California to Out-of-State Online Retailers: Collect State Sales Tax

California has told out-of-state online retailers to start collecting sales tax for customers residing in the state Beginning July 1. This includes Amazon.com, Overstock.com, and GameStop.com. Beginning Friday this new requirement for retailers takes effect, along with a 1-percentage-point drop in the tax. The new tax collection scheme is projected to raise $317 million a year in new state and local government revenue.

Besides the slight cost to California customers, there are other adverse effects for companies connected with Amazon and similar retailers. Amazon and online retailer Overstock.com have reportedly told thousands of California Internet marketing affiliates that they will stop paying commissions for referrals of click-through customers. This is due to the fact that the new requirement applies only to online sellers based out of state that have a connection to California, such as workers, warehouses or offices.

The LA Times reports that "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."

California’s law was drafted to circumvent a 1992 U.S. Supreme Court ruling that retailers can’t be forced to collect sales taxes unless they have a physical presence in the state. The new law establishes that presence by redefining it in two ways: when a seller pays commissions to affiliate sites in California, that refer buyers; and when sellers have a related company operating in the state.

Many of those affiliate companies said that they plan to move or are considering a move.

Meanwhile, Governor Jerry Brown is praising the new law, calling it a "common-sense idea." He signed the bill into law on Wednesday.

Amazon sees it differently:

"We oppose this bill because it is unconstitutional and counterproductive," Amazon wrote to its California business partners Wednesday. Amazon has said what further actions it might take to challenge the California law.

Source: LA Times

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