California recently instituted as part of its budget solution an “Amazon Tax” aimed at forcing out-of-state, online retailers with no physical presence in the Golden State to collect and remit sales tax in respect of goods sold to Californians where the retailer in question advertises, or maintains an “affiliate” referral relationship, with websites based within state lines.Where else in the country has Amazon made idle threats? Every time they threatened to pull out of a state because of internet taxes they did it. But in California liberal legislator world, things always go as they expect. They're morons.
Prior to passage of the bill obligating collection and remittance in such circumstances, prominent online retailers including Amazon.com and Overstock.com had threatened to terminate relationships with affiliates, if the legislation became law. Now that it has, and affiliate relationships are being severed, something critics of the legislation say was entirely foreseeable is occurring: Online businesses and entrepreneurs are leaving the state, thus risking an actual reduction, as opposed to marginal increase, in California’s tax revenue.Last month, news broke of one California-based online entrepreneur who had decided to ditch California and move to Nevada in the aftermath of Gov. Jerry Brown signing the law. ”I always figured that in California, home to Silicon Valley and a million tech startups, they’d never pass a law like this,” said Nick Loper, who formerly operated ShoesRUs and has now opened a new venture, ShoeSniper.Per the piece in which Loper is quoted, more than 70 affiliates had at that stage already left California, according to online businesses.Then, last Thursday, another online entrepreneur, Erica Douglass, posted a mock “It’s Over” letter to California on her blog. Douglass, who sold an internet company she had built for $1.1 million in 2007 when she was just 26, cited multiple reasons for moving to Austin. Among them were unnecessary paperwork requirements mandated by the state, and high taxes as well as business fees. However, the straw that broke the camel’s back, was according to Portfolio, Brown signing the Amazon Tax into law.Backers of the legislation seemed to believe that affiliates would be happy to work with other retailers who also operate affiliate programs, or that online retailers targeted by the law would not end affiliate relationships and the threat was idle.
Both Amazon and ChristianBooks.com cancelled my affiliate agreements the day the bill was signed into law, as I knew they would. It was no surprise to me - I had written several times about the impact the bill would have. California will make far less income from this measure than they ever expected, thus putting the state into an even bigger hole as they will not make the money they had budgeted.