The Latest on E-Fairness in California, Hawaii, North Carolina, and Rhode Island

The fight for sales tax equity continued in several states this week. National retail giants threatened that they would de-list affiliates if legislation enforcing e-fairness was approved, and state legislators continued the difficult task of negotiating budget settlements.

California

In California, on Tuesday, June 30, Gov. Arnold Schwarzenegger vetoed the state legislature's proposed budget. His decision followed announcements from Amazon.com, Overstock.com, and other online retailers that they would de-list their affiliates in the state if the budget -- which would have enforced sales tax equity by requiring out-of-state online retailers with nexus in California via online affiliates to collect and remit sales tax -- was enacted. The e-fairness provision would have raised $176 million in revenue per year for the cash-strapped state in the coming year, according to Assemblymember Nancy Skinner. California currently faces a $26 billion budget deficit and on July 2 began issuing IOUs to pay its bills.

Schwarzenegger characterized his decision as a "fight to keep jobs and businesses in California," and it came despite strong support for e-fairness from the state's retailers. "We want the governor to worry a little more about California and do what is best for working families and local businesses," said Skinner, as reported by the Daily Californian. Amy Thomas, of Pegasus & Pendragon in Berkeley, said she has been struggling to compete with national book discounters because of the sales tax issue. "It's a tax I've been ... (paying) for 30 years," Thomas said. "We are the ones who run the town, and it's just not fair," as reported by the Daily Californian.

Commenting on Gov. Schwarzenegger's decision, ABA CEO Oren Teicher said, "We find it hard to fathom how continuing to sanction a nine-percent competitive advantage for out-of-state retailers will help California businesses and keep jobs in the state," he said. "We do know that this unfair competitive edge has undoubtedly helped out-of-state online retailers significantly. The e-fairness provision in the budget simply would have leveled the playing field for California businesses by enforcing existing sales tax laws -- laws that companies like Amazon.com have been skirting for far too long. The governor's decision regarding this inequity, which is hurting in-state businesses on every Main Street and, as a result, siphoning away tax dollars, is astounding, especially considering the state's massive deficit."

Teicher urged booksellers to write Gov. Schwarzenegger to express their disappointment with his decision, and to send copies of their letters to their elected state representatives. ABA, the Northern California Independent Booksellers Association, and the Southern California Independent Booksellers Association have provided a template letter that booksellers can send to Gov. Schwarzenegger, with a copy to their elected officials. They also asked that David Grogan, ABA public policy liaison, be notified when their letter has been sent, to help compile information to support future lobbying efforts.

Hawaii

Also facing pressure from out-of-state giants such as Amazon.com and Overstock.com, last week Gov. Linda Lingle vetoed H.B. 1405 -- e-fairness legislation that would have required out-of-state retailers with affiliates in the state to follow existing law and collect and remit sales tax on purchases by Hawaii residents.

The bill was introduced earlier this year by Rep. Isaac Choy and had passed both Hawaii's House and Senate in May. And though there were initially media reports that the state legislature might override the governor's veto, that proved to be impossible because of a technical issue with the bill -- a titling flaw. As reported by the Honolulu Advertiser, a state attorney general pointed out that the bill may be "legally defective" because its scope was broader than the subject of its title.

At present, the bill's future is uncertain, Choy told BTW. He said he is unsure as to whether he will reintroduce the bill next year. "For next year, I plan to wait to see the appeal outcome in the New York case," he said. (After a New York State Supreme Court judge threw out Amazon.com's challenge to the New York State Internet sales tax provision, Amazon.com filed a notice of appeal in March 2009.)

ABA CEO Oren Teicher expressed disappointment with Gov. Lingle's decision. "Simply put, we believe the governor made the wrong decision," he said. "It is the status quo that continues to have negative consequences for Hawaii-based retailers. For the state government to continue to selectively enforce existing tax law is inequitable and wrongheaded. It is unfortunate that Hawaii will continue to sanction sales tax avoidance as a business model and burden Hawaii residents and businesses with its inevitable consequences: higher property taxes, cuts to the budgets of first responders, and empty storefronts on Main Street."

North Carolina

In North Carolina, lawmakers extended the budget deadline from June 30 to July 15, as reported by the Associated Press, as negotiations over the state two-year budget, which contains an e-fairness provision, continued. Similar to Hawaii and California, out-of-state retailers like Amazon.com and Overstock.com recently announced they have cut ties with North Carolina affiliates because of the e-fairness legislation in the proposed state budget.

This week, in an effort to move things forward, Gov. Beverly Perdue offered up her own $1.6 billion dollar tax plan that provides a number of tax changes, including increasing the sales tax from 6.75 percent to 7.75 percent for 13 months, higher cigarette and alcohol taxes, and an expansion of the number of services subject to the sales tax, the AP article noted. It is not clear if her plan includes a provision to require out-of-state retailers with affiliates in the state to collect and remit sales tax for purchases made by North Carolina residents.

As for the odds that a budget will be sent to the governor next week, AP noted that Senate Majority Leader Tony Rand "sounded skeptical" that a budget deal could be hammered out by July 15.

Rhode Island

As previously reported in Bookselling This Week, last week, Rhode Island Gov. Donald Carcieri signed his state's new budget into law on Tuesday, June 30. Rhode Island became the second state to require online retailers with affiliates in the state to collect tax on sales made to in-state residents over the Internet. In 2008, New York became the first state to enact such a provision, legislation that has withstood a legal challenge from Amazon.com and has resulted in $46 million in sales tax revenue from the 30-plus vendors that registered to collect sales tax.

This week, ABA's Teicher e-mailed Rhode Island booksellers and urged them to thank their lawmakers and governor for their strong support of the e-fairness provision in the state budget. To help booksellers in this important advocacy outreach, NEIBA and ABA have prepared a template "Thank You" letter that can be adapted and sent to their legislator, as well as a template "Thank You" letter for Gov. Carcieri. Booksellers can find their Rhode Island senators here; their representatives here; and contact information for Gov. Carcieri here.