There's cheekiness aplenty on both sides of a California effort to collect taxes on online sales. Earlier this summer, the Golden State passed a law requiring online marketers with a physical presence in the state to collect these taxes.
Wags might argue that Amazon, which is headquartered in Seattle, operates storefronts in every Web-accessing device in America. California legislators, only somewhat less impudently, decreed that certain Amazon business units, including non-sales operations such as one that developed the Kindle, constitute a presence.
For its part, Amazon has launched a two-pronged effort designed to head off this initiative. It is attempting to bring a referendum on this law directly to California voters. The company also – and herein lies its own cheek – offered to build two warehouses in the state, and to create 7,000 new jobs.
The New York Times notes that for a state with 12% unemployment, a jobs initiative could seem like a pretty good deal. But that 12% figure, for a state with more than 37 million residents, represents more than 4.4 million people. (Add to that the fact that unemployment figures count only the actively looking. Those who have given up aren't included.)
In contrast, The Economic Times pegs California's tax gain from online marketers (Amazon and beyond) at around $300 million, both for the state and local governments. Call a Californian and ask about services which have been cut lately. All of a sudden, an offer of two warehouses and 7,000 jobs doesn't seem quite as magnanimous.
Amazon is aware of the lopsided nature of its offer. The company has already poured $5 million into a signature-gathering effort geared toward holding a voter referendum. And once it submits the signatures, the tax-gathering provision will be suspended. (Amazon has to date been ignoring the requirement that it collect taxes from customers.)
In response, California lawmakers are trying to rush new legislation into law which would short-circuit the referendum effort. This legislation would require a two-thirds vote by Sept. 9: Amazon is hoping its new-jobs-for-no-new-taxes gambit will peel off enough legislators to, uh, thwart the thwarting. And tax-averse legislators may just be shortsighted enough to jump at this proposal.
Before the summer law was passed, Amazon held a great advantage over brick-and-mortar operations: It didn't have to collect taxes, and it didn't have to factor retail space into its price calculations. All of this contributed mightily to its ability to undercut traditional retailers.
This is part of the reason why Amazon's offer to create a comparatively few jobs, and open two (non-retail) spaces is borderline insolent: Brick and mortar retailers already do everything Amazon is offering: They provide in-state jobs (a Florida study estimated that every $1 billion in online sales – that's sales, not tax revenue – cost the state more than 10,000 jobs). Brick and mortar retailers also increase the demand for actual sales locations, cutting down blight.
And they already collect taxes, which go to the state and local coffers.
For Amazon, the stakes go beyond California. Online retailers are facing similar initiatives from other revenue-starved states, including big markets such as New York. (Illinois has already passed an online tax law.)
But will the company really suffer? Even if it starts routinely adding taxes onto its purchases, it still offers the selling points of convenience, recommendations, and discounts. Adding an 8 or 9 percent sales tax to purchases probably won't lose the company too many customers to their physical competitors. Nor should it significantly harm the company's bottom line: While there may be a small amount of customer slippage, remember that consumers, not Amazon, will be paying the tax.
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