[markwelch]

Amazon has "drawn a line in the sand" in the sales-tax battle, by informing the State of Hawaii that if they enact their version of the "Amazon Tax," then Amazon will NOT collect Hawaii sales taxes (called "excise taxes" there), but instead Amazon will terminate its relationships with Hawaii resident affiliates. (Thanks to Mellie for digging up and posting this information! I'm attaching a JPG of the Amazon letter to this post.)

I'm posting this in the California thread because nobody has yet reported any specific response from Amazon regarding the pending California bills. I strongly believe that if Amazon adopts the same position (stating that it will terminate California affiliates and will not collect tax), then the entire purpose of the law will be undermined: the lost income tax would then far exceed the forseeable revenue.

I had assumed, based on Amazon's response in New York, that it would simply "surrender" and begin collecting the tax. And given California's size and the importance of Amazon's California affiliates to the company, I expect that Amazon won't make a similar threat in California. But if Amazon decides to terminate its California affiliates if this law passes, then it would present a huge obstacle to California legislators, who would then be forced to decide whether to sacrifice California jobs and income tax just to "call Amazon's bluff."

This puts me in a strange, awkward position: while I don't want Amazon to terminate their advertising relationship with me, I also recognize that their decision to do so (if the law passes) would actually reduce the probability that the law might pass.

Finally, Amazon and other folks (opposing the Hawaii bill) seem to suggest that the only viable alternative (to force out-of-state retailers to collect sales tax under the "Quill v. ND" decision by the US Supreme Court) is the "Streamlined Multistate Sales Tax" project, which surprises me. In my view, there are two ways to address the "undue burden" problem: one is "tax simplification" and the other is "technological implementation." The Streamlined Sales Tax effort requires states to modify their sales-tax laws to make them more uniform; I think a "technological alternative" is also viable (if states joined efforts to create tools and procedures to eliminate or substantially reduce the "computation cost" and "compliance costs" by providing a clear and easy way for merchants to identify, compute, collect, and remit sales taxes to many states, even if those states have very complex and different sales-tax laws). I also believe that under the "Quill" case, it is potentially possible to have more than one "sales tax system" in place (for example, one system might be adopted by 30 states, and a second system adopted by 12 other states, and companies might be required to use both).

[CathyM]

Wow, this does complicate the situation quite a bit for me as well. I am going to re-work my letters, probably significantly, and use some of the information from the Hawaii letters.

Thank you Mark and Mellie for keeping us up to date on these new developments.

[chetf]

I am surprised amazon doesn't have distribution centers NY and CA. They weren't already collecting tax?

Guess not...
http://www.dallasnews.com/sharedcont...n.378aef9.html

[markwelch]

ChetF wrote: > "I am surprised amazon doesn't have distribution centers NY and CA. They weren't already collecting tax?" <

No, Amazon.com does not collect sales tax when it sells products to California, and I believe it has tried to conform its conduct specifically with the US Supreme Court's decision in Quill v. ND , to avoid being burdened with the duty to collect sales taxes for most states and localities.

However, Amazon does collect sales tax on behalf of its Marketplace sellers who are required to collect California sales tax -- which probably undermines much of the "undue burden" argument (but not the "nexus" or "physical presence" requirement) as applied to Amazon.com. I have purchased products through the Amazon marketplace which were shipped to me from an independent reseller's California warehouse.

It would certainly be interesting to look at Amazon's "nexus" with California; there are probably multiple Amazon.com employees whose feet are on the ground in California at any time, although none are actually employed here (some might even own residences in California, but maintain their "principal residences" in Washington or Nevada). In addition, Amazon.com probably pays many dozens (perhaps hundreds) of "independent contractors" who reside in California, to perform work that historically (before the Internet age) would have been performed by company employees.

The "trickest part" may be the area of drop-shipping: if Amazon sells products which it arranges to have "drop-shipped" from a distributor's warehouse, and the items are actually shipped from a California warehouse to a California customer, then I think Amazon actually should be treated as having a "physical presence" in California (at least for those transactions, but probably for all sales to California). I assume that for products which are not in stock in Amazon's warehouses, Amazon arranges to have the products shipped from a wholesaler or manufacturer (which might be in California) to one of Amazon's warehouses, and then ships the items to the customer.

Of course, the State of California's Franchise Tax Board probably has at least employee tasked with trying to establish Amazon.com's "physical presence" or "nexus," but Amazon.com surely allocates a lot more resources to insure that no such nexus is found.

[chetf]

I just think in these cases, as your prove, Amazon isn't quite the shining example to use in arguments. They blur the line way too much to not provide "gotchas" for the opposition.