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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Amazon.com and Tax Evasion 10 Years Later

This has been getting my goat for 10 years.

According to Publisher’s Weekly today,  Amazon. com dropped all their Colorado “Associates” because the state passed legislation requiring internet retailers to collect local sales tax.

The Amazon “Associates” program is the very clever system in which anyone can post book titles  on their websites which click through to Amazon where a sale is made. The Associate will receive a very generous sales commission (5% and sometimes more) for the transaction. This program drives considerable sales to Amazon and also builds good will, strengthens the brand, and creates loyal customers. And it raises a lot of money for the  Amazon Associates with very little effort. Many of the most effective Associates are non-profits and PTA’s that raise considerable money for schools and other worthy causes through this program.

So to all those PTA’s, to all those local chorale societies, to all those homeless advocacy groups and orphanages, Amazon is saying –”if Colorado is going to make us collect sales taxes, then Colorado, FUC….,” ok I better not say it, but you get the picture.

The issue here is all about Amazon’s vigorous and consistent opposition to collecting local sales tax which allows them  to maintain a competitive advantage over local booksellers. I’ve made a number of blog posts on this subject in the past.

Let’s back up a little bit. I realize that ranting about the Supreme Court position on tax venues pursuant to the Commerce Clause of the Constitution might  deaden the senses of my blog fans who have gotten used  to my   snarky and satirical commentaries on the foibles of commercial publishing. But I’ll keep it simple. In 1992 in the decision of Quill vs. North Dakota, the Supreme Court ruled that under the Commerce Clause, absent federal legislation, a state could  not regulate the   collection of  sales tax by an out of state corporation that had no physical connection to the state in which the buyer resided.  Even though the decision was handed down before internet retailing  existed, it continues to be the law today.

I’m proud of the fact that I have been fighting this abomination for years. Back in 2000, a group of independent booksellers in the Bay Area that included myself, Bill Petrocelli of Book Passage and the local independent booksellers association, began a campaign to end these anti-competitive and illegal practices. We actually got a bill passed through the state legislature in spite of  spirited opposition from Amazon, Barnes and Noble and the entire high tech industry. Even though it received unanimous support from the Democrats in the legislature, it was later vetoed by the venal then  Governor Gray Davis (also known  as “Governor Ka..ching”) , a shameless sop to his fat cat Silicon Valley funders.

On the federal level, an organization was formed to influence similar legislation in Congress. The money for the organization mostly came from big  commercial real estate interests and mega- retailers like Wal-mart. It wouldn’t make  a lot of sense having a Wal-mart executive make the case for tax fairness for community based mom and pop businesses,  so they enlisted me as the public voice of the organization.  As the Arabs have said: “the enemy of my enemy is my friend.”  I was sent to Washington to debate the extremely evil anti-tax nut, Grover Norquist, at the Federalist Society. The check for my expenses came from Wal-mart. There. That is my dirty little secret. Tell my enemies if you must.

 I also was featured on PBS’s Crossfire where I was grilled by Mary Matalin and accused of being a liberal stalking horse who, whenever I saw something new and good (the internet),  I wanted to tax it. I’m proud I whipped the asses of these guys in debate. I even got Grover Norquist to start spitting in fury when I equated his position on tax policy with John Calhoun’s argument for nullification (ok, that was a  pretentious cheap shot and misdirected but a memorable event to tell my grandchildren).

I even got into an argument with former governor (and hopefully future governor), Jerry Brown, then mayor of Oakland. He said all I wanted to do was tax the internet. I responded in my most patronizing tone, that of course the mayor understood that the issue was not taxing but requiring collection of tax. Unlike Norquist, Brown appreciated a worthy opponent. He made me sit next to him for the rest of the event and engaged me in conversation about his passionate interest in the thought of  Jürgen Habermas and other German philosophers. After that, I decided that Brown was wrong on tax policy, but otherwise ok.

This was back in 2001 when the country was gripped with internet frenzy. The high-tech lackies were hyping the New Economy with the most shameless humbuggery imaginable. In the course of debate, I heard  more than once that the internet was the most important invention since the wheel. I responded that it was considerably less important than the invention of the plumber, particularly when your toilet was overflowing.

So why did we argue that this was illegal. After all, according to the Supreme Court in Quill, out of state companies didn’t have to collect sales tax. Well, fair enough. But the Court had also ruled in a number of cases, that even the most tenuous physical connection to a state could trigger the requirement to collect taxes. Even a commission sales rep wandering into the state occasionally was enough to create the necessary connection to the state. Well, what was different about the existence of tens of thousands of  Amazon Associates in  a state actively driving sales to  the internet retailer in exchange for  generous commissions? How was this different from a commission rep? You don’t have to be Antonin Scalia to answer that question. The was no difference.

This whole theory was devised by Bill Petrocelli. Of course, back in 2001 we were the only people arguing it. And, of course, we were just a couple of Luddite mom and pop retailers fighting the  juggernaut of the inexorable Hegelian dialectic of history with our sling shots.

Come the collapse of the economy in 2008. The states start looking for more ways to collect taxes. And Bill’s theory becomes extremely attractive. New York passed a law to begin collection and now Colorado. Of course, if Amazon dumps its affiliates, then their connection to the state disappears and Amazon doesn’t have to collect. Amazon maintains its unfair tax break. Schools and services pay for it by getting less tax dollars; and the PTA’s lose a valuable source of funds.

I end this blog by paraphrasing the unforgettable words of Joseph Welch as he destroyed what was left of Senator Joseph McCarthy’s reputation in the Army-McCarthy Hearings:

Jeff Bezos,  “have you no sense of decency, sir, at long last? Have you left no sense of decency?”