Amazon Takes On California At The Ballot Box—And It Thought E-Commerce Was Rough

Written by Frank Hayes
July 13th, 2011

In a political gamble, Amazon is taking its fight against E-Commerce sales taxes directly to California voters. On July 8, the E-tail giant filed paperwork to challenge the “Amazon tax” law that took effect in California this month. Amazon now has until late September to collect 500,000 or more signatures to qualify for a vote on the November 2012 ballot—and if it crosses that hurdle, the company will find out just how much consumers mind paying online sales tax.

The risk for Amazon isn’t just that its referendum effort might fail. Long before the 2012 election, Amazon and California tax officials will be in court, and that could rule the law valid or not. But going after the tax through such a highly public political process is likely to put every brick-and-mortar competitor and disgruntled customer on the other side of the campaign—and to make this a referendum not just on the Amazon tax, but on Amazon itself.

Amazon filed the referendum paperwork a week after the effective date of California’s expanded sales-tax law, which expands the definition of who must collect sales or use tax to any retailer with affiliates or sister companies in the state. Without connections like those—”nexus” in tax-collecting jargon—a state can’t collect taxes from an out-of-state retailer, according to a series of U.S. Supreme Court decisions.

As with previous states, Amazon ended its California affiliate program just before the law took effect. But California is also where the Kindle is designed—by a subsidiary that falls under the new California law. That means, even without affiliates, Amazon has a connection in California, and that makes it less certain that Amazon will be able to beat the law in court, as it’s attempting to do in New York.

That explains why Amazon is going the referendum route, which in California allows voters to approve or reject laws that the legislature has passed. The referendum is binding, not advisory—if 51 percent of the voters vote no, the law is rejected. In that case, in less than two years Amazon could be out from under California sales taxes (at least until a federal law clears the way for Internet sales taxes nationwide).

Such a result would come far faster than any court case is likely to run. In New York, for example, Amazon has been in court fighting a sales-tax law since 2008. After three years and a round of appeals, it’s still in the trial-court stage.

On the other hand, if more than half the voters vote yes in 2012, thereby keeping the tax alive, Amazon still has its shot at getting a court ruling that the law doesn’t apply to it.

But that would mean a very large state that’s notoriously averse to passing tax measures had OKed the Amazon tax.


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