Amazon Gains from Collecting California Sales Taxes

Amazon in September of last year agreed to collect California sales tax starting in September of this year.  At the time I was surprised at how quickly Amazon had changed course after first reacting with a petition drive and dropping their Affiliates Program.  Amazon not only agreed to a one year delay but tossed in a promise to build distribution centers in California.

Now it turns out that the distribution centers may have been the smartest part of the deal.  As reported in the Los Angeles Times Amazon has tentatively picked two locations:  Paterson near the Bay Area and San Bernadino for Southern California as the first two locations.  Each are expected to be a million square feet and employ about 1,500 people, although that may be less because of Amazon’s recent push towards fulfillment center automation.  Other cities will no doubt also be making their pitch to Amazon, which means that Paterson and San Bernadino will also need to be competing for Amazon to keep/expand those first two locations instead.

And the sales tax is the main incentive and tool in those negotiations.

In California the sales tax is split as follows

  • 7.25% – State + Local
    • 6.25% – State
      • 5.00% – State – General Fund
      • 0.25% – State – Fiscal Recovery Fund
      • 0.50% – State – Local Revenue Fund
      • 0.50% – State – Local Public Safety Fund
    • 1.00% – Uniform Local Tax
      • 0.25% – Local County – Transportation funds
      • 0.75% – Local City/County – Operational funds

Under California law, with the exception of vehicles, it is the point of sale, and not the point of use, that determines where the up to two percent of local sales tax goes.  So these two cities will be getting the local share of sales tax from everyplace in the state even if it was not necessarily delivered from that warehouse.  So, for example, if a customer in Southern California orders from Amazon and it is in fact delivered from a warehouse in Nevada then Amazon will still treat it as a California sale and give one of the warehouse locations in California the “credit” for the sale and related local sales tax.  But it need not necessarily be the closest location that they attribute it to.

So the competition between cities to have the warehouses and to be the official point of sale is huge.  And their main way to compete is to give back most of that sales tax in the form of a rebate.

So it may turn out that come September, of the extra 7.25% sales tax that California residents will be paying on purchases from*, as much as 2% will be rebated back to Amazon for extra profit margin!

* To note, not every purchase made using the website is a purchase from  From a sales tax standpoint there are three types of sales on

  1. Sales made by Amazon and filled by Amazon.  These will begin paying sales tax in September and may be part of any refund deals with various cities having an Amazon location.
  2. Sales made through Amazon by another company with a California presence.  These pay sales tax already and if there is any rebate arrangement it is between that company and their city.
  3. Sales made through Amazon by another company with no California presence.  These are likely to remain paying no tax (but carrying a use tax obligation) until some sort of national standard is enacted by Congress.

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