Why California is circling the drain: the Amazon Tax Effect

August 16, 2011

I’ve written before of the self-defeating, bloody-minded stupidity underlying my state’s recent passage of a law forcing internet retailers with in-state affiliates to collect sales tax. (The “Amazon tax,” for short.) A few days ago, Portfolio.com provided a good example of the unintended consequences of this law with the story of a young, successful entrepreneur who left for Texas because the business environment here wasn’t worth the trouble:

Unnecessary Paperwork: The state mandates that all businesses that gross over $100,000 a year set up an account where they report quarterly on the sales tax that customers pay for goods sold. Although her company sells services, which are not taxed, rather than goods, the state told Douglass she would still have to fill out the laborious paperwork four times a year.

  •     “When I closed the account (by going into a local office and spending nearly an hour explaining my situation), they forced it open again and sent me a nastygram explaining that I would owe fines for not filing the quarterly report,” wrote Douglass.

High Taxes Plus Business Fees: The state charges an income tax of 10 percent on all income over $47,055, which comes on top of federal income tax of 25 percent on income over $34,000. On top of that, state residents pay sales tax ranging from 8 to slightly over 9 percent.

  •     “I paid enough in income tax for 2010 to the state of California alone to hire another new worker for my business,” wrote Douglass.

The state also charges an annual fee of $800 for a business to be a corporation in California.

The Amazon Tax: The final straw for Douglass, though, came when Jerry Brown, the state’s governor, signed a budget that included the so-called “Amazon tax.” The argument is that if Amazon has affiliates in California it has to collect sales tax. Douglass, who sells products on Amazon as a modest side business that yields a “few thousand dollars per year,” is one of the affiliates. Amazon cut California affiliates out because of the law, and according to Douglass, both she and the state of California lost out because of Brown’s move, since she paid income tax on the money she made via Amazon.

Douglass notes that she chose Texas because because it is one of only four states (the others are Nevada, South Dakota and Wyoming) that has no personal income tax, plus no corporate income tax.

(Emphases added)

In other words, not only did a state desperately in need of new jobs lose out on at least one (and how many others at other companies?), but the state didn’t just not get new revenue, it lost existing revenue, an outcome anyone with sense would have foreseen.

Times are bad enough without Sacramento aiming a shotgun at the state’s feet and pulling the trigger.

via Big Government

(Crossposted at Sister Toldjah)

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California’s “Amazon tax” a colossal bust — UPDATED: repeal referendum?

July 12, 2011

I wrote a couple of weeks ago about the shortsighted stupidity shown by Governor Brown and the Democrat-dominated legislature when they passed a bill forcing Amazon to collect sales tax on sales made through California-based affiliates: Golden State, stupid state.

Now more evidence has piled up to show how dumb an idea this was. From Board of Equalization member and former state senator George Runner, here’s a list of the businesses that have ended their affiliate programs in California:

6pm.com
Amazon.com
Audible.com
B&H Photo & Electronics Corp.
Backcountry
Barware.com
Beach Trading Co.
BeautyBar.com
BedBathStore
Benchmark Brands Inc.
CSN Stores
Diapers.com
Drugstore.com
Endless.com
Fabric.com
Gaiam
GiftBaskets.com
Hayneedle
Higher Power Inc.
Lacrosse.com
Muscle and Strength
MyHabit.com
Northern Tool
Overton’s
Overstock.com
PC Connection
Potpourri Group
Quidsi
ShindigZ.com
Shoebuy, Inc.
Shopbop
SmallParts.com
Soap.com
The Tire Rack
Thinkgeek.com
Total Gym
Wine Enthusiast
Woot.com
Zappos.com

Be sure to check out Runner’s post for some choice quotes from now-former affiliates.

Not only will Sacramento not collect any new sales tax money from these companies, but it has lost all the income tax revenue it was already collecting from the affiliates at a time when California is suffering from record debt and deficits. And it will hurt those families and small businesses making a bit of money from their affiliate relationships.

As the great Strother Martin said in Butch Cassidy, “Morons! I’ve got morons on my team!”

UPDATE: Well, this is interesting. A movement has started to place a repeal measure on the ballot If it survives the vetting process, I give it a good chance of passing.

Edit: Speaking of morons, I need to learn to proofread my subject lines for spelling.

(Crossposted at Sister Toldjah)


Golden state, stupid state

June 30, 2011

Regular readers know I often recommend books in my posts. If you’ve ever clicked on the links, you also sent a few pennies my way, due to my participation in Amazon’s “affiliate program.” I got even more if you actually bought something. It never amounted to much, just a few dollars a year, but it enabled me to get something here and there on Amazon that I might otherwise have passed on, thanks to you.

Now Amazon is shutting that program down, thanks to the State of California:

Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule.

That was part of an email I received yesterday from Amazon. The law in question is AB 27 X1, part of a budget deal to produce a balanced budget as required by law (and so legislators can start getting paid again, once the final budget is signed). Brown and the Democratic majority expect this extension of the sales tax to bring in about $200 million. I’d like to know what they were smoking, because Amazon hasn’t needed the revenue from Affiliates in years, but kept the program running as a way to build goodwill and customer loyalty. Since they didn’t need the revenue, and since California has now raised the cost of the program to more than Amazon was willing to pay, the company did what was predictable by anyone except a California Democrat — they pulled the plug. Sacramento won’t see a dime of that $200 million.

But wait, it gets better!

While my earnings were small potatoes (1), quite a few people made a business out of sending customers to Amazon. According to Moe Lane, California collected about $124 million in income tax revenue from people in the referral program. So, not only will they not get the $200 million, but they’ll lose the income tax money, too.

Genius, sheer genius. 

I’ve long said that to be a liberal Democrat requires one to forget even the basics of  economics; this would be the tax policy equivalent. Common sense tells you that, if you make the cost of business too high, the business will go away. We’ve already seen a lot of that in California, and this is another example because taxes and tax-handling are a cost of business.

California may once have been “The Golden State,” but the people who run it are treating it like the goose that laid the golden eggs, instead. Keep it up, and they’ll soon learn its moral.

The hard way.

LINKS: William Jacobson calls it the Revolt of the Amazon Kulaks. At Afterthoughts, Brandy feels like she’s been fired. Stacy McCain says Amazon has “gone Galt” and left Zimbabwe-on-the-Pacific. Katy Grimes of The Washington Examiner thinks this bill will cost California 25,000 small businesses. Way to go, Democrats! 

Footnotes:

(1) Well, really just a single, tiny potato…

(Crossposted at Sister Toldjah)