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California lawmakers try to head off Amazon sales tax referendum

Legislators rework a sales tax collection law into an urgency bill, which would be immune to Amazon's referendum to repeal the law.

August 26, 2011|By Marc Lifsher and Andrea Chang, Los Angeles Times
  • A UPS driver delivers Amazon.com packages in Palo Alto in June. Amazon was apparently blindsided by California lawmakers' latest maneuver to force it to collect sales taxes.
A UPS driver delivers Amazon.com packages in Palo Alto in June. Amazon was… (Paul Sakuma / Associated…)

Reporting from Sacramento and Los Angeles — State lawmakers escalated their war with Amazon.com Inc. on Thursday with a fresh attack aimed at the Internet giant's refusal to collect taxes on its sales, which a new law requires.

The legislative move would halt Amazon's campaign to put a referendum on the June ballot asking voters to overturn the state's Internet sales tax law, which took effect July 1.

In a bit of legislative legerdemain, the state Senate Appropriations Committee took the language of that law, tweaked it and put it into a so-called urgency bill.

As an urgency bill, the legislation, should it pass, would nullify the existing law, invalidating Amazon's voter petition, and the new law would be immune from a referendum.

Amazon, the world's largest online retailer, apparently was blindsided by the maneuver. It would not comment.

"I don't know what Amazon will do, but I hope it will decide it's going to pay the sales tax," said state Sen. Loni Hancock (D-Berkeley), one of the authors of the original sales tax collection bill.

Internet merchants may be coming to the end of an era in selling products without collecting sales taxes, said analyst Ray Valdes at the research firm Gartner Inc. in San Jose.

"Online retailers have to deal with the messy and very real world of politics and tight budgets and economic realities," Valdes said.

Amazon has said that it would refuse to collect taxes, as it has in almost every state, and that it expected to collect enough signatures on its referendum petition. The Seattle company has contributed $5.25 million to the More Jobs Not Taxes referendum campaign.

The bill's sponsors already have wooed away a key Amazon ally: EBay Inc.

The online auction and sales site agreed to withdraw its opposition after lawmakers raised the threshold for requiring an Internet seller to collect sales taxes for California.

The existing law states that sites selling more than $500,000 worth of merchandise a year to Californians have to collect sales taxes. The new bill raises the limit to $1 million, an effort to give smaller merchants an exemption from the requirement.

"Creating a more robust small-business threshold … will provide adequate protections for most small-business retail entrepreneurs that use the Internet and will help to foster economic growth and competition in California," Tod Cohen, an EBay vice president and deputy general counsel, said in a statement.

EBay's change reflects, in part, the efforts of Bill Dombrowski, president of the California Retailers Assn., which is coordinating the fight to force out-of-state Internet sellers to collect taxes. "We found a way to broaden support for the bill significantly," he said.

California retailers complain that they are victims of unfair competition from Amazon, Overstock.com — now calling itself O.co — and other Internet sellers that don't operate physical stores or warehouses in the state.

As a result Amazon can undercut their prices by not collecting the state's 7.25% sales tax and additional local government levies. With its razor-thin profit margins, Amazon relies on the no-tax allure to customers for much of its sales.

Wal-Mart Stores Inc. and its allies in the Alliance for Main Street Fairness, a group that includes big-box stores and independent businesses, still face a major challenge in getting their legislative maneuver to work.

It's unclear whether sponsors of the measure have the two-thirds vote needed to adopt an urgency bill; the existing law picked up one Republican vote.

But heavyweight Republican-leaning lobbying groups, including the California retailers group and the Los Angeles Area Chamber of Commerce, are pushing GOP legislators to support the plan.

"I think that getting Republican votes is doable," Dombrowski said. "We've done a lot of educating to change the vote."

Dombrowski needs to get support from at least three Republicans in the Senate, where one Democrat has vowed to oppose the bill, and at least two Republicans in the Assembly.

However, some Capitol veterans called his appraisal overly optimistic. "No one is holding their breath" waiting for the Republican votes, said Nathan Barankin, a spokesman for Senate President Pro Tem Darrell Steinberg (D-Sacramento).

Should the bill become law, Amazon, which has fought sales tax collection efforts nationwide, would have two options left to fend off the effort: Use the much-harder-to-win initiative process or challenge the law in court.

The company is mired in a protracted and largely losing legal battle in New York over a similar law.

In the meantime, so-called Amazon affiliates, sometimes small Internet sites that earn commissions when users click on links to get to Amazon, said they weren't sure which side to take.

Amazon broke its ties with the affiliates immediately after California's law went on the books to avoid any physical connections to the state that would make it subject to collecting sales taxes.

"I'm not sure whether to be mad at Amazon or the state or both. I'm kind of mad at both," said Beth Terry, 46, who was an Amazon affiliate for four years, making $25 to $50 a month for linking to ecologically friendly products on Amazon from her personal blog.

"I can understand why California businesses are upset and hurting," said Terry, who supports the law "for fairness." "I say that, but honestly if for whatever reason Amazon welcomed back California affiliates, I'd probably suck it up and go back."

marc.lifsher@latimes.com

andrea.chang@latimes.com

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