The Amazon-California tax debacle: We all lose
COMMENTARY: In this winter, summer, spring and fall of our discontent, every politician with a larynx is opining on how best to reduce the country's unemployment rate. All the more reason, then, for California to ram through a piece of tax legislation that could cost a lot of new jobs.
So it was that on Thursday, Amazon caved, dropping its opposition to California's plan to force cyber retailers to collect taxes on online sales. The plan, originally slated to start in July, now will take effect next year as part of a deal under which Amazon agreed to end its push for a ballot referendum in return for a temporary delay.
Amazon tax bill: AB 28X1
Watching the down-to-the-wire maneuvering, the big surprise is that it's taken this long for states to go on the offensive. But a faltering economy has given them added incentive to change the rules. With e-commerce accounting for over 20 percent of sales of consumer electronics and office supplies, this is expected to turn into a considerable windfall. For instance, California expects to rake in an extra $200 million annually.
What we're witnessing is a historical inflection point. Until now, online retailers like Amazon were not required to collect sales tax from state residents if they didn't actually have a physical presence locally. This was a status granted them in a 1992 Supreme Court ruling. But with onetime cyber-startups all grown up and many now multimillion (or multibillion) dollar enterprises, lobbyists working on behalf of the brick-and-mortar crowd argued that the arrangement was outdated and unfair. And what could be more American than fairness?) They sought a level playing field, one that would allow the likes of say, Wal-Mart or Staples, to better compete.
Now they are on their way. As California goes, so goes the nation and it won't be long before Congress follows with its own national online sales tax bill (which would take precedence over any state law.)
But let's be honest about what's going on here. The temptation to find a quick fix to big budget holes was impossible to resist and it mattered little to the politicians voting for this tax grab that their argument rested on an increasingly outdated assumption about what's behind the growth in e-commerce.
Some people do shop online because they can save money. But that was more true in 2001 than it is in 2011. The powerful attraction is convenience. What with the multiplicity of online applications and mobile devices, shopping online has become easier and more efficient than ever. For people who don't have a lot of time to waste, it's a no-brainer. Even with the sales tax tacked on, prices at more efficient online retailers are likely to remain as good - if not better - than what the brick-and-mortar crowd usually can offer.
And the future? At one point in the debate, Amazon reportedly dangled an offer to open six distribution centers that would employ a total of 7,000 people if California offered a reprieve from the new law until 2014. That deal is now history. Now it's up to Amazon and other online retailers to decide where they want to keep doing business. If they decide, for instance, that California's not to their liking, then an estimated 25,000 small affiliates in the state could disappear.
Not what you want during a deep recession.
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