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Amazon Cuts Calif. Deal—Now It's Fighting For Online Sales Taxes

Written by Frank Hayes
September 8th, 2011
Amazon cut a deal with California politicians on Wednesday (Sept. 7) to block the state's online sales-tax law for at least a year. The political deal buys Amazon and other online retailers a year's respite from the online tax in California. But it also effectively guarantees that, one way or another, all E-tailers will be collecting state sales tax 16 months from now.

Under the deal, Amazon and a coalition of brick-and-mortar retailers have until July 31, 2012, to lobby Congress to pass a bill authorizing states to collect online taxes. If the federal law passes, California won't require E-tailers to start collecting sales tax from customers in the state until January 2013. If Congress doesn't act, online tax collection will be required starting in September 2012.

The agreement ends a political war between Amazon and the California legislature, which passed an online sales-tax law that took effect in July. But in the wake of the law, no online retailers applied for permits to collect the taxes, and Amazon launched a $5 million signature-gathering effort for a referendum to repeal the law.

That, in turn, led lawmakers to try to repeal the law that Amazon was attempting to repeal and replace it with a nearly identical law that wouldn't be subject to repeal through California's referendum process—an effort that failed to get enough votes this week, forcing the compromise.

But the deal also effectively signals an end to a string of political and court battles in New York, Illinois, Connecticut, Rhode Island, North Carolina, Arkansas and Colorado. Amazon—which California calculated would be responsible for delivering half the online sales taxes the state expects to collect—is now in a race to get Congress to authorize online sales taxes. And unless the rest of the pure-play E-tailers decide to fight it, Amazon will drag them all along in its slipstream.

The result is certainly not guaranteed. The short timetable will pit Amazon, traditional retailers and sales-tax-hungry state governments against politicians who will oppose the tax authority on anti-tax principle, during the run-up to a presidential election. Yeah, that's sure going to be pretty.

Among E-tailers, the most likely candidates to pick up the anti-online-sales-tax banner that Amazon has dropped are eBay and Overstock.com. But eBay cut its own deal last month with California—the online auction giant's home state—to excuse it from having to collect sales taxes. Even though physical-world auctioneers in California must collect sales taxes, it will be up to eBay sellers to apply for permits and collect the taxes, and then only if they do $1 million or more in sales to California residents.

As for Overstock, while the online retailer has partnered with Amazon in lawsuits against online tax laws in New York and other states, the company says it doesn't like the idea of federally authorized online sales taxes either. But whether Overstock has sufficient political heft to lead a fight on its own remains to be seen.