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California: The Pickpocket State

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GUEST WORDS - A big tax battle is erupting in California. The immediate numbers involved are not big—about $200 million—but the principle is huge, and the outcome will have an enormous impact on our economy.


The battle is over applying sales taxes to products sold on the Internet. If California gets away with its new, unconstitutional tax, consumers nationwide could be hit for billions and the economy will be harmed.

The Supreme Court ruled in 1992—as it had before—that retailers cannot be required to collect sales tax in a state where they do not have a physical retail presence.

The battle back then was not about e-commerce but the billions of dollars in products sold through catalogs. For instance, if L.L. Bean didn’t have a store in California and you bought a pair of boots via its catalog, L.L. Bean did not have to charge you and then fork over sales tax to Sacramento.

Tax-hungry pols these days are eyeing not catalog but Internet retailers, particularly the biggest one of them all: Amazon (AMZN). [link] The Golden State legislature recently adopted the so-called Amazon tax, which dictates that the Seattle-based retailer and other e-retailers must collect a sales levy on everything it/they sell to California residents and turn the proceeds over to the state treasury.

How in the world does Amazon, which has no physical presence in the state, get hit up for sales tax?

This is as flagrant a violation of a Supreme Court decision as one will ever find. The legal fig leaf is Amazon’s “affiliates” program. Since 1996 Amazon has had a marketing program, whereby Web sites can offer their visitors a link to Amazon-offered products and services.

These “associates” get a monthly fee for sales generated by those links. In California there are some 25,000 individuals and small businesses that are profiting from their partnership with Amazon and others.

These individuals hardly constitute the definition of what lawyers call a “nexus” or a physical presence à la a store or warehouse. (Amazon does have a traditional physical presence in four states and collects sales taxes from customers in those states.)

A couple of years ago New York State pulled off a similar stunt, and other states are following suit. The attitude of most politicos: See a whale, harpoon it.

Politicians well know that the Supreme Court will ultimately throw these levies out, but they figure the litigation will last for years, and in the meantime Amazon and other Internet commercial entities might either tire of the battle or be politically browbeaten enough to go along with becoming tax collectors.

That California, where modern high-tech industry was born, should wage war against Internet-based entities is bizarre. It demonstrates the madness of its political class. California faces a budget shortfall of $10 billion.

This new tax might collect $200 million from Amazon and others. That’s hardly a drop in the bucket. More fundamentally, it will force Amazon to sever its relationships with thousands of its affiliates. This new tax law will hurt other online retailers and their affiliates, which will damage the state economy by considerably more than that $200 million. Talk about being penny-wise and pound-foolish.

Rather than passively accepting this economic disruption while the case goes to the courts, e-retailers are putting a referendum on the California ballot to repeal this unconstitutional tax. It’s no surprise that Golden State politicos are howling and trying to use every legal stratagem possible to prevent the question from going before the voters. But the state’s Attorney General, following the law, has ruled that the anti-taxers can go ahead and collect signatures to get their referendum on the ballot for judgment this November.

Instead of desperately trying to pick peoples’ pockets even more, state pols should be focusing on reforming and repairing their damaged fiscal houses.

A growing number of governors and state legislators are getting the message. A successful referendum in California on this issue will forcibly deliver the message to the rest who don’t.

For California residents interested in helping, go to jobsnottaxes.com.

(Steve Forbes is an editor, publisher, and businessman. He is the editor-in-chief of business magazine Forbes as well as president and chief executive officer of its publisher, Forbes Inc. He was a Republican candidate in the U.S. Presidential primaries in 1996 and 2000. He blogs at blogs.forbes.com . This article was provide by CRC Public Relations.)
  -cw

Tags: California, sales taxes, Amazon, Supreme Court, Golden State, New York state, high-tech industry,




CityWatch
Vol 9 Issue 60
Pub: July 29, 2011

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