Amazon wants California voters to decide on sales-tax collection

SAN FRANCISCO — Amazon.com wants California voters to decide whether to overturn a new law that forces online retailers to collect sales taxes there, setting the stage for a potentially high-dollar ballot fight next year that would pit business against business.

A petition for a referendum was filed Friday with the state Attorney General's Office so that voters can decide on the requirement, which was included in a state budget signed into law in late June.

Supporters must now gather around 434,000 signatures to qualify it for the ballot, according to the state Attorney General. A vote could occur during the next statewide election in June 2012.

The new law forces online retailers to collect California sales taxes by expanding the definition of having a physical presence in the state. The requirement now kicks in if an online retailer has a related company, such as a marketing or product-development arm, or affiliates in the state — individuals and companies that earn commissions by referring visitors to Amazon from their websites.

Passage of the law, which is projected to help the state collect an extra$200 million annually, adds California to a growing list of states that have turned to such measures to bring in more tax revenue. Its legislature passed a similar law in 2009, but then-Gov. Arnold Schwarzenegger vetoed it.

Billions of dollars are at stake as a growing number of states look for ways to generate more revenue without violating a 1992 U.S. Supreme Court ruling that prohibits them from forcing businesses to collect sales taxes unless the business has a physical presence, such as a store, in that state. When consumers order from out-of-state retailers, they're supposed to pay the tax that is due, but they rarely do and it's difficult to enforce.

States are trying to get around the Supreme Court restriction by passing laws that broaden the definition of a physical presence. Online retailers, meanwhile, are resisting being deputized as tax collectors.

Amazon had thousands of affiliates in California, which received fees varying from 4 percent to 15 percent of each sale they brought to the company. Seattle-based Amazon cut ties with them after the law's passage, saying it had no plans to begin collecting California sales taxes.

Anita Gore, spokeswoman for the state Board of Equalization, which is charged with implementing the law, said Amazon would not need to file its first quarterly tax return until Oct. 31.

Paul Misener, Amazon's vice president of public policy, said the referendum supports "jobs and investment in California."

"At a time when businesses are leaving California, it is important to enact policies that attract and encourage business, not drive it away," he said.

Assemblyman Charles Calderon, who introduced one of the bills that was combined into the online tax measure, called Amazon's decision "an odd tactic."

The Democrat from Whittier said the ballot approach also will face opposition from California businesses large and small hurt by out-of-state competitors who don't collect the taxes.

"They're willing to go through all of that rather than just collect the state tax and remit it?" Calderon said. "It shows how much they are committed to their business plan, which is centered on tax avoidance, and that's the whole reason for the bills."

Efforts to force online retailers to collect sales tax are supported by traditional retailers and their lobbying arms in Washington, D.C., and Sacramento. They say online companies such as Amazon have an unfair advantage and can lure customers who seek to escape paying state and local sales taxes.

That led to an estimated $4.1 billion in lost sales in California in 2010, the California Retailers Association said Monday in a statement responding to Amazon's planned ballot initiative.

Overstock.com also has cut ties to California affiliates because of the law.

According to the Performance Marketing Association, there are 200,000 affiliates across the country, 25,000 of which are in California.

Amazon also has dropped affiliates in Arkansas, Connecticut and Illinois after similar sales-tax laws were passed there. Overstock, which is based in Salt Lake City, also has shuttered its affiliate programs in several states due to the laws.

Amazon does collect sales taxes in North Dakota, Kansas, Kentucky and Washington. It is collecting it in New York as it fights the state over a 2008 law, the first to consider local affiliates enough of an in-state presence to require sales tax collection.

As the nation's most populous state, California is an economic powerhouse, accounting for 13.1 percent of all the goods and services produced in the U.S. last year, according to the Bureau of Economic Analysis.

Although Amazon does not disclose the size of its business in any given state, California is thought to account for a similar portion of the company's $18 billion in U.S. sales last year.

California's basic sales-tax rate is 7.25 percent, but because local governments add another percentage point or two, bricks-and-mortar shoppers pay as much as 8.75 percent in Los Angeles, or 8.5 percent in San Francisco.

A desire to not collect sales taxes in heavily populated states was partly why Amazon founder and Chief Executive Jeff Bezos moved from New York to Seattle to start the business in 1994.

As he told Fast Company magazine in 1996, "You have to charge sales tax to customers who live in any state where you have a business presence. It made no sense for us to be in California or New York."

Information from Seattle Times business reporter Amy Martinez and The New York Times is included in this report.