'Amazon' Tax: California Budget Gimmickry Fail

In its quest to close a gaping budget hole, the California legislature recently passed and Gov. Jerry Brown signed into law an “Amazon Tax,” as previously threatened.

But in a fresh rebuke to the state, Amazon has declared that they will not comply with the law requiring them to collect and remit to California sales/use tax, legislation that falls afoul of Supreme Court jurisprudence. According to the Los Angeles Times:

Amazon.com Inc. is sticking by its vow not to collect California sales tax on Internet purchases — and state officials must decide what to do about it.

But the showdown over the new tax collection law that took effect Friday could be months away. Companies don’t send the taxes to the state until the end of each quarter, which means the California Board of Equalization won’t know officially about Amazon’s refusal to collect them until Oct. 1.

As we have previously reported, for months Amazon has promised that if California passed this law it would pull its business out of the state like it has in other states that have passed similar measures (so much for collecting the $200 million or so a year that proponents argued would be paid over under the law).

Now this is shaping up to be a long, drawn out legal fight between the state and Amazon. It is sure to be similar to the legal proceedings that are taking place in New York in which Amazon sued the state claiming the law was unconstitutional, per the Quill v North Dakota decision.

“Barring a change in federal law, California has no chance,” said Steve Gill, a professor of taxation at San Diego State University. “There’s literally nothing they can do. The tax law is and has been pretty darn clear on this issue for decades.”

Gill said that a change in sales tax rules at the federal level would need to be hammered out in order for Amazon to comply, but that Congress has “no real appetite” to tackle the issue.

“In my view, California played their hand, and Amazon called their bluff,” he said.

Before suing California, Gill said, Amazon might wait for its New York case to play out. That suit could go to the U.S. Supreme Court, he said, “and then we’ll have a definitive answer.”

Critics of California’s budget process charge that the state routinely relies on gimmicks and accounting tricks to balance the books. In this case, California looks certain to come up short, and potentially find itself in the red again specifically because of California Democrats’ pursuit of this measure.