Solving a Fiscal Crisis
By Alan N. Boinus, Special to the Independent
In an effort to balance the budget and bring fiscal stability to California, Gov. Jerry Brown and the Democrats in the Legislature approved a budget over continued intransigence from Republicans and the desire of Democrats to raise revenue rather than cut services.
Democrats sidestepped Republicans by finding a means to generate revenue without raising taxes by closing a loophole that allowed Internet giants like Amazon.com and Overstock.com to avoid collecting sales taxes on their Internet sales. Closing the loophole will add an estimated $317 million to the treasury.
Currently, Laguna Beach contributes $25 million in sales tax revenue, based on the current 7.75% tax rate. The Board of Equalization estimates an additional $500,000 in sales tax revenue would be collected from Laguna Beach under the new law.
Amazon has avoided collecting sales taxes since its inception in 1995 and has signaled its intent to fight the requirement in court.
Amazon appeals to bargain-hunting shoppers who think they don’t owe a tax by shopping at Amazon. This is not true. Sales tax is owed by California residents for goods purchased from California regardless of where residents shop.
Many knowingly evade tax liability and shop on Amazon because sales tax enforcement at the consumer level is lax. They are essentially “tax cheats” and sadly Amazon serves as a “tax cheat enabler.”
“You can’t give one segment of retail a 10% discount every day. It’s just not fair,” said Bill Dombrowski, president of the California Retailers Association trade group.
The loophole was created when the Supreme Court said that Internet companies do not have to collect taxes unless they have a “physical presence” (such as stores or warehouses) in the state where they are collecting taxes. Unlike some of their big competitors such as Target and Best Buy, Amazon does not maintain stores in California.
Democrats teamed up with the California Retailers Association, Target, Best Buy, Wal-Mart and other retailers to force Amazon and similar Internet operators to comply with the tax-collecting requirement by defining “physical presence” for an Internet company. Under the new law, physical presence is not limited to stores and warehouses, but also includes Internet “affiliates” or other subsidiaries based in the state.
An “affiliate” is a company which links its website traffic to an Internet retailer like Amazon in order to make purchases. When shoppers “click-through” from an affiliate to an Internet retailer’s site, Amazon pays the affiliate a sales commission. Amazon has about 10,000 affiliates in California and maintains operations for its Kindle and Internet Movie Database subsidiaries here. According to Camarillo’s Performance Marketing Association, about 25,000 businesses, individuals and non-profits operate as online affiliates in California.
In a brazen move to circumvent the new law, Amazon fired all of its 10,000 California affiliates to bolster its legal argument that the company lacks a physical presence and is thus exempt from collecting sales taxes.
This is corporate extortion that may backfire on Amazon by firing businesses that were sending them paying customers.
Republicans picked up on this and charged Democrats with “jobs killing,” rhetoric that resonates in a stagnant economy. They claim that thousands of businesses that operate as Internet affiliates will now leave the state.
That is completely disingenuous.
First, the new law does not impose new taxes, but requires that the merchant involved in the sale collect taxes lawfully owed. Amazon is just being required to conform to business practices of almost every other company making money from California consumers.
Second, which thousands of businesses are leaving California? Affiliate companies would pick up and move to another state simply to continue to get commissions from Amazon? Many of these home-based businesses would likely link their website traffic to other sites such as bestbuy.com, which pay commissions and sales taxes. Isn’t that the more reasonable and likely outcome?
Third, why should we as taxpayers buckle under to threats from a bully? We need fiscal stability, not favoritism for a few companies over the interests of sound public policy.
The latest squabble over Amazon is the best evidence why we have partisan gridlock. It is bizarre that Republicans are not backing business like the California Retailers Association. Republicans have shown their only principle is “oppose” whatever Democrats are for even if it is what they usually preach, such as “no new taxes,” “enforce existing law” and “fiscal responsibility.”
They can’t accept that Democrats and Jerry Brown are tackling our budget mess without them. My answer to them: Get used to it.
Laguna resident Alan N. Boinus is an advocate for reforming laws governing medical records.