Yesterday California Governor Jerry Brown signed a bill into law that requires Amazon.com to collect sales tax on all sales made to California customers. The state stands to collect $200,000,000 owed by Amazon for unpaid back taxes. Amazon countered by cutting off all their California affiliates (people with those nifty click -throughs on their websites that funnel sales to Amazon).
This was a long fight, and it was pretty much carried by the Northern California Booksellers Association. Although paradoxically, they did have some –uh– bigger allies. Like, for instance, Walmart, and later Barnes and Noble.
California followed some other states in this: notably New York and Illinois.
I’ll try not to bore you too much with legal theory, but here’s the somewhat simplified back story. The controlling Supreme Court decision on Internet sales tax collection is a case called Quill v. North Dakota, decided in 1992 before there was such a thing as Internet commerce. The court ruled that under the Commerce Clause of the Constitution states could not require out of state corporations to collect state sales tax. Of course, the devil is always in the details, and the big question is what exactly is an out of state corporation. All tax experts agree that if there is some sort of substantial presence by an out of state corporation in the state, that is enough to trigger the sales tax collection requirement. Sometimes it can be as simple as teachers selling books to students from the Scholastic Book catalogue or even a commissioned sales rep wandering into the state periodically to collect some orders.
I think this all started with a meeting of Northern California booksellers in 1999. The meeting was attended by Hut Landon, Bill Petrocelli, myself, and George Kiskadden. Also attending was a particularly supercilious lawyer from the California State Tax Board. Bill had done some pretty intense legal research and laid out his theory about “affiliate nexus”. It was pretty much the theory that New York, Illinois, North Caralina, and now California have used to justify Amazon’s tax collection requirement. The supercilious lawyer responded superciliously that tax policy is extremely complicated and should be left to the tax policy experts. He looked at us, more in sadness than in anger, and told us it was a pity, because he agreed with our sentiments.
At the same time on the federal level, an unholy alliance of small business people, huge commercial real estate corporations, and big box stores were at work attempting to get federal enabling legislation that would accomplish the same goal. This has never happened. But there was a national debate raging at the time, and Internet-mania was dominating public discourse. I remember being on the same talk shows as Internet gurus who were saying that the Internet was the most important invention since the wheel (I’m not kidding!).
Amazon had 3 or 4 arguments about why they shouldn’t be required to collect sales tax. The 2 most cited arguments were: 1)Internet commerce was a frail bird that needed to be protected from the crushing weight of sales taxes and 2) Internet commerce was the economic juggernaut that was driving the “New Economy” and creating jobs and wealth. I liked to point out how puzzled I was about how Internet commerce could at the same time be both a frail bird and an economic juggernaut. I never received a satisfactory answer.
The national alliance of big and small businesses needed a public spokesman who could engender warm and fuzzy feelings. This excluded the vice president of Walmart who was the key figure financing this endeavor. They decided that they needed a colorful small shop keeper and so chose me. I remember they sent me off to Washington to debate Grover Norquist, a truly despicable person and anti-tax nut, at the Federal Society. I had no difficulty dispatching Norquist’s shabby arguments by showing that government tax policy should not be picking winners and losers in the marketplace by allowing some favored businesses to sell tax free. It was a perfectly respectable conservative position and it was true and fair. My dirty little secret that I have never admitted until now was that my expenses for that trip were paid for with a check from Walmart. Strange bedfellows, yes?
Anyway, this has been one of those David and Goliath stories. In America the Davids haven’t been having much success these days. I hope California will take Amazon’s $200,000,000 and put it back into the educational system of the state. An educated population is a book buying population. In the long run, it will prove a good investment for Amazon and all of us.
It’s nice to know that in this age of economic giantism, sometimes little people are still able to do big things. Thanks, Northern California booksellers.