Amazon Deal With California

When Amazon.com threatened to fund a public referendum to overturn California's online tax law that would collect sales tax on online purchases by defining Amazon 'affiliates' as a sales presence in the state, the state compromised by giving a one-year delay in implementing sales tax collection if Amazon dropped its threatened campaign.

Mail order and online companies are not required to collect sales tax on purchases from states where the company does not have a 'physical presence' -- store, warehouse, sales office, and so on. States, which are losing out on an estimated $23 billion in tax collections per year, are defining 'affiliates' -- websites that get paid a commission for every item sold by Amazon via links on the those websites -- as presences. Amazon happens to be the largest online player, but other companies do the same thing and will be subject to sales tax collection.

Retailers assert forcing online companies to collect sales tax would level the selling playing field. Online companies point to a 1992 US Supreme Court decision, Quill Corp. vs. North Dakota, which found that forcing a company with no physical presence in the state to pay sales tax violated constitutional provisions barring interference with interstate commerce.

Amazon's agreement with California -- and you can bet more states will pass such a tax law -- contains the provision that Congress could pass a national sales tax law to supercede state laws in 2012. Such national efforts failed before, and given the bipolar bipartisanship of the current Congress, it seems unlikely a national law could be passed.