legislation, and we look forward to creating thousands of jobs in California,” said Paul Misener, Vice President of Global Public Policy for Amazon.
If Congress fails to act on nationwide legislation, online sales tax collection in California will begin September 15, 2012.
The Board of Equalization has estimated that California loses over $1 billion annually from uncollected use taxes. Their analysis also shows that California currently loses at least $83 million annually in uncollected state and local use tax attributed to Amazon’s sales in California.
Today’s compromise is supported by thousands of businesses, including Barnes & Noble Inc., Best Buy Inc., Crate & Barrel, Daniel’s Jewelers, Gap Inc., The Home Depot Inc., J.C. Penney Company Inc., Lowe’s Companies Inc., Safeway Inc., Sears Holding Corporation, Target Corporation, Wal-Mart Stores Inc., Westfield Group, and many other small and medium sized businesses across California.
“This is a major victory for brick-and-mortar businesses in this state. We thank Governor Jerry Brown and the leaders in the California State Legislature who have demonstrated their commitment to our businesses by passing and signing e-fairness into law,” said California Retailers Association President and CEO Bill Dombrowski. “Amazon’s concession to finally begin collecting sales tax in California is a groundbreaking moment that sends a strong message to Washington that it is time to stop giving special treatment to a select few. All retailers deserve the chance to compete, grow and create jobs on a level playing field, without government picking winners and losers.”
TEXT OF NEW LAW
BILL NUMBER: ABX1 28 CHAPTERED BILL TEXT CHAPTER 7 FILED WITH SECRETARY OF STATE JUNE 29, 2011 APPROVED BY GOVERNOR JUNE 28, 2011 PASSED THE SENATE JUNE 15, 2011 PASSED THE ASSEMBLY JUNE 15, 2011 AMENDED IN SENATE JUNE 15, 2011 AMENDED IN SENATE JUNE 14, 2011 INTRODUCED BY Assembly Member Blumenfield MAY 19, 2011 An act to amend Section 6203 of the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor, to take effect immediately, bill related to the budget. LEGISLATIVE COUNSEL'S DIGEST AB 28, Blumenfield. State Board of Equalization: administration: retailer engaged in business in this state. The Sales and Use Tax Law imposes a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state, measured by sales price. That law defines a "retailer engaged in business in this state" to include retailers that engage in specified activities in this state and requires every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state to register with the State Board of Equalization and to collect the tax from the purchaser and remit it to the board. This bill would further define a retailer engaged in business in this state as a retailer that has substantial nexus with this state and a retailer upon whom federal law permits the state to impose a use tax collection duty. The bill would also include specified retailers as retailers engaged in business in this state and would eliminate an exclusion. This bill would include in the definition of a retailer engaged in business in this state any retailer entering into agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers, whether by an Internet-based link or an Internet Web site, or otherwise, to the retailer, provided the total cumulative sales price from all sales by the retailer to purchasers in this state that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and provided further that the retailer has cumulative sales of tangible personal property to purchasers in this state of over $500,000, within the preceding 12 months, except as specified. This bill would also provide that a retailer entering into specified agreements to purchase advertising is not a retailer engaged in business in this state and would define a retailer to include an entity affiliated with a retailer under federal income tax law, as specified. This bill would further provide that these provisions would not apply if the retailer can demonstrate that the referrals would not satisfy specified United States constitutional requirements, as provided. This bill would also include as a retailer engaged in business in this state as a retailer that is a member of a commonly controlled group, as defined under the Corporation Tax Law, and a member of a combined reporting group, as defined, that includes another member of the retailer's commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with tangible personal property to be sold by the retailer. This bill would provide that the provisions of this bill are severable. This bill would appropriate $1,000 from the General Fund to the State Board of Equalization for administrative operations. The California Constitution authorizes the Governor to declare a fiscal emergency and to call the Legislature into special session for that purpose. Governor Schwarzenegger issued a proclamation declaring a fiscal emergency, and calling a special session for this purpose, on December 6, 2010. Governor Brown issued a proclamation on January 20, 2011, declaring and reaffirming that a fiscal emergency exists and stating that his proclamation supersedes the earlier proclamation for purposes of that constitutional provision. This bill would state that it addresses the fiscal emergency declared and reaffirmed by the Governor by proclamation issued on January 20, 2011, pursuant to the California Constitution. This bill would declare that it is to take immediate effect as a bill providing for appropriations related to the Budget Bill. Appropriation: yes. