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While the nation was captivated by the debt crisis – and whether tax increases would be part of any deal to reduce federal deficits – a group of Democratic senators and congressmen have rolled out legislation that would raise new revenues by targeting online sales from retailers like Wal-Mart and Best Buy.

These lawmakers say that states are losing billions in uncollected state and local sales tax on Internet sales and are touting the support of online retailers like Amazon who say they’re fine with an across-the-board system that would make tax collections simple.

I guess this is payback to Wal-Mart, Best Buy and Target for their advocacy of taxing Amazon in California.

OH! The big retailers turf wars.

But for the thousands of affiliates in the state now set adrift by Amazon and Overstock, another major out-of-state player, the law is an unfair and misguided attempt to raise revenues on the backs of struggling mom-and-pop businesses.

Rather than bring in tax dollars, they say, it will instead drive away scores of entrepreneurs California needs to innovate its way out of its economic malaise.

“None of us are against a level playing field,” said Robert Smahl with privately held Ebates, an online shopping site in San Francisco with 50 employees. “But this is not the way to do it. You’ve just penalized a small segment of people who don’t have the money to fight the legislation. I don’t think the lawmakers understand that this won’t change anything and it won’t hurt Amazon at all.”

Many affiliates getting hurt are pint-size, like Silicon Valley mom-blogger Tina Case’s Moms Who Click, a camera-buff site that brings in a few hundred dollars monthly.

Her husband works, so she’ll simply lose “the icing on the cake.” Still, she’s angry.

“The law is ridiculous. If the purpose is to generate tax revenues, then by putting affiliates out of business the state’s losing the income taxes we were paying. This will hurt the economy more than help it.”

More than 70 affiliates have already left California, say fellow site-owners, in some cases after being wooed by states such as Texas and Arizona that are anxious to reel in business-tax revenue to shore up their own battered budgets. Other affiliates are brainstorming new business models that would allow them to keep their sites up and running. And still others are waiting to see if an Amazon-backed initiative to roll back the law makes it onto the ballot early next year.

Keith Posehn, a San Diego marketer who’s considering leaving the state after losing 30 percent of his revenue, says the new law complicates an already cutthroat business.

The largest of online marketers will leave California and set up across the border in Nevada or Arizona. Others will just absorbed reduced earning capacity and spend less and hope the law changes.

In the meantime, the “little guy” gets hurt while the Big Box Brick and Mortar stores duke it out with Amazon in the political arena.

But, don’t say I didn’t tell you so months ago.

By the way, this issue of internet sales taxation will not be settled until there is some federal legislation or a decision by a federal appellate court on the nexus issue.

Debate over the 90-day interim period during which Amazon gathers signatures for the voter referendum to repeal the law was a hot issue today between board members. Because the office of legislative counsel issued a recent opinion which said the law would be suspended the minute Amazon qualifies the issue for the ballot, Republican board members George Runner and Michelle Steele
said the BOE should not implement the tax yet.

At issue was whether the new law would or should even take effect.

However, board members Betty Yee and Jerome Horton, Democrats, insisted that because ABx1 28 was already signed into law, it needs to be upheld by the board unless and until it is repealed either by the voters, or in a court of law.

Yee wanted to abandon discussion of the interim period, and instead pushed ahead for implementation of the tax, beginning with an “interested parties” process discussing the need for rule making to implement and clarify the provisions of the bill.

The Board voted 3-2, siding with Yee and Horton to have obtain an opinion from the Attorney General explaining how the referendum process will affect the tax, and to begin the meetings to discuss implementation.

This move is just the beginning of a long litigious process.

Signature gathering is on-going and it is just a matter of time before the referendum folks and the California Attorney General are sued to try to remove the referendum from the ballot -  before and then after it qualifies.

The campaign consultants, communications strategists and the lawyers are all going to get rich while I no longer earn a few bucks from selling Amazon books and media on flapsblog.com.

Wonderful…..

The state Board of Equalization will start to tackle how to implement a new law requiring major online retailers to collect sales tax on purchases made by Californians at its Sacramento meeting today.

