California Latest State that Wants to Tax Amazon’s Sales to CA Residents

Amazon does not collect or pay California sales tax to purchasers who are residents of California.  State law makers estimate that near-bankrupt California could collect $150 million or more if it could force Amazon to collect the tax or give information to California that would allow the state to go after residents who do not pay the sales tax.  A 1992 United States Supreme Court case says that a state cannot require an out of state business to collect state taxes if the business does not have a connection (nexus) to the state.  Amazon does not have any personnel or offices in California.

California is not the only state that recently has tried to ignore the law of the land and try to force out of state businesses to rat on in state customers.  New York, North Carolina and Rhode Island passed similar laws.  Virginia, Illinois, Colorado and Hawaii are considering taxing out of state businesses.  It’s more evidence that respect for the rule of law in the United States is declining.  The governing elites of these states are saying “damn the law, full speed ahead because we desperately need the money to pay for our deficit spending addiction.”

The reality is that companies like Amazon and Overstock.com are not the parties that are affected by these laws.  The basis the tax and spend states use to claim they can tax the out of state businesses is the outrageous claim that Amazon and Overstock have a presence in the state because they have “affiliates” in the state.  These companies offer affiliate programs where an affiliate places links to Amazon or Overstock products on the affiliate’s website.  If a website visitor clicks on a link and purchases a product, Amazon or Overstock pays a commission to the affiliate.  This type of tax just doesn’t work.  Amazon and Overstock have terminated all affiliates in states that pass this type of unconstitutional tax.  The bottom line is that when a state passes this type of law, the affiliates in the state are fired and no longer receive commissions that would produce income tax for the state.  Result:  No affiliate income from commissions means less income to affiliates means less income tax for the state.

For more on this subject, see the story in the Los Angeles Times called “Lawmakers want to tax Amazon sales in California.”

Update:  The California Senate passed the Amazon tax on February 18, 2010.  Virginia is also considering an Amazon tax.  See “”Amazon Tax Unconstitutional and Unwise.”