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 6203 of the Revenue and Taxation Code is amended to read: 6203. (a) Except as provided by Sections 6292 and 6293, every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state, not exempted under Chapter 3.5 (commencing with Section 6271) or Chapter 4 (commencing with Section 6351), shall, at the time of making the sales or, if the storage, use, or other consumption of the tangible personal property is not then taxable hereunder, at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser and give to the purchaser a receipt therefor in the manner and form prescribed by the board. (b) As respects leases constituting sales of tangible personal property, the tax shall be collected from the lessee at the time amounts are paid by the lessee under the lease. (c) "Retailer engaged in business in this state" as used in this section and Section 6202 means any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution and any retailer upon whom federal law permits this state to impose a use tax collection duty. "Retailer engaged in business in this state" specifically includes, but is not limited to, any of the following: (1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business. (2) Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property. (3) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in this state. (4) Any retailer that is a member of a commonly controlled group, as defined in Section 25105, and is a member of a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations, that includes another member of the retailer's commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with tangible personal property to be sold by the retailer, including, but not limited to, design and development of tangible personal property sold by the retailer, or the solicitation of sales of tangible personal property on behalf of the retailer. (5) (A) Any retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise, provided that both of the following conditions are met: (i) The total cumulative sales price from all of the retailer's sales, within the preceding 12 months, of tangible personal property to purchasers in this state that are referred pursuant to all of those agreements with a person or persons in this state, is in excess of ten thousand dollars ($10,000). (ii) The retailer, within the preceding 12 months, has total cumulative sales of tangible personal property to purchasers in this state in excess of five hundred thousand dollars ($500,000). (B) An agreement under which a retailer purchases advertisements from a person or persons in this state, to be delivered on television, radio, in print, on the Internet, or by any other medium, is not an agreement described in subparagraph (A), unless the advertisement revenue paid to the person or persons in this state consists of commissions or other consideration that is based upon sales of tangible personal property. (C) Notwithstanding subparagraph (B), an agreement under which a retailer engages a person in this state to place an advertisement on an Internet Web site operated by that person, or operated by another person in this state, is not an agreement described in subparagraph (A), unless the person entering the agreement with the retailer also directly or indirectly solicits potential customers in this state through use of flyers, newsletters, telephone calls, electronic mail, blogs, microblogs, social networking sites, or other means of direct or indirect solicitation specifically targeted at potential customers in this state. (D) For purposes of this paragraph, "retailer" includes an entity affiliated with a retailer within the meaning of Section 1504 of the Internal Revenue Code. (E) This paragraph shall not apply if the retailer can demonstrate that the person in this state with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the commerce clause of the United States Constitution. (d) Except as provided in this subdivision, a retailer is not a "retailer engaged in business in this state" under paragraph (2) of subdivision (c) if that retailer's sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than 15 days, in whole or in part, in this state during any 12-month period and did not derive more than one hundred thousand dollars ($100,000) of net income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a "retailer engaged in business in this state," and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities. (e) Any limitations created by this section upon the definition of "retailer engaged in business in this state" shall only apply for purposes of tax liability under this code. Nothing in this section is intended to affect or limit, in any way, civil liability or jurisdiction under Section 410.10 of the Code of Civil Procedure. SEC. 2. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity does not affect other provisions or applications that can be given effect without the invalid provision of application. SEC. 3. The sum of one thousand dollars ($1,000) is hereby appropriated from the General Fund to the State Board of Equalization for administrative operations. SEC. 4. This act addresses the fiscal emergency declared and reaffirmed by the Governor by proclamation on January 20, 2011, pursuant to subdivision (f) of Section 10 of Article IV of the California Constitution. SEC. 5. This act is a bill providing for appropriations related to the Budget Bill within the meaning of subdivision (e) of Section 12 of Article IV of the California Constitution, has been identified as related to the budget in the Budget Bill, and shall take effect immediately. Link to Law: http://www.leginfo.ca.gov/pub/11-12/bill/asm/ab_0001-0050/abx1_28_bill_20110629_chaptered.html