California Coalition to Protect Small Business Jobs Urges Governor Jerry Brown to Veto Amazon Internet Sales Tax Legislation – AB 28X
From the press release:
Calling AB 28X’s new tax burdens on Internet sales a direct threat to small business and Internet entrepreneurship, the Coalition to Protect Small Business Jobs urged Governor Brown to veto the e-taxation bill approved by the California Legislature Wednesday.
“Without adequate protections for small businesses, this bill and bills like it across the country would make it even harder for us to compete with big retailers on the web, our last frontier for a more level playing field,” said Terri Hartman, Manager at Liz’s Antique Hardware in Los Angeles.
The 1992 U.S. Supreme Court Quill decision prohibits states from forcing businesses to collect sales taxes unless the business has a physical presence in that state. Bills like the one approved Wednesday attempt to get around that ruling by broadening the definition of physical presence to include those without a physical presence in the state.
“Small businesses create two of every three new jobs, account for more than half of all private sector jobs, hire 43 percent of high tech workers and drive innovation in a host of fields,” said Jessie Womble, State & Local Public Policy Manager at CONNECT – a non-profit organization that links inventors and entrepreneurs with the resources they need to succeed. “Protecting their ability to flourish on the Web should be of paramount concern to everyone.”
More than 17,000 small businesses in California have written letters to their state legislators in opposition to this legislation.
“The irony of this bill is that instead of producing more tax revenues, this unfair new tax burden would fall disproportionately on small businesses and result in fewer jobs and fewer state and local tax revenues,” said Bill LaMarr, Executive Director of the California Small Business Alliance.
The State Board of Equalization has reported that already small revenue estimates for the measure are subject to “considerable uncertainty,” don’t fully represent the likely loss of personal income to Californians and businesses and would be subject to years of delay as a result of expected litigation.
“The revenue figures for AB 28X are uncertain at best and this bill represents exactly the kind of budget gimmicks that Governor Brown is trying to correct,” said LaMarr. “We respectfully ask Governor Brown to veto this legislation and request the legislature to adopt real measures that will protect small business entrepreneurs.”
More information is available at www.ProtectSmallBusinessJobs.com.
Opponents of this e-taxation legislation include the California Small Business Alliance, NetChoice, California Business Alliance, Silicon Valley Leadership Group, TechAmerica, eBay, TechNet, Orinda Taxpayers Association, CONNECT and more than 17,000 small businesses throughout California including, Act + Fast Medical, TransTech Systems, 7daysale4u, Hamilton Tools, MRO Warehouse, Jones Vintage Parts, Electronics Nexus, Transition IT, Hall’s Window Center, Seabreeze Books and Charts , Liz’s Antique Hardware, Mannequin Madness, Valley Network Solutions and The Sticker Station.
But, before Governor Brown has a chance to veto this bill, there may be some problems with this legislation which I outlined here.
It is hard to say since California Proposition 25 language in the bill (tax increases requiring a 2/3?rds super majority) makes for some legal incongruity and the fact that Governor Jerry Brown vetoed the enabling California Budget bill .
So, it looks like now AB 28X may have to go back to the California Legislature for a re-vote.
It’s not clear if the bill will become law. It was part of the budget package approved Wednesday by the Legislature. Gov. Jerry Brown vetoed the main budget bill Thursday, and on Friday legislative staff members were determining whether the sales tax bill can still be legally sent to the governor separate from the budget, or whether lawmakers will need to vote on it again.
Brown told reporters in Los Angeles he believes the Internet tax is a “common sense idea.”
If he does sign the Internet bill, California could be in for a fight. Amazon and Overstock.com have threatened to sever ties with their California “affiliates” – thousands of businesses that earn commissions by referring customers to Amazon.
Amazon, probably the most aggressive opponent of the legislation, has already fired affiliates in several other states over similar laws, including two last week: Connecticut and Arkansas. It had no comment on this week’s developments in California.
However, should the legislature re-vote, pass the legislation and it is signed up Governor Brown (which is likely from his comments above), then Amazon and other retailers may sue anyway in either state court (the Proposition 26 requirement of increasing taxes by a 2/3rd’s super majority rule) or in federal court (the Constitutional Nexus issue.)
With the explosion in e-commerce, lawmakers in California and many other states have tried shifting the tax-collection burden from consumers to retailers – the same way brick-and-mortar transactions are treated.
Those efforts have been largely thwarted by a landmark 1992 U.S. Supreme Court decision involving a mail-order office-supply company. The court said retailers can’t be forced to collect taxes unless it has a “physical presence” in the state.
Nevertheless, several states have passed laws in the past few years forcing online retailers to collect tax. Lawmakers have attempted to get around the 1992 ruling by expanding the definitions of physical presence.
In California, with the legislation passed this week, that means subsidiaries doing business in the state. Amazon, for instance, employs 500 Californians at two subsidiaries in Silicon Valley, including one unit that helped design the Kindle electronic book reader.
California also says the retailer’s in-state affiliates constitute a physical presence. These affiliates are independent businesspeople who post links on their websites to Amazon and other e-tailers. When a customer clicks through and buys something from the e-tailer, they’re paid a commission.
Amazon and Overstock’s threats to dump their California affiliates, in retaliation for the tax legislation, has some of these affiliates rattled.
Ken Rockwell of La Jolla, who runs a photography website, said he earns much of his income from links to Amazon and other online sellers of camera equipment. If the bill becomes law, he and thousands of others would get cut off, he said.
“The only people who would get hurt are the people in the state of California,” Rockwell said.
Rockwell said he might move out of state as a result.
Well, I won’t be moving out of California because of the Amazon Tax, but can Californians really afford another costly expenditure of public funds paying lawyers to fight this for years in the courts?
What will likely happen is the bill will go back to the Legislature and pass. Then, Governor Brown will sign it into law. The law will go into effect on January 1, 2012, when Amazon and others will file their lawsuits. In the meantime, Amazon will close its two small divisions in the Silicon Valley (placing those employees out of work, at least in Califonria) and fire all of its Associates, including me.
And, the California budget will continue to be in a structural deficit with no increased internet sales tax revenue.
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