On The Money: Amazon Sales Tax

By Mike Luery

SACRAMENTO (CBS13) -- California is deep in debt and looking for revenue everywhere – including the Internet. A controversial move to tax online sales could generate hundreds of millions of dollars for California – but opponents insist it will cost thousands of jobs and actually hurt the State's economy.

Retail book stores are part of a large coalition (PDF) known as Stand With Main Street.

They are supporting a number of measures that would change the way California does business.

If traditional retail stores get their way, California will soon be collecting a sales tax from out of state companies that sell merchandise over the Web – even if they don't have any retail stores here.

"Not doing it is giving Amazon a discounted 10% advantage right off the top," declared Alzada Knickerbocker, owner of The Avid Reader bookstore.

Under the law, California cannot require out of state retailers to collect sales tax if they have no physical presence here.

"That loophole, that outmoded tax code is putting all of California's businesses, our communities, our state, at a disadvantage," stated Assemblywoman Nancy Skinner at a Capitol news conference last January.  The Berkeley Democrat has introduced AB 153, which would require out of state sellers like Amazon, to collect sales tax if they have what are called "affiliates" in the Golden State.

Affiliates are essentially advertisers – typically online blogging sites where consumers can click through to buy the product they want on Amazon and elsewhere, without paying a sales tax.

Technically, Californians are supposed to pay a "use tax" for anything purchased online from out of state, but California loses about a billion dollars each year because most people are unaware of the law. The Internet tax measure is designed to level the playing field for brick and mortar stores.

"Local small businesses are the ones that hire," The Avid Reader owner told CBS 13. "So they're the ones that are under pressure," Knickerbocker added.

Retail book stores are doing everything they can to survive in today's economy. But opponents of the Internet tax measure say it will actually hurt – not help California's economy.

"Our analysis shows us that instead of actually getting money with this, California actually loses money and actually loses jobs," said George Runner, a member of the Board of Equalization.

Runner, a former State Senator, says Amazon has threatened to cut 10,000 California affiliates if the bills pass.

Overstock has voiced similar concerns, Runner told CBS 13.

If other companies do the same, California could suffer a loss of $124 million, according to the Performance Marketing Association.

Runner told CBS 13, "A state that already has the second highest unemployment in the nation shouldn't be doing anything that takes away California jobs."

Amazon has already cut affiliates in other states with Internet tax measures – and is challenging a similar law in New York. Now the battle heats us in California, with hundreds of millions of dollars at stake.

There are four Internet tax measures now active at the Capitol and one, AB 153, passed a key vote in the Assembly Revenue and Taxation Committee on Monday.