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Amazon sales tax deal averts ballot fight

The deal would delay for a year the requirement that out-of-state online retailers start collecting sales taxes on purchases by Californians. In return, Amazon would withdraw a voter referendum.

September 08, 2011|Marc Lifsher and Andrea Chang, Los Angeles Times
  • A tentative deal that would halt Amazon.com Inc.'s campaign to repeal the state's recent Internet sales tax collection law may have pulled California back from the brink of an expensive and politically fractious June ballot war.
A tentative deal that would halt Amazon.com Inc.'s campaign to repeal… (Paul Sakuma / AP Photo )

Reporting from Sacramento and Los Angeles — A tentative deal that would halt Amazon.com Inc.'s campaign to repeal the state's recent Internet sales tax collection law may have pulled California back from the brink of an expensive and politically fractious June ballot war.

Bricks-and-mortar retailers, including Wal-Mart Stores Inc. and Target Corp., have long complained about Amazon's unfair advantage, but said they were satisfied with the agreement reached between lawmakers and the world's largest online retailer.

The deal would create a new Internet sales tax law that would delay for a year the requirement that out-of-state online retailers start collecting sales taxes on purchases by Californians. In return, Amazon would withdraw its voter referendum challenging the existing law.

Analysts said the proposal shows that Amazon and possibly other Internet sellers are bowing to the inevitability that they should be collecting sales taxes on online business transactions.

They predicted that Amazon would join forces with conventional retailers to pressure Congress to pass a federal law on Internet sales tax collection that would supersede state laws.

According to lawmakers and lobbyists, the new legislation has a good chance to get the needed two-thirds vote from both houses of the state Legislature. But it lacks a key ingredient: the governor's blessing.

Gov. Jerry Brown, so far, has not taken a public position on one of the most important bills now before lawmakers as they head toward their annual recess Friday.

At a press conference Thursday, Brown declined to weigh in on the tentative resolution to the battle, saying he hadn't had time to familiarize himself with the compromise but would address it in the final hours of the legislative session.

To help fill the state's chronic revenue shortfall, Brown had been looking forward to getting an additional $200 million in unpaid sales taxes owed on Internet purchases by Californians. His budget already is unraveling as other tax revenues are coming in below earlier estimates.

A state law, effective July 1, required Amazon and others to start collecting taxes, but the world's largest online retailer launched a referendum to overturn the law, prompting the Legislature to propose a replacement measure that couldn't be attacked by referendum.

"At the end of the day, Amazon has operated under the notion that it deserves special treatment from the government," said Jason Brewer, a spokesman for the Retail Industry Leaders Assn., which represents major big-box chain stores. "Regardless of whether they are liberal or conservative, most people think that is wrong."

Intense scrutiny of Amazon's practices in California and other states, such as Illinois, Texas, New York and Tennessee, that passed similar sales tax collection laws has blackened the image of Amazon, Brewer said.

Amazon, which dispatched its top public affairs vice president to Sacramento for the negotiations, declined to comment.

Democratic lawmakers already had given up on trying to collect any money from Amazon until next year. That's because the referendum, once qualified, automatically would have put enforcement of the sales tax bill on hold.

Amazon's offer last week to build at least two distribution centers in California and hire about 7,000 workers is not part of the pending agreement. However, people familiar with Amazon's position noted that, once its disputes with the state ends, the firm expects to open facilities in California to meet growing consumer demand.

That investment would be welcome, said Bill Dombrowski, president of the California Retailers Assn.

"We're committed to a legislative solution that levels the playing field for all retailers," he said. "I'm optimistic about getting it done."

The Democrats and California retailers are seeking support from a handful of Republican legislators that would give them the two-thirds vote needed to make the agreement one that cannot be overturned by a voter referendum.

At least one of two Republicans whose votes are needed to pass the Assembly has committed publicly to support the Amazon deal. Vote counters in the Senate said they expected to pick up three or four GOP votes in that chamber.

But not everyone with a stake in cyber-commerce is happy with the compromise with Amazon.

Carolyn West, who used to link to Amazon products from her book review blog, said she was still bitter that Amazon had abruptly severed its financial ties to her and other so-called affiliates this summer. Amazon canceled contracts with more than 10,000 websites in a move to evade the new California law.

West said even if Amazon reinstated the program, she would worry that it would "do the same thing again in another year."

West, 45, of Santa Clarita, said she didn't "want to be associated with a company that does that to its people who are trying to make money for them."

One of Amazon's biggest online competitors, O.Co., said it wouldn't be affected by either the Amazon deal or California's new law. In the U.S., the company, formerly known as Overstock.com, is 20 times smaller than Amazon by sales volume.

Chief Executive Patrick Byrne said his firm had ended all ties with California Web affiliates, had no physical presence in the state such as warehouses and was not obligated to collect taxes under the new law.

Byrne said he had no sympathy for big-box competitors such as Wal-Mart.

"They were slaughtering Main Street retailers for decades," he said. "Now that the facts are reversed, they're out there taking the exact opposite position."

marc.lifsher@latimes.com

andrea.chang@latimes.com

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