Amazon Makes a Deal With California

On September 8th Amazon reached a deal with several members of the state legislature regarding their dispute on sales tax.  The dispute stems from a recently passed law that would have required Amazon to start collecting sales tax starting two months ago on July 1, and Amazon’s efforts at an initiative petition to overturn the law.  Although Amazon immediately dropped their affiliates program after the law passed, Amazon owns several firms, such as the Cupertino-based company responsible for designing the Kindle, that qualified as a nexus under the new rules.

The deal consists of two parts:

  1. Amazon will drop the petition drive.
  2. California will put off the enforcement of the new law until September 2012

The final deal differs from an earlier proposal that had the sales tax effort put off until 2014 and Amazon building one or more distribution centers in California employing up to 7,000 persons.  That deal was suspicious since the distribution centers were likely to count as a business presence even under the old rules.

Both sides came to the negotiation from a weak standing.  The legislature had just failed in getting the 2/3 vote to pass an emergency measure that would have invalidated the ballot proposal, and polling did not look favorable for Amazon’s ballot proposition.  So Amazon saves the money for signatures and campaigning for the proposition, the retailers save the money that would have been spent campaigning against it, and the law gets put off until when the ballot proposition would have happened.

The wording of the announcement also makes mention of Amazon working toward a national solution to the issue.  Presumably that would mean the Main Street Fairness Act, but there is no actual requirement for any specific actions.

[Update] The compromise has passed the Assembly 59-8 and the State Senate 39-1 and is awaiting Governor Brown’s signature.  Amazon has stated that will re-instate California Affiliates once the agreement is signed and becomes law.


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