[Note: Chapter 12 of Small Business Taxes Made Easy is all about this issue. We have been anticipating this in California and other major states for quite some time now.]
The state of California finally passed a budget which seems to be balanced on the basis of charging sales tax to Amazon.com and similar online retailers. The provision is loosely called the Amazon Bill. This is a provision I, and the Performance Marketing Association have been fighting against for years. We knew what would happen. (See this YouTube Video)
Naturally, it did. Amazon.com and several other online retailers instantly sent out notices to all the people in California whose websites contain links to books and products at Amazon.com. We Californians have all just had our commissions cut off. What does this mean?
1) To Californians who have built their websites on the basis of writing about and selling products found at Amazon.com , golfballs.com, giftbaskets.com, dermadoctor.com, and many other vendors (these are companies who sent me cut-off notices): A major source, perhaps the entire source, of their income has just been cut off.
a. These businesses will have to scramble to find other sources for the products they have been recommending
b. Or go out of business.
c. Schools and Non-Profits will have to cut programs, or eliminate them entirely.
d. Or….move out of state, to another state that isn’t taking part in this battle.
What does California get from all this?
a. California loses the income from these sales.
b. California does NOT collect sales taxes, because these companies have cut off their nexus in California. So there is no compensating increase is sales tax revenues.
2) To the Vendors who cut off Californians: Initially, they will lose nothing. Their profits will increase, because they won’t have to pay commissions on sales coming from these affiliates’ sites, effective July 1, 2011. It will take the affiliates months, maybe years, to remove all the links to Amazon.com, et all, that are in their various sites. Heck, the affiliates may never remove all the links. Amazon wins – California loses.
- California does NOT collect sales taxes, because these sites no longer have the authority to display the Amazon et all links and are doing without the company’s permission.
3) To the State of California: An overall reduction in revenue from income taxes. No corresponding increase in sales taxes. The companies that want to have nexus here (companies that want to have a legitimate presence), already have one. They have already registered as foreign corporations (or other entities) and are collecting sales taxes and paying income taxes. California just chased away more revenue. And perhaps some very profitable residents.