Kindle Lab Provides Leverage in California’s Assault on Amazon

Buying a Kindle in California might very well be costing slightly more than we’re used to, soon, despite the best efforts of Lawmakers, frustrated by a combination of factors associated with sales tax collection, or lack thereof, have decided to mount a direct and possibly damaging attack on online businesses in order to increase revenue.  The effect that this move has will take a while to become clear, but it might well end up being nothing but trouble for anybody, especially Californians.

There’s some background to the story.  Up until this point anybody buying something through Amazon, whether it was a Kindle, a cabinet, or something more extravagant, would be personally responsible for reporting and paying their own local sales taxes.  Amazon, except in states where they have a physical presence, doesn’t have any obligation to collect it and has been given pretty much no incentive to try to tackle the logistical nightmare of keeping track of every tax variation in the country.  The obvious problem is that most customers prefer to simply forget to report these out of state purchases when it comes time to pay their taxes.  Naturally, the state and local governments find this inconvenient, but so far it has been hard to get around the legalities of it.  Nobody wants to try to start auditing a significant portion of consumers simply for shopping online, so the easiest option is to make the online retailers responsible for it all.  Efforts along these lines have had limited success overall so far. Affiliates don’t count, generally, and any state government that decided to revise their definitions to include affiliates has seen Amazon and many others pull their local ties rather than deal with the additional overhead.

In the most recent news, California has not only made the affiliate connection just described, but has also attempted to make provisions in case Amazon pulled out.  They are saying that Amazon will be legally required to begin collecting tax because their subsidiaries, and Lab 126, have offices in the state in spite of these companies being their own unique entities.  Basically, unless Amazon decides to uproot the entire group that created the Kindle and is now rumored to be working on the Kindle tablet, they’re in trouble.  Assuming that California can get away with it, of course.

According to some analysts, they’re overreaching more than a bit.  This is certain to be settled in court at some point, but either way it doesn’t seem like it will do California much good in the long run.  If they lose, it means a bunch of wasted time and effort in court.  If they win, it provides the right precedent to make putting money into Californian companies a bad idea for out of state investors.  Even the slightest connection would trigger tax collection requirements.  While it is certainly understandable in times of deficit to want this extra tax income, the overall effect on the state economy over the longer term could be quite negative.  Californian Amazon Affiliates have already been let go, from what I’m told, and only time will tell how things will pan out with regard to the Amazon Kindle‘s Lab 126 and its ties to this scheme.