Amazon’s California Tax Battle

Fighting to delay the end of its unfair advantage

While billionaire Jeff Bezos is off crashing spaceships (or wannabe spaceships, anyway) in the West Texas desert, his company’s unfair tax advantage is disintegrating too.

In July, a new California law forced online retailers like Amazon to collect sales taxes if they have a physical presence in the state, but the Los Angeles Times reports that Amazon is still refusing to collect taxes. It has stopped paying commissions to its affiliates in California, and it claims, implausibly, that its Kindle subsidiary isn’t a physical presence in the state (an outdated Supreme Court ruling holds that states and municipalities can’t tax sales unless the retailer has a physical “nexus” in the state).

In the meantime, Amazon decided to go over the head of the politicians a voter referendum. So far it has spent more than $5.2 million on the campaign, cynically called “More Jobs Not Taxes,” in the not-unlikely hope that ill-informed voters, who on average will spend approximately thirty seconds studying the issue, will pull the lever for more job instead of more taxes. Ill-informed voters like this one quoted in The New York Times yesterday:

Sabrina Nelson, who lives in suburban Los Angeles, is the opposite: full of rage at the state. She and her husband, Jeff, are the proprietors of, a resource for vegans, and they say Amazon’s move deprived them of a healthy chunk of their income.

“Why didn’t these legislators who supposedly represent me care about us?” asked Ms. Nelson, who is in her mid-40s. “They did this law for Wal-Mart and Macy’s and Target. But the genie is not going back into the bottle. You’re not going to stop people from buying on the Internet.”

The only way to beat back a nefarious corporate interest these days is to have another powerful corporate interest join the opposition. We saw that most recently with the debit-card fight. The best interests of 310 million consumers wasn’t nearly enough to beat the banks, but the retail lobby sure was.

California’s politicians are unhappy with Amazon’s end-around and are declaring war by trying to pass an “urgency” bill with a two-thirds vote in the legislature that would preempt Amazon’s referendum. Fortunately, Amazon has some powerful corporate opponents, including Big Retail, which is why this actually stands a chance, despite Republican legislators’ reflexive anti-tax position. The LAT:

Wal-Mart Stores Inc. and its allies in the Alliance for Main Street Fairness, a group that includes big-box stores and independent businesses, still face a major challenge in getting their legislative maneuver to work.

It’s unclear whether sponsors of the measure have the two-thirds vote needed to adopt an urgency bill; the existing law picked up one Republican vote.

But heavyweight Republican-leaning lobbying groups, including the California retailers group and the Los Angeles Area Chamber of Commerce, are pushing GOP legislators to support the plan.

It’s a disgrace that an independent bookstore or record shop is forced to compete with a $40 billion-a-year corporation while ma’s and pa’s prices are marked up 8 percent to 10 percent because it actually collects sales taxes. I don’t shed any tears for Wal-Mart, but that tax disparity is also unfair to the big-box guys who have to collect taxes in their retail stores and online too. It’s just nuts to let one retail sector have such an enormous price advantage, particularly because retailing is such a low-margin business and more shoppers are going online.

But Amazon plays dirty, and it’s not going down without a scrap. Now it’s trying to buy off legislators by promising to bring jobs in exchange for a tax exemption. The NYT:

To sway a few legislators, Amazon is making a counterproposal: if California drops the tax issue for a few years, the retailer says it will build two warehouses in the state and hire 7,000 workers. In a state with 12 percent unemployment, that might seem an attractive offer.

What’s interesting there is that Amazon is only asking for three years of exemption in exchange for the jobs. While that may look desperate, its tax policy is actually distorting its business, which has very good reasons to build warehouses in the biggest state in the union.

With the semi-aggressive steps taken recently by New York, Illinois, and California, it’s clear that Amazon knows that its tax avoidance policy, central to the firm’s business strategy since its inception, is coming undone. Now it’s all about how much it can stall.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,