California is the latest state to pass a law requiring out-of-state Internet retailers to collect sales tax on purchases by California consumers. California Governor Jerry Brown signed the bill into law Wednesday.
California, struggling to fill a widening budget gap, sees the measure as a way to recoup lost revenue. With one of the highest sales tax rates in the nation, state officials say the law will probably bring in $317 million in new revenue.
Officials say taxing sales on out-of-state websites is only fair, since California-based retailers must charge the tax. The current situation, they say, put California businesses at a competitive disadvantage. California retail trade groups supported the measure.
The law was written to get around a 1992 Supreme Court ruling that exempted online retailers from collecting sales tax unless they had a physical presence in the state. Under the new law, that presence has been interpreted to include not only property and employees, but contractors and affiliates.
In the case of Amazon.com, the largest online retailer, its use of California-based affiliates, who refer traffic to Amazon and are paid commissions for click-through purchases, make it fall under the new law. But maybe not for long.
In a message to affiliates in California Wednesday, Amazon told them they would have to move outside California's borders if they want to remain affiliates. However, that in itself might not be enough to exempt Amazon from the new law. The statute also says any online retailer with other business operation in the state falls under its jurisdiction. Amazon has an operation in Silicon Valley that makes the Kindle and a movie unit in Los Angeles.
For California consumers, however, there will be no escaping the sales tax on Amazon purchases, at least in the short run. It will add 7.75 percent to the price of an online purchase – 8.75 percent if the consumer lives in Los Angeles.
California becomes the seventh state to pass a law to subject online sales to taxation.