The Los Angeles Times has a good article on California’s move to require Amazon and other out-of-state retailers to collect taxes for it. Good because it accurately portrays what’s happening. Many such stories will say that California is seeking to tax Amazon. In fact, says the headline, “California Tells Online Retailers to Start Collecting Sales Taxes From Customers.”
You see, Californians generally don’t pay their “use taxes“—the alternative to sales taxes, for things brought into the state from outside. If the tax authorities tried to collect use taxes, going door to door to tally up the goods that haven’t yet been taxed, there would be bedlam.
So they want out-of-state companies that sell into California to collect the taxes that the state’s residents would pay. But in 1992, the Supreme Court found in a decision called Quill v. North Dakota that states can’t require out-of-state retailers to collect taxes for them. Doing so would create too great a burden on interstate commerce.
If an Internet retailer has a significant presence in a state, then the state can require the retailer to collect and remit sales taxes. (It’s no longer interstate commerce—get it?) So Amazon and other retailers are doing the sensible thing: shedding ties to California, such as with their affiliate marketers. Reports the Times:
Amazon and online retailer Overstock.com Inc. told thousands of California Internet marketing affiliates that they will stop paying commissions for referrals of so-called click-through customers. … Both Amazon in Seattle and Overstock in Salt Lake City have told affiliates that they would have to move to another state if they wanted to continue earning commissions for referring customers.
The natural result of California doing yet more to make the state uninhabitable for business comes at the end of the story. Californians who earned and spent money in California as part of the Internet remote sales ecosystem plan to move elsewhere:
One affiliate, Ken Rockwell of San Diego, the owner of a 12-year-old photography website, said he planned to move out of state. “Will it be Las Vegas or Scottsdale or Ensenada?” he said. “It’s a question of where, not if.”
In the Quill case, the Supreme Court invited Congress to change the rule that it laid down. If it saw fit, Congress could permit states to export their tax responsibilities to businesses in every other state. But this would cut off the healthy tax competition you see happening in the area of remote sales; both taxes and tax collection burdens would rise.
Profligate and tax hungry states like California are desperate to overturn Quill in the courts or through the Congress. Here’s hoping they fail.