Struggling with an ongoing recession-era budget crisis that has seen hundreds of millions of dollars slashed from public education alone, Colorado lawmakers tried and failed to get mega-online retailer Amazon to pay state sales taxes last year. Amazon successfully dodged similar efforts in other states, but the tax man came calling in cash-strapped California last spring and, after dumping $5 million on a ballot initiative to oppose the new online tax law, Amazon announced on Wednesday it had made a deal with state lawmakers. It will charge sales tax in the Golden State next year. That gives Amazon and other online retailers just months to press federal lawmakers to pass a national law that thins their obligations in the states.
The California law was pushed hard by new Democratic Governor Jerry Brown and required online retailers to begin collecting sales taxes this past July. Under the deal struck Wednesday, e-businesses will begin charging California customers in September 2012.
The California deal will likely open the floodgates in states across the country, where untapped billions await in sales taxes that have gone uncollected for nearly two decades.
When Colorado tried to force Amazon to collect sales taxes, the company thinned ties with the state as a way to bolster legal standing for its anti-sales tax position. Mainly, it ended its Colorado affiliate program, where website owners here receive small commissions by referring surfers to Amazon to buy things. Cutting physical ties is an approach the company has taken in Texas, as well, where it shuttered a distribution center. The company, however, has more substantive ties in California, where for example it manufacturers its Kindle readers through a contractor company.
In its attempt to continue evading collecting sales taxes, Amazon tried the carrot as well as the stick in California.
There was no word from Gov. Jerry Brown about whether he would support the deal. Last week he rejected an olive branch from Amazon that included the offer of opening two distribution centers in the state in exchange for being allowed to start collecting the tax in 2014.
“I’m concerned about anything that would reduce revenues going forward because we’re in a very uncertain economy,” the governor said last week. “We need more revenues unless we’re going to keep curbing schools, courts, corrections.”
The tax was a key part of the state’s $86 billion budget that Brown signed in late June. It was forecast to bring in $200 million annually.
Big-box stores and other retailers had supported the new law, saying that online companies that didn’t have to collect taxes had an unfair competitive advantage.
In February, the Seattle Times called out Seattle-based Amazon for the “slick strategy” it has adopted in dodging sales taxes “all across America.” The paper’s editorial board noted that the company had enjoyed the benefit of tax-free status long enough. Its roots were solidly planted. It is now one of the most successful companies in the world. The board wrote that the time of reckoning was drawing near.
Amazon is one of our state’s most successful creators of wealth and jobs. We wish Amazon and its people well, but we cannot support the company’s campaign to dodge the payment of state sales tax all across America….
[Amazon’s tax-dodging] would be a slick strategy for the 1990s or maybe even today for a company nobody ever heard of. But Amazon, which ambitiously named itself for the biggest river on Earth, has become what its name implies. It is the Internet’s widest and deepest source of products, which makes it too big to be excused from its obligations.
Amazon is going to lose this fight. It knows this. It is trying to drag its feet as long as it can because it is profitable to do so.
In Colorado, Denver U.S. District Judge Robert Blackburn issued an injunction against the state Department of Revenue in January that halted any coming tax collection. Amazon lost a similar court case in North Carolina. Officials estimated Amazon owed Texas $269 million when it shuttered the distribution center there.