California Imposes Amazon Tax

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California Imposes Amazon Tax

“It’s odd that a company would voluntarily dilute its business in the most populous state in the country simply because it’s being asked to collect what is lawfully owed.” – Mark Hedlund, a spokesman for Senate President Pro Tem Darrell Steinberg.

Republican Senator Bob Dutton: Rancho Cucamonga, CA on AB 28X

Amazon CEO Jeff Bezos on California Affiliate Nexus Sales Tax Law

On June 29, 2011, California Governor Jerry Brown signed CA State Bill AB 28X into law. This law, also known as the California Affiliate Nexus Tax, “imposes a tax on retailers… from the sale of tangible personal property sold at retail in this state.” The law specifically includes Internet activity performed by a person who is in the State of California.

Brown signed the measure into law as part of his plan to reduce the state’s budget gap. The California State Board of Equalization expects to increase government revenue by $200 million a year. Brown and some lawmakers responded to critics by saying the measure levels the playing field for California’s brick-and-mortar retailers, which are required to collect sales taxes., and other online retailers responded to this new law by terminating all relationships with all affiliates who work in California.

An official letter sent by Amazon to its California affiliates stated:

“We oppose this bill because it is unconstitutional and counterproductive… Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue.”

Other states that have passed the so-called “Amazon tax” in recent years include Connecticut, Illinois, New York, North Carolina, Arkansas and Rhode Island. Amazon has dropped the affiliate program in all these states, except New York, where it has filed a lawsuit against the state.

The business environment is an always changing obstacle course. Experienced business leaders, and, in this case, successful Amazon affiliates have already reacted to this government created problem. Instead of getting mad or breaking the law, they simply closed their businesses in California and relocated to a more business friendly state, like Texas, Nevada or Arizona.

As a result of this new tax law, California-based online entrepreneur, Nick Loper, relocated to Nevada. Loper has been quoted to say that 70 other affiliates had already left.

Another online entrepreneur, Erica Douglass, posted a mock “It’s Over” letter to California on her blog. Douglass, who sold an internet company she had built for $1.1 million in 2007 when she was just 26, cited multiple reasons for moving to Austin, Texas. Among them were unnecessary paperwork requirements mandated by the state and high taxes. However, the straw that broke the camel’s back was Brown signing the Amazon Tax into law.

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