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Amazon fights California sales tax requirement

Amazon seeks to avoid collecting sales taxes from California consumers by cutting ties to affiliates in California who steer business to its site.

July 01, 2011|By Marc Lifsher and Andrea Chang, Los Angeles Times

Tax officials, meanwhile, said they are starting the process of drafting regulations to put the law in force. Soon, they will be sending notices to about 2,000 out-of-state Internet sellers that might be affected. Sellers are expected to begin collecting the sales taxes immediately. The first remittances to the state are due in about three months.

If Amazon is forced to collect, that could change the shopping patterns for scores of shoppers such as Carolyn West, a writer and blogger from Santa Clarita who said she and her husband bought many of their big-ticket electronics online.

"If I'm going to pay sales tax, what's the point? I may as well go into a store — which is, I guess, the idea," West said. Though Amazon often has lower prices than brick-and-mortar stores, "the savings isn't worth it enough to go through the online purchase and wait for the shipment."

California buyers have never been freed from the obligation of paying an equivalent use tax for their online purchases. But that tax is almost impossible to collect from individual buyers because most don't know that the tax is due, state officials said.

States trying to tap into Internet sales have been trying to work around a 1992 U.S. Supreme Court decision. The court ruled then that a state can require out-of-state companies to collect sales taxes only if those companies have some presence in the state, such as workers, plants and offices.

An Amazon spokesman declined to say whether the company would file a lawsuit challenging the California law. Its New York suit argued that a 2008 law requiring sales tax collection violated the interstate commerce clause of the U.S. Constitution. Amazon lost at the trial court; its appeal is pending.

Overstock said it doesn't plan legal action.

The affiliates that Amazon, Overstock and other out-of-state operations use to steer business to them are now looking for another way to make a buck, either by moving their operations out of state or by signing up with in-state Internet sellers, such as Barnes & Noble, Wal-Mart Stores or Best Buy, which currently collect sales tax on Californians' purchases.

Some, like's Bendele, are blaming the state. "I'm absolutely dumbfounded that California has chosen this path," he said. He is considering his next step.

Some experts said the fight has gone on too long.

"Amazon's management should just bite the bullet and collect taxes," said Charlie Wolf, a securities analyst at Needham & Co.

There needs to be a broader policy for online sales that takes into account the concerns of the states and e-commerce retailers, said Ray Valdes, a San Jose-based Internet analyst at market research firm Gartner.

"The issue is contentious enough and thorny enough that there's no clean resolution," he said. "If one side dodges the bullet for now, that's not a stable situation."

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