Escalating its fight to thwart a new levy on Internet purchases, Amazon.com says it will ask California voters to overturn a state law requiring all companies with operations or affiliates here to collect sales tax.
Amazon has refused to collect the 7.25% base sales tax since the law took effect July 1, saying it is unconstitutional. It will seek a referendum vote as early as February, which could ignite an expensive and noisy political battle pitting the deep-pocketed Seattle-based Internet seller against a much larger coalition of brick-and-mortar retailers such as Wal-Mart Stores Inc., Best Buy Co. and Target Corp.
“This is a referendum on jobs and investment in California,” said Paul Misener, Amazon’s vice president of global public policy in Washington, D.C. “We support this referendum against the recent sales tax legislation because, with unemployment at well over 11%, Californians deserve a voice and a choice about jobs, investment and the state’s economic future.”
While Amazon has not ruled out filing suit to block the law, as it has in New York, analysts said taking the case directly to voters might be cheaper and more effective than a lawsuit that could be tied up in the trial and appeals courts for years and run up tens of millions of dollars in legal bills.
“Nobody likes to pay taxes, and Amazon presumably will have hundreds of thousands of customers in the state,” said Shaun Bowler, a political scientist at UC Riverside. He nonetheless says Amazon has slightly long odds of winning because it will face formidable opposition from conventional retailers.
Amazon began the legal process of qualifying a referendum — a little-used sibling to the voter initiative — by filing documents with the California attorney general. Once state lawyers prepare a legal title and summary, Amazon will have to collect valid signatures from 504,760 registered voters and qualify the proposal for the ballot at least 31 days before an election, according to the secretary of state’s office.
“We’re going to fight it,” said Larry Levin, a spokesman for state Sen. Loni Hancock (D-Berkeley), one the authors of the sales-tax-collection bill signed into law by Gov. Jerry Brown on June 29. “If Amazon wants to take on California businesses, large and small, from Eureka to the Mexican border, we’re ready for them.”
Before the new law was passed, only Internet retailers with a significant physical presence, such as brick-and-mortar stores, had to collect the state sales tax. Now, any retailer with related operations or affiliates here must collect the tax. That has already led Amazon to sever ties with 10,000 small businesses that funnel shoppers to Amazon through their websites.
Brown’s budget for the fiscal year that began on July 1 estimates that the new tax-collection law would bring in $317 million in state and local revenues in its first year. Estimates in the outlying years are higher.
California merchants say Amazon and other online-only retailers have an unfair advantage because consumers can effectively get a 10% discount by buying online.
Target reiterated its stance Monday, releasing a statement saying that it recognized the “competitive disadvantage” of the sales tax discrepancy.
Home Depot spokeswoman Kathryn Gallagher said, “We believe Amazon should collect sales tax because it levels the playing ground for all retailers, small and large.”
Earlier this year, Edward S. Lampert, chairman of Sears Holdings Corp., wrote to shareholders: “Either all retailers should be required to collect sales taxes or none should. As state and municipal governments face spiraling budget deficits, and as online retail grows, we believe an uneven playing field relating to the collection of sales taxes will exacerbate the financial troubles of local communities and economies.”
Wealthy business chains, their trade associations, Democratic politicians who control the state Legislature and the governor’s office, and interests groups such as teachers and nurses all want the state to collect more taxes to fund health, welfare and social services. They comprise a formidable electoral force, proponents of the sales-tax-collection bill said.
“It is in every Californian’s interest for online and storefront businesses to play by the same rules,” said Betty Yee, an elected official of the state Board of Equalization, the government agency that collects the sales tax. “I strongly doubt Californians will support a loophole promoting out-of-state jobs, when holding Amazon.com accountable to the same rules as everyone else protects California’s economy.”
Yee’s view isn’t shared by her board colleague, George Runner, who predicted that a crackdown on Amazon and other Internet sellers would be bad for the state’s business climate.
“As I warned, Californians are losing jobs and income as a result of the so-called Amazon tax,” he said. “It should come as no surprise that impacted California business owners would seek its repeal.”
Dan Schnur, director of the Jesse M. Unruh Institute of Politics at USC, predicted that Amazon has “a good shot” but tempered his opinion with a cautionary note: the power of heavy negative spending by mainstream California businesses.
“It’s very difficult to pass a ballot measure that has significant money against it,” he said, noting that historically it’s easier to defeat controversial initiatives than to pass them.