California Taxing Companies Outside California?

Well, with California’s record levels of debt, it looks like state lawmakers are now considering requiring all online companies that ship goods to California to collect sales tax. From the LA Times: Lawmakers want to tax Amazon sales in California.

This is problematic, in many ways. As the article states, Amazon.com (and many other ‘etailers’) don’t actually have any presence in California (no personnel, no property, no warehouses, no etc), so going after Amazon.com in California courts should this law (a law on the state-level) pass will be difficult, if not impossible. California’s sales and use tax regulations already require its residences to report their online purchases and then send sales tax amounts in to the state each year when doing their annual taxes, but in practice few do (who, after all, wants to pay more taxes? In any case, I have questions about the legality and enforcement of the proposed tax, and for the most part those questions are covered in the article from the LA Times.

However, if such a law would pass (somewhat doubtful, but possible) were deemed by the courts to be legal (even more doubtful),* and actually had some working mechanism for enforcement (next to impossible!), I still don’t think this would accomplish much except to diminish California consumers choices of where to shop. If I am operating an online sales business in Idaho, and suddenly I am required to collect and remit state sales taxes (for which there are different regulations for each state) for every state to which I sell products, the list of states in which I’ll be willing to send orders is going to be significantly diminished. Maybe I’ll keep sending to California, because it’s a big market. But what about a smaller state (say, Wisconsin)? Is it worth it to my business to deal with 50 different sets of byzantine tax laws to sell my product online? I doubt it. This is a law that would limit consumer choice, and in the end it might well end up hurting California more than it would help California.

*My doubt here is based on the argument for legality the article presented – California based entities refer customers to Amazon through referal links, and they then get a cut of sales at Amazon. First, Amazon has scaled WAY back on their referal program, so the amount of traffic steered to Amazon this way may be questionable. But second, if I, living in California, place a referal link to Amazon (a business entity located entirely outside of California’s jurisdiction) on my website (which is hosted on a server farm that too is located outside of California), it seems tenous to then determine that Amazon is thereby legally constrained by California law. 

But once you get to this point, where I am deciding not to sell goods to certain states due to their state regulations, I would think that it is clear that we would be dealing with a law that is impacting interstate commerce, at which the Feds would (should?) be obliged to step in. If/once that happens, who knows what would be to come? Not me.

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Date: Sunday, 21. February 2010 9:35
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