Northern California Independent Booksellers Score Big Victory Over Amazon

the Winners

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.

The Losers

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.

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14 Responses to “Northern California Independent Booksellers Score Big Victory Over Amazon”

  1. Kathleen Barry Says:

    So where does that leave us independent publishers who rely on Amazon sales as bookstores tend to avoid us. Are we out in the cold? Is that a victory? Kathy Barry

    • andyrossagency Says:

      Kathy, come on. Requiring Amazon to collect sales taxes just like everyone else doesn’t mean that it is going to kill small businesses. It just allows small businesses to compete on a level playing field. Am I missing something here? Let’s see. Large businesses like Amazon should have special tax breaks not given to small businesses. That means that this is bad for small busiensses. I don’t understand.

  2. perspicere Says:

    Amazon doesn’t lose, the small business owners lose. Unfortunately, here in Illinois, the affiliates, (sellers & re-sellers) many, who were successful, can no longer participate in the Amazon profit-making machine. Illinois’ also loses because many of us are self-employed. If there is less income, there is less taxable income. (Aside: Many corporations who have their headquarters here are preparing to leave.)

    Further, I don’t see how this is a win for mom and pop bookstores owners. Collecting taxes on discounted merchandise will always be less than collecting taxes on full suggested retail prices. See: Wal-Mart’s profit model. It is understandable why Wal-Mart had a dog in that fight – Amazon was their only competition.

    Amazon Corporation will continue to evolve in various ways to make new and improved profit models. A possible back tax collection for the behemoth “Goliath” is legislative legerdemain intended to keep us “davids” in reactionary mode and off-balance.

    As small business owners, our focus should be responding to the changing business landscape in an effort to participate –not tie up our resources in litigation. In fact, small business owners have the advantage over corporations when it comes to flexibility – we should use it.

    • andyrossagency Says:

      I think you are blaming the victim here. If
      Amazon cuts off its associates in order to intimidate Illinois into giving them special tax breaks, it is Amazon that is persecuting the small associate businesses. But the other small businesses in Illinois ought to be able to compete on a level playing field. It seems to me that tax policy should apply to everyone equally. Amazon is big enough that it doesn’t need special tax breaks.

  3. Rayme Says:

    The “frail bird” theory would have been arguable in 94/95/96, but anytime post 1998 it doesn’t work.

    The “economic juggernaut” theory to me only more clearly points out why Amazon (and other internet retailers) should be subject to the same taxes as everyone else.

    The sales-tax free era of the internet is coming to an end, which will be good for our state’s (and other’s) deficit problems. I think a tax on consumption is about the best tax we can come up with.

    Plus, anything that keeps a locally-owned bookstore in existence is a good thing in my mind.

    p.s. perspicere those sound like corporate-written talking points!

    • perspicere Says:

      “p.s. perspicere those sound like corporate-written talking points!”

      LOL.. Not really. More “chamber of commerce” talking points – We, self-employed and small business owners need to keep Big business in check -not let them use us against each other.

      Amazon, overstock even Ebay encourages small business owner and self-employed to work with them. Booksellers could have easily run business through the online retail giants while keeping a physical presence. This means expanding their reach and opening yet another revenue streams for their business.

      This is not to say the same couldn’t happen with sam’s club and wal-mart. In fact I do know a few people who’ve gone to wal-mart campus and sold their products. The success rate sadly is not as nearly as many who made money through the online retailers such as Amazon.com. We really need to pay better attention to the enemy. Unless Pogo was right.

    • andyrossagency Says:

      Thanks Rayme. I am getting some very astonishing comments that seem to imply that giving tax breaks to Amazon customers is helping small businesses and is good public policy. I’m thinking what that lost $200,000,000 that Amazon (not to put too fine a point on it) defrauded the people of California could do if it was put into –well, the Oakland Unified School District.

  4. Small Business Owners Victorious in their Selling Soul « Perspicere Says:

    […] worse is according to one of my favorite literary blogs, Andy Ross Agency, these business owners got in bed with the “devil” to win this battle against […]

  5. Ilana DeBare Says:

    RE: “how puzzled I was about how Internet commerce could at the same time be both a frail bird and an economic juggernaut”…

    And hast thou slain the juggernaut? Come to my arms, my beamish boy!

    Seriously, Andy, jump on this and write an op-ed for the LAT or Chronicle.

    Ilana

  6. thomasmsipos@dslextreme.com Says:

    Amazon doesn’t pay sales taxes — but bricks & mortar stores don’t pay shipping. So there was a “level playing field.”

    True, Amazon chooses to pay the shipping out of its own pocket. But bricks & mortar stores always had the option of paying the sales tax out of their own pockets. Again, a “level playing field.”

    It’s the pro-Amazon sales tax people who are trying to slant the playing field to Amazon’s disadvantage.

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