Amazon to Collect Sales Tax in California and Beyond

For as long as eReaders have been around, it seems at times, people have complained that they aren’t available for under $100.  They’re finally getting there, with the Kindle available for as little as $114 new.  We might even see a $99 Kindle by the end of the year.  An important question to ask the people who came up with this number might soon be “Is that before or after tax?”

There is obvious competition between online retailers and the brick & mortar set over taxes.  While it is technically true that somebody buying a Kindle on should be paying the same taxes as somebody grabbing the same product from the local Best Buy, it isn’t surprising that most customers somehow forget to file the forms to pay those taxes at the end of the year.  These stores aren’t the only ones affected, of course.

Most states have begun to take notice of the problem, with some targeting Amazon directly due to its prominent status and high sales figures.  It’s a matter of hundreds of millions of dollars per year in revenue that the state governments rightly feel they should have access to.  Amazon’s response, which is either due to the inconvenience of keeping up with unendingly complex local sales tax interactions and iterations or due to the fact that it makes their store more appealing to customers to be able to avoid sales tax (depending on your current level of cynicism and trust of a major corporation’s word on the matter), has been to withdraw their physical presence from nearly any state that has tried to enforce collection requirements on them.

Now, in an arrangement with the California government, not only will Amazon not be pulling their presence from the state, they will be working openly to resolve the issue of sales tax on inter-state commerce due to the rise of the internet.  There’s a bit of back story to the arrangement, with both the state government and Amazon making threats over the issue, but essentially it seems that a compromise was reached.  Amazon, and online companies in general, will be given until July of 2012 to persuade Congress to adopt some form of nationwide measure for the collection of internet sales tax.  Should this not come to pass, there are fallbacks to allow for California to collect beginning in 2013.

While it would seem at first glance to be not in the company’s best interest to cooperate, they have simply gotten too large to avoid notice at this point.  Increasingly, Amazon will be singled out as iconic of the problem with online retailers.  The only safe path for them will be to seek a system that can catch their competition on all levels in the same net, to keep anybody from getting a major advantage.

The knowledge that this was coming could be one pressure that has pushed Amazon to focus on digital media distribution recently, giving them products that cannot be conveniently purchased locally.  Whether or not that is the case, however, it seems a safe bet that Amazon won’t be driven out of business by the inconvenience of it all or the price bump that customers should be paying for already anyway.

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.