States looking to avoid making devastating budget cuts following the Great Recession have turned in recent years to closing tax loopholes, including requiring online retailers with a physical presence in-state to collect state sales taxes. Unsurprisingly, states who have pursued this approach have been fought every step of the way by huge corporations, specifically the online retail giant Amazon. This week, the battle came to a head in California, where lawmakers — who had earlier this year passed a measure requiring large online retailers to collect sales taxes — compromised in the face of a multimillion dollar effort by Amazon to take the issue to the voters in a ballot referendum by agreeing to delay the implementation of the law by one year.
The state-by-state battle over these efforts to raise revenue began  in New York in 2008, when the state became the first to require online retailers to collect sales taxes on purchases made by customers in state. The law was quickly challenged in court by Amazon. Still, other states followed suit — including  Illinois, North Carolina, and Rhode Island — causing Amazon to threaten to end relationships with affiliates in each of these states in order to continue avoiding sales taxes. Legislators and policymakers in these states and many others have been closely watching this year’s fight in California play out, because of the impact a resolution there might have nationally. After passing the law, the state expected $200 million in additional revenue from online retailers this year, and had included that revenue in this year’s budget. But in reaction to its passage, Amazon launched  a controversial and constitutionally questionable effort, collecting 500,000 signatures to put the issue before voters in a ballot initiative in an election year. The company poured $5.25 million into advancing the initiative, in the fear that, as the New York Times put it, “a defeat in California will sway legislators across the country, and that it will lose a critical pricing advantage.”
The temperature was further raised when lawmakers responded by threatening to pass an “urgency” bill last week that would have trumped the ballot measure. State Sen. Loni Hancock explained  the high stakes: “We’re not doing this lightly, but it seems like Amazon doesn’t really care about the State of California or the people whose lives are affected by whether or not we have enough money for schools and roads and to keep the libraries and parks open.”
The increasingly acrimonious exchange in California came to a resolution  this week when lawmakers agreed to a bill that would delay the enforcement of the requirement that Amazon collect sales taxes by a full year, in return for Amazon abandoning their effort to overturn the law at the ballot box. Amazon also promised that they would press for a national standard for the collection of taxes on Internet commerce, but that barring any such agreement, they would begin paying sales taxes in California in September of 2012. As State Sen. Darrell Steinberg  told the San Francisco Gate, “even though we have to find a way to get the $200 million that we're going to have to forgo as a result of this, we're going to have certainty that we're going to be able to collect this tax in the future.”
After the resolution in California, legislators in other states, including Tennessee, are now asking  why Amazon won’t agree to similar deals and start collecting sales taxes in their states as well. Many organizations advocating for progressive tax reform — including Progressive States Network  and Demos  — have recently included the collection of online sales taxes as one policy option for states seeking to raise revenue, avoid cuts, create jobs, and increase economic security for families.
The New York Times described  Amazon’s continuing attempts to dodge state sales taxes in an editorial this month as an “an abdication of corporate responsibility.” By not paying their fair share in California for at least one more year, the company, currently valued at $100 billion , will force lawmakers in that state to come up with hundreds of millions to pay for their tax avoidance from somewhere else — potentially from those who can least afford it.
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