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Health & Fitness

California and Amazon: What's Fair?

The State of California has passed a law requiring online retailers to collect sales tax.

Do you buy your books from Amazon, at Costco, or in local independent bookstores?  This week’s maneuvering between California and Amazon resurfaces the issue of supporting local business as well as paying one’s fair share of taxes in an era when our state faces a huge budget crisis.

Here’s the background, for those who haven’t been paying close attention. In 1992 the US Supreme Court found that states can only collect sales tax from companies with a physical presence in that state. California, along with nine other states, has taken the position that Amazon’s affiliate program, which facilitates thousands of small and large vendors in selling their products through Amazon, constitutes a physical presence in the state.

Lawmakers argued that online retailers like Amazon should collect taxes on sales to California consumers because these referring companies (the “affiliates”) are based in California. (In fact, California residents are already supposed to pay the sales tax on online purchases themselves when filing their annual returns, but in practice few people do it.) 

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Governor Brown signed a bill yesterday requiring Amazon (and other large online retailers including Overstock.com) to collect California sales tax.  Estimates of the potential tax revenue range as high as $200 million, although Amazon quite naturally disputes that projection.

Amazon's response to the law was to notify approximately 10,000 California affiliates that it would terminate their relationship.  It has done so in every state that has passed such laws, except New York.

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Independent vendors have long argued that the exemption for online purchases creates a playing field that is far from level, since they must collect sales tax on all purchases.  Just today, I heard a small bookstore operator interviewed on the radio about this issue.  Apparently it’s not unusual for customers to check out books in the local shop, ask the knowledgeable staff for advice and recommendations, and then leave to purchase the book on line where they don’t have to pay the sales tax. 

What do you think?  Is supporting your local bookstore worth paying a little more?  Should online purchases be exempt from state sales tax if the vendor is located elsewhere?

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