What California’s One Year Tax Reprieve Really Means For Affiliates and Amazon

For the first time since June, California affiliates can breathe a sigh of relief. In a move that recognizes the massive pushback against its version of the Amazon tax, California’s legislature passed and Governor Jerry Brown signed AB 155, putting many of the 25,000 affiliates back into business immediately. AB 155 repeals the law (ABX 1 28) signed by Brown in June that required online merchants to start collecting sales tax September 15, 2011.

While AB 155 doesn’t remove the possibility of online merchants collecting sales tax, it does put on hold the requirement to do so for one year until September 15, 2012. The law also acknowledges the efforts to create a nationwide standard for online sales tax collection.

Under the law, AB155, online companies will have until at least July 2012 to try to persuade Congress to create a national system for collecting the sales tax. If that doesn’t happen, California’s measure would take effect next September. But if Congress does act, the state would acquiesce to that law with collection beginning in January 2013.

Amazon, Legislature Compromise

Amazon reps worked closely with the legislature to craft a compromise. For their one year reprieve, Amazon also agreed:

… to build distribution centers in the state, creating at least 10,000 new full-time jobs and hiring 25,000 seasonal workers by the end of 2015. Amazon also has agreed to lobby for a new federal law that would authorize states to mandate tax collection by online retailers whether or not they had an in-state physical presence. The authorization would apply to all states that have simplified sales tax collection as part of the Streamlined Sales Tax Project, or SST.

In addition, Amazon will halt its efforts to put a referendum on the tax law on California’s 2012 ballot. It’s worth noting that Amazon’s plans will give it an in-state presence in California, making it unlikely that we’ll see another row over whether affiliates in California constitute nexus. For now, all appears well in the Golden State, but there’s still much that remains to be settled nationwide.

What About Other Merchants and Their Affiliates?

While Amazon is mentioned by name as a direct participant in this compromise legislation, according to proponents it’s by no means an exclusive solution for only Amazon. Tom White, the chief of staff for Assemblyman Charles Calderon who authored AB 155 addressed this issue directly:

“The deal was not Amazon specific. It was the law specific, and the implementation of the law affects everyone equally.”

The Performance Marketing Association, who put a lot of effort in tandem with Amazon into fighting AB 155 including backing the referendum, touts this move  by California as a victory for the entire affiliate industry.  However, that’s not how Overstock.com sees it, and they aren’t happy about the deal. In an interview with Dan Morain at the Sacramento Bee, Overstock’s CEO, Jonathan Johnson made clear his feelings about AB 155:

“States should not be legislating to benefit one company, and that is what California has done.” Johnson went on to add, “I’m guessing, but Amazon either already has nexus or is intending to create nexus in California. This deal is like taking off sleeves from their vest. They’re not giving up much.”

Johnson also indicated during the interview that Overstock plans to proceed with caution and has no desire to go down Amazon’s path of establishing nexus through a physical location in California.

It stands to be seen how many merchants, who terminated relationships with their affiliates due to AB 155, will reestablish those relationships in lieu of the ruling.

Action at National Level

While AB 155 doesn’t refer to it by name, the only active legislation that targets online sales tax at a federal level is the Main Street Fairness Act introduced by Senator Dick Durbin (not to be confused by the the Alliance of Main Street Fairness that Wal-Mart put together to attack Amazon). Despite being the target of online sales tax campaigns by brick-and-mortar retailers, Amazon has joined its past adversaries like Walmart and many of the main retail associations in support of the Act. eBay continues to oppose the Act, believing its enactment would hurt small business owners. Even if Amazon and other supporters put their full muscle behind lobbying for the Act, there are a few things standing in its way of getting passed before the deadline.

We’re only weeks away from entering an election year, when legislators become more worried about getting re-elected than in passing legislation. There’s also the reality that Congress can’t seem to accomplish even “simple” things like passing a budget to keep the government open for business. Add in the anti-tax fervor of Republicans and it seems a stretch to get something like the Act through Congress before next year’s deadline. Odds are high that online retailers doing business in California will be held to AB 155 a year from now. But it does make a difference that one of the biggest opponents now appears to be finding a way to do business in California without going to war against the state’s legislature and by connection its affiliates.