Reporting from Sacramento — The deal struck between the California Legislature and Amazon.com late Friday was a "classic compromise," even though it would deprive the state treasury of an estimated $200 million in sorely needed revenue, according to Senate President Pro Tem Darrell Steinberg (D-Sacramento.)
The truce was reached after days of intense negotiations and will allow the giant Internet retailer to wait until at least September 2012 to collect sales taxes from its California customers. Although the state Senate and Assembly overwhelmingly approved the bill, it awaits the signature of Gov. Jerry Brown, who has not said which way he's leaning.
State lawmakers earlier this year passed what some dubbed the "Amazon tax" requiring online retailers with subsidiaries in California to collect sales taxes from their Golden State customers. But instead of complying with that measure, which took effect July 1, Seattle-based Amazon chose to fight. It has spent millions on a signature-gathering effort to get the issue on the ballot next June, betting that California voters would overturn the current law.
The deal approved Friday would permit Amazon to delay collecting taxes until Sept. 15, 2012, unless Congress first passes legislation setting a national standard, something that Amazon has been pushing for. A federal law would end squabbling now occurring in dozens of states over whether and how to make online merchants follow the same rules as the big bricks-and-mortar chains.
The legislation "will allow us to continue to work with Congress and the states to obtain a federal resolution to the sales tax issue as soon as possible," Paul Misener, Amazon vice president for global public policy, said in a statement.
In California, mom-and-pop stores as well as heavyweights such as Wal-Mart Stores Inc. and Target Corp. have long complained about what they view as unfair competition from Amazon and other online competitors. Out-of-state e-commerce businesses don't charge sales taxes that can amount to as much as 10% in some areas of California.
Amazon contends that it is protected by a 1992 U.S. Supreme Court decision exempting companies without a physical presence in a state from having to collect sales taxes from customers there. But legal experts are split on what that means.
Amazon had sold goods in California through a number of third-party affiliates with facilities in the state, which lawmakers said put Amazon on the hook to collect the taxes. The company canceled those agreements before the original bill took effect.
But both bills also require Amazon to collect sales taxes because it controls companies that operate in California, such as a lab in Silicon Valley that does research and development on the Kindle e-reader and related products.
The compromise bill — AB 155 by Assemblyman Charles Calderon (D-Whittier) — will take effect immediately if Brown signs it and will supersede current state law.
If he doesn't sign the bill and Amazon continues with its referendum push, its bricks-and-mortar rivals are poised to spend millions on negative advertising portraying the company as depriving the state of revenue and jobs. Still, it's not clear which way Californians would vote on mandating online sales taxes given the struggling economy.
"Nobody wanted this referendum," said Lenny Goldberg, executive director of the labor-oriented California Tax Reform Assn., who supports the compromise deal. "There's a big downside risk for everyone with the referendum. Amazon gets hammered" with bad publicity, "and we could lose" the election.