But any solution for applying the so-called “Amazon Tax,” which was approved last month as part of the budget package backed by Democratic lawmakers, could be short lived. Opponents of the change have filed referendum papers to ask voters to overturn ABX1 28 in the next statewide election, a move that could pull the plug on the plan to generate revenue much sooner than 2012.

A Legislative Counsel opinion sought by Sen. Joel Anderson, R-Alpine, concluded that the law would be suspended once the challenge qualifies for the ballot, even though the majority-vote measure took effect immediately as a result of Proposition 25. That scenario would put the Amazon Tax on hold until the next statewide election, which will likely be held in June 2012.

The meeting will be webcast this morning here and the full agenda in Pdf format is here.

In the meantime, the signature gatherers are proceeding and the television ad mavens are busy.

Looks like it, as per a new legal opinion from the Office of the Legislative Counsel.

Legislative lawyers believe that if a referendum on the new law requiring sales tax collection by online retailers qualifies for the ballot, the law will have to be put on hold until the voters have their say.If that opinion holds, it may raise the stakes for a budget written with an expectation of at least $200 million from the law in question.

“We are of the opinion that the operation of the statute would be suspended during that time period,” writes attorneys for the office of
the Legislative Counsel in a letter dated Friday to state Sen. Joel Anderson (R-San Diego).

Anderson apparently asked for a legal opinion on whether the law, contained in ABx 28, would be operable should the newly launched campaign to overturn it via referendum gather enough voter signatures.

The six page letter (PDF) tackles an issue raised a few times before, and several times since, voters approved Proposition 25 in November: whether a majority vote budget and its related “trailer” bills are subject to referendum.

But, I am positive that this will be litigated once the requisite signatures are gathered.

Which I do not surmise will be too long with Amazon.Com’s deep financial pockets. With the polling already showing a likelihood that the referendum will pass, Walmart, Target and the other brick and mortar retailers will want to keep Amazon’s feet to the fire – and in legal fees.

Some have suggested that the budget and any related bill which includes an “appropriation” could, under Prop 25, may be immune from the referendum. In part, the quandary is linked to the California Constitution’s exclusion of “urgency statutes” (which go into effect immediately and require a supermajority legislative vote) and those “providing for appropriations.” Until Prop 25 lowered the budget vote in the Legislature, both seemed to apply to state’s annual fiscal plan.

“Before Proposition 25,” the opinion letter states, “the referendum was applicable only to statutes that did not go into effect immediately.”

But now, write legislative attorneys, the budget can no longer be considered exempt from referendum because Prop 25 didn’t explicitly say so. And while the constitution doesn’t expressly put a statute on hold once a referendum has qualified for the ballot, Legislative Counsel says the courts have nonetheless operated on that assumption.

Amazon.com can begin collecting signatures to overturn California’s new online tax collection law after state Attorney General Kamala Harris issued ballot language Monday for the retailer’s proposed referendum.

The retailer and its online allies will have until Sept. 27 to gather 505,000 signatures to qualify the referendum for the ballot. Should it qualify, the state would have to suspend its new sales tax law until voters decide on the matter next June.

The law, Assembly Bill X1 28, was approved by Democratic lawmakers and signed by Gov. Jerry Brown last month. It expands the definition of retailers required to collect sales and use tax on California purchases, and the budget relies on the measure to raise $200 million this fiscal year.

Amazon.com cut ties last month with 10,000 California affiliates who refer customers to the website. The retailer said that act was sufficient to avoid the new tax requirement, though state officials disagree.

Harris issued a ballot title and summary for the referendum late Monday, the last major hurdle for proponents. Secretary of State Debra Bowen must still issue an election schedule, but that is considered a perfunctory act.

Harris’ move was not a certainty. Democratic lawmakers have suggested the referendum is illegal under the constitution because it would challenge a budget bill that took effect upon signing. Assembly Majority Leader Charles Calderon, D-Whittier, warned last week that the referendum would face a legal challenge.

Now, over to Wal-Mart and Target who are Amazon’s REAL adversaries in this fight to tax the internet.

Undoubtedly, there will be a legal challenge to California Attorney General Kamala Harris’ decision. Going to court in 1…2….3……..