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Colorado budget makers look toward California and its tax battle with Amazon

Colorado lawmakers staring down an historic recession budget deficit last year passed legislation requiring Amazon.com to finally begin collecting sales taxes in the state. It didn’t go so well. Amazon is still doing business here tax free. A similar battle is waging now in California, only on a greater scale, drawing the eyes of politics and business watchers in Colorado and around the nation. The California case likely won’t go as well for Amazon as the Colorado case did. Amazon does huge online business in California and it also has a physical presence in the state, for example in the Silicon Valley warehouse where it develops its Kindle readers. Indeed, the tide seems generally to be turning against the online retailer, which has grown massive over the past two decades, spreading its roots in the fertile ground of a tax-free internet fairyland.

When Colorado tried to wring sales tax out of Amazon, the company thinned ties with the state as a way to bolster legal standing for its anti-tax position. Mainly, it ended its Colorado affiliate program, where website owners here receive small commissions by referring surfers to Amazon to buy things. Colorado anti-tax conservatives howled that the “big government” legislative action translated directly to job loss. They argued it was a prime example of the way government gets in the way of business and the hobbles the economy.

Amazon did the same kinds of things in other states that were looking to tap the vast profits the company was making inside their borders. Amazon threatened Texas, for instance, by saying it would move a major distribution center to a more “business friendly” climate.

The Los Angeles Times takes a read on the battle in California and suggests Amazon is making a lot of noise, but only on its way back into a corner.

New California Governor Jerry Brown is determined to raise revenue in a state, the wealthiest in the country, that has been a poster child for fiscal mismanagement. He is making cuts big and small. He recently took away government-employee mobile phones, for example. Last week he signed legislation that would force Amazon to collect a 7.25 percent tax on online purchases. Of course actual retail stores already collect taxes from customers and internet companies with stores or operations in California also have to collect taxes. That has left Amazon largely alone to offer its no-tax deals to customers and rake in the profits that result, and it’s fighting to keep that major business advantage in California as elsewhere.

“This legislation is counterproductive and will not cause our retail business to collect sales tax for the state,” Paul Misener, Amazon’s vice president of global public policy, told the Times.

But neither Misener nor anyone else at Amazon has so far said how they’re planning to dodge the law. So far, the company hasn’t threatened to sue California. Maybe the company is waiting until it can find somewhere else to make its Kindles– like maybe the Cayman Islands or Haiti or Somalia or China– someplace where government authorities will ask for nothing from the company and where labor and tax laws worthy of the name do not exist.

“It’s a huge fight,” Betty Yee, a member of the California Board of Equalization, the agency that collects sales tax, told the Times. “We are the biggest customer marketplace for Amazon and other online retailers.”

From the Times:

California merchants say Amazon and other online-only retailers have an unfair advantage because consumers can effectively get a nearly 10% discount by buying online.

That discount has helped Amazon thrive at a time when many brick-and-mortar retailers are struggling. Seattle-based Amazon racked up $34.2 billion in sales last year, up from $24.5 billion in 2009. Its stock is up nearly 14% this year, compared with just 5% for the broad Standard & Poor’s 500 index of blue-chip companies.

Supporters of the legislation signed by Brown on Wednesday say Amazon’s sales model denies the cash-strapped state treasury and local governments about $317 million a year in tax revenue. Taxable online sales in the state are more than double those of any other state.

This time, too, the company’s breaking ties with affiliates may have less messaging power. The public has begun to recognize that affiliates mostly make small potatoes and that, as far as jobs go, working for pay and benefits at Borders is much more like the real thing than ringing up two-bit online commissions from the tax-dodging Seattle-based behemoth. Also, in California at least, affiliates are beginning to read the writing on the wall and are considering options.

The affiliates that Amazon, Overstock and other out-of-state operations use to steer business to them are now looking for another way to make a buck, either by moving their operations out of state or by signing up with in-state Internet sellers, such as Barnes & Noble, Wal-Mart Stores or Best Buy, which currently collect sales tax on Californians’ purchases.

In Colorado, Denver U.S. District Judge Robert Blackburn issued an injunction against the state Department of Revenue in January that halted any coming tax collection. Amazon lost a similar court case in North Carolina. The company ultimately shuttered the distribution center in Texas rather than pay taxes there. Officials estimated Amazon owed Texas $269 million in unpaid sales taxes.

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