Amazon Agrees To Collect State Tax In California

Sep 9, 2011
Originally published on September 9, 2011 9:22 am

Amazon and California have reached a deal on sales taxes. The online retailing giant, which doesn't collect sales taxes in the state has agreed to start collecting them a year from now.

Amazon has long enjoyed a huge advantage by not collecting the tax — like brick-and-mortar stores do. Consumers pay that much less for the same goods.

But California needs the tax revenue, an estimated $200 million annually; and earlier this year, the state enacted a law forcing Amazon to pony up. The company responded by launching a referendum campaign to kill the measure. Some Democratic legislators were incensed, and tried to block Amazon's move. But Darrell Steinberg, president of the California Senate, says that would have required a legislative supermajority.

"I certainly came to the conclusion that the two-thirds effort was not going to happen — and that it was worth one more stab at a deal," he said.

So Steinberg, a Democrat, brought together Amazon, brick-and-mortar retailers and key legislators in both parties to hammer things out.

"Amazon agrees to begin collecting the tax next September unless there is federal legislation that requires all Internet sellers to collect tax," he said.

'Compromise ... Better Part Of Valor'

Dan Schnur, director of the Unruh Institute of Politics at the University of Southern California, says there's a good reason a deal was possible after months of maneuvering and rancor.

"It looks like both sides decided that compromise was the better part of valor," he said.

For the state, it means some degree of certainty in finally getting online sales tax revenue. Amazon's calculation, Schnur says, was different.

"It is pretty clear that Amazon would have won the referendum had it appeared on the ballot, but the amount of money it would have taken to win and what it could have done to a very hard-earned reputation among online consumers, was a downside that they apparently decided wasn't worth taking on," he said.

The legislature must still approve the deal; that's likely to happen Friday.

Federal Taxes

The focus could then shift to the U.S. Congress — and federal rules for collecting taxes from online sales.

Amazon declined repeated requests for an interview, but has said in the past it would support a national solution. But it's approach has prompted a fair amount of skepticism about its true intent.

Brick and mortar retailers and others have been advocating federal intervention to level the playing field between retailers that charge the tax and those that don't.

"This is an inconsistency that needs to be fixed and Congress needs to address it," said David French, who heads the lobbying effort for the National Retail Federation.

Amazon might view a national solution as less onerous than the California measure and, French says, its strong support for federal legislation would be helpful.

"It potentially makes this issue less controversial," he said. "This has always been a problem that needs a consensus solution."

But Consensus in Washington could be tricky; 2012 is an election year, and Congress may be loath to adopt any measure that increases the taxes consumers pay.

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DAVID GREENE, host:

Now to deal that Amazon has reached with the state of California. It comes after drawn-out battle over sales taxes. The Internet retailer has not been collecting sales tax in California but now it's agreed to start a year from now.

As NPR's Wendy Kaufman reports, the deal could have implications for consumers nationwide.

WENDY KAUFMAN: Amazon has long enjoyed a huge advantage by not collecting sales taxes that brick-and-mortar stores do. Consumers pay that much less at Amazon for the same goods. But California needs the tax revenue, an estimated $200 million annually, and earlier this year enacted a law forcing Amazon to pony up. The company responded by launching a referendum campaign to kill the measure. Some Democratic lawmakers were incensed and tried to block Amazon's move.

But Darrell Steinberg, president of the California Senate, says that would have required a legislative supermajority.

State Senator DARRELL STEINBERG (Democrat, California): I certainly came to a conclusion that the two-thirds effort was not going to happen, and that it was worth one more stab at a deal.

KAUFMAN: So Democrat Steinberg brought together Amazon, brick-and-mortar retailers and key legislators, and they hammered things out.

State Sen. STEINBERG: Amazon agrees to begin collecting the tax next September, unless there is federal legislation that requires all Internet sellers to collect tax.

KAUFMAN: More on federal legislation in a moment, but first, Dan Schnur, director of the Unruh Institute of Politics at the University of Southern California, says there's a good reason a deal was possible after months of maneuvering and rancor.

Mr. DAN SCHNUR (University of Southern California Professor): It looks like both sides decided that compromise was the better part of valor.

KAUFMAN: For the state it means some degree of certainty in finally getting online sales tax revenue. Amazon's calculation, says Dan Schnur, was different.

Mr. SCHNUR: It is pretty clear that Amazon would have won the referendum had it appeared on the ballot, but the amount of money it would have taken to win and what it could have done to a very hard-earned reputation among online consumers was a downside that apparently they decided wasn't worth taking on.

KAUFMAN: The legislature must still approve the deal. That's likely to happen later today. The focus could then shift to the U.S. Congress and federal rules for collecting taxes from online sales.

Amazon declined repeated requests for an interview, but has said in the past it would support a national solution - though the company's approach has prompted a fair amount of skepticism about its true intent. Remember, the online retailer gets a sizeable competitive advantage by not having to collect sales taxes. And, says David French, who heads the lobbying effort for the National Retail Federation...

Mr. DAVID FRENCH (National Retail Federation): This is an inconsistency that needs to be fixed and Congress needs to address it.

KAUFMAN: Amazon might view a national solution as less onerous than the California measure and French says Amazon's strong support for federal legislation would be helpful.

Mr. FRENCH: It potentially makes this issue less controversial. This has always been a problem that needs a consensus solution.

KAUFMAN: But consensus in Washington could be tricky. 2012 is an election year, and Congress may be loathe to adopt any measure that increases the taxes consumers pay.

Wendy Kaufman, NPR News. Transcript provided by NPR, Copyright NPR.