Business

The rise of the “Amazon Tax”: What associations need to know

California’s new sales-tax law could mean pricier online shopping.

For nearly two decades, Amazon.com used a tax loophole as a key driver of its business growth. But states are no longer playing along.

On Sunday, California became the eighth state to enact a so-called “Amazon Tax,” which forces online retailers and mail-order catalog businesses to start collecting state and local sales taxes from consumers. After spending millions fighting against legislative efforts (and pressure from activist groups), Amazon eventually agreed to the law, using the opportunity to build a large factory in the state.

(Five other states also plan to enact similar tax rules between now and 2016, NPR reports.)

Booksellers’ groups applauded the decision, with Oren Teicher, the CEO of the American Bookseller’s Assocation saying in a statement, “What many thought to be an impossibility only a few years ago is indeed becoming a reality as we inch ever-closer to passage of federal sales tax fairness legislation.”

Meanwhile, electronic retailer groups remain wary that a new federal law, the Marketplace Fairness Act, could bring such rules nationwide. “New and misguided remote tax schemes will devastate electronic retailers working to survive in these harsh economic times,” said Bill McClellan, the Electronic Retailing Association’s Vice President of Government Affairs, said in July.

Associations, consumers and businesses may feel these potential effects from a change in sales-tax law:

  • For consumers: The cost of buying books or other products through Amazon just got a little more expensive for Californians — with tax rates, depending on the region, as high as 9.75 percent. (Residents can check their rate online.) For example, buying a copy of ASAE’s 2011 publication “Race for Relevance: 5 Radical Changes for Associations” costs $27.95 on Amazon in hardcover form. California’s base 7.25 percent tax rate adds about $2.03 to this cost.
  • For affiliates: Affiliate marketing, a way for blogs and other sites to profit off of referral sales made to online retailers, may quickly become a thing of the past: Both Amazon and Overstock.com, among others, have stopped offering this service to states affected by the “Amazon Tax.”
  • For sellers: But what if you’re not Amazon, but you sell things online, such as publications or merchandise? Do you have to collect sales tax, too? You may — but only if your business sold more than $500,000 in tangible goods to the state of California in the past twelve months. Some small retailers, however, worry that the law might eventually apply to them, according to NPR affiliate KQED.

Do you think online retailers should have to collect sales tax? Leave your take in the comments.

Ernie Smith

By Ernie Smith

Ernie Smith is a senior editor for Associations Now, a former newspaper guy, and a man who is dangerous when armed with a good pun. MORE

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