Forbes Wonders if’s Sales Tax Battle Is a Losing Effort

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The national fight for sales tax equity garnered prominent media attention this week, even as threatened to terminate its affiliate marketers in California should the state pass e-fairness legislation.

In the February 27 article “Are’s Days of Tax Free Selling Numbered?“ published in the Forbes’ blog Taxing Matters, writer Janet Novack questioned whether Amazon’s “Days as a haven for sales-tax shirking shoppers” were over. In the article, David Strasser, managing director at Janney Montgomery Scott, noted that momentum continues to build to require to collect and remit sales tax. “(Amazon founder) Jeff Bezos has built a company strategically around avoiding sales tax,” Strasser told Forbes. “But they’re going to have to deal with this.”

The sales tax fairness battle, the Forbes article continued, has now entered a “new stage as Amazon builds warehouse/fulfillment centers in more locations, states grow hungrier for revenue, and a rising sales tax rate puts retailers who do collect tax at an ever bigger disadvantage.”

Ironically, back in 1997, Amazon asserted in federal court that Barnes & Noble should have been collecting and remitting sales tax for online purchases, claiming that B&N was “breaking the law when it used a separate unit to avoid collecting sales tax online,” Novack wrote.

A few days after the Forbes article, the Wall Street Journal reported that is warning California legislators that it will fire its California-based online affiliates if the state passes affiliate nexus legislation currently under consideration. In a letter to California’s Board of Equalization, Paul Misener, Amazon’s vice president for global public policy, wrote: “If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon ‘Association Program.’” He also claimed that affiliate nexus legislation in other states has resulted in job losses and no new tax revenue.

However, New York State’s Department of Taxation and Finance released information last year that would appear to dispute Misener’s claim. NYDTF reported that, in its first full year since enactment, its affiliate nexus law has garnered some $70 million in sales tax revenue that otherwise would have been lost.

On March 1, the Wall Street Journal reported that California Board of Equalization member George Runner said in a statement that’s potential termination of its in-state affiliates poses “an imminent threat to California jobs.”

Responding to this contention, on March 3, the American Booksellers Association, the Northern California Independent Booksellers Association, and the Southern California Booksellers Association said in a letter to Runner that “While Amazon’s future moves are pure conjecture, what is clear is that your assertion the company’s threatened preemptive strike poses ‘an imminent threat to California jobs’ has no basis in fact. Rather, it is Amazon’s refusal to obey existing state law by collecting sales tax that is costing California jobs and revenue.”

Noting that allowing Amazon to continue to fail to collect sales tax had already cost California a total of $7.2 billion in lost economic activity in 2010, the associations said, “Looking ahead, if Amazon terminates its affiliates, those marketers that are truly building businesses and creating jobs can quickly affiliate themselves with scores of major retailers that currently work with thousands of California affiliates – and which are collecting state sales tax. Their business will go to retailers that win it in an equitable and competitive marketplace, not by legal sleight of hand and attempted intimidation. In the end, the state’s revenue and jobs will increase by leveling the playing field with e-fairness legislation.”

The letter called on Runner to reconsider his position and “to support the sensible reform of California statutes to help ensure the fair competition that will, in the end, better serve consumers and help maintain critical governmental services.”