California Governor Jerry Brown recently signed an online sales tax into law that allows the state's tax board to collect sales tax from online retailers that have relationships with an affiliate, typically in-state blogs that drive sales to the retailers in exchange for a small cut of the proceeds. Federal law has allowed online retailers to collect sales tax only if the seller has a physical presence in the state. Although California enacted this law, most consumers did not pay the sales tax, prompting many supporters of the legislation to argue that Amazon and other online retailers have the upper hand because their prices will always be lower (Hull). .
"In California, out-of-state online retailers basically had a 10 percent price advantage every day of the year," said Bill Dombrowski, a spokesman for the California Retailers Association, which backed the legislation. "This is nothing more than some companies trying to get a competitive advantage through a tax loophole, and now we have closed it" (Hull). Dombrowski hopes that California's lead will begin a nationwide campaign to the issue of taxing Internet sales (Lifsher). .
Although the governor signed the bill into law, very little taxes are collected. Amazon.com and Overstock.com severed their relationship with California affiliates to avoid having to collect the tax. Amazon used the same tactic after facing similar laws in Illinois, Arkansas, and Connecticut. Amazon is currently contesting a similar law in New York, so this matter may soon reach the U.S. Supreme Court (Hull). .
However, Amazon's tactic of pulling out of states that enforce the law may not be enough. A second provision forces retailers with a subsidiary based in California to collect the tax also. Amazon's Lab126 that produces Kindle ebooks is located in Cupertino, and several other subsidiaries are located in California (Hull).
Diana Tucker, owner of West Valley Music in Mountain View, fought for the law after struggling to compete against online retailers who don't collect sales tax.