California Looks to Revive ‘Amazon Tax’ Bill

Published November 1, 2009

As California’s state government struggles to balance its books, legislators are searching for new revenue streams, with one legislator pledging to try again to impose sales taxes on Internet purchases—a so-called Amazon tax.

Gov. Arnold Schwarzenegger (R) vetoed a California budget this year that included the tax, saying it would harm the state’s all-important tech sector. He signed a new budget this summer with the tax scratched out.

But Assemblywoman Nancy Skinner (D-Berkeley) has promised to introduce a new bill to impose a sales tax on all Internet purchases made by Golden State residents. The tax would apply if an online retailer, such as industry giant, has affiliates in the state that generate more than $10,000 in annual revenue.

Revenue Estimates Disputed

Skinner and allies in the Democrat-controlled California legislature say not collecting the tax costs the state $100 million in annual revenue.

Kelly William Cobb, state affairs manager for the Washington, DC-based Americans for Tax Reform, says the tax would not generate the expected revenue increase.

“The net result will be that the online retailers will cut their ties with their California affiliates, and the tax revenue generated by the local affiliates will be lost as the local affiliates close up shop,” Cobb said. “The real losers in this proposal are the small businesses and bloggers who will lose their income from the online retailers.”

Rationale Seen as Flawed

Bartlett D. Cleland, director of the IPI Center for Technology Freedom in Dallas, says the rationale for these types of taxes is flawed.

“As most states have watched their coffers dwindle over the last couple of years, state revenue authorities have become increasingly creative in finding ways to drain more money from the citizens via fees and taxes,” Cleland said. “The healthy way to generate more revenue is to grow the tax base by attracting more businesses or residents to the state.

“And attracting more businesses involves having appropriate infrastructure, skilled workers, and competitive educational systems, but most of all maintaining a minimal tax and regulatory burden,” Cleland added. “For some reason, this seems beyond the reach of many state governments these days. Instead, it’s easier to go on a ‘tax grab,’ looking around for easy new sources of cash.”

Other States Embrace Tax

Other states also are eyeing the digital world in search of tax dollars. Rhode Island recently passed an Amazon tax despite official state analyses declaring the bill will not generate any new revenue.

North Carolina and New York also passed taxes on online retailers. Hawaii Gov. Linda Lingle (R) vetoed a bill that would have done the same.

Many online retailers, led by Amazon, have threatened to sever all ties with affiliates in states that impose the tax.

“The lawmakers believe that this is an issue of fairness, but the proposal itself is unfair because it is unconstitutional and it directly hurts the small businesses and bloggers,” Cobb said.

Troy Stouffer ([email protected]) writes from Baltimore.