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Feeding Frenzy Alert: CA Retailers vs E-tailers

Jul25

Back in 1998, when dinosaurs roamed the earth, Amazon.com was just four years old and Jeff Bezos (nee Jeffrey Preston Jorgensen) was not yet worth $18 billion, there was a debate in Sacramento about collecting taxes on sales over the internets. Some of us Calbuzzers – we name no names — engaged in that debate, arguing that California should do nothing to slow down the growth of internet sales, which was an infant business.

But as our friend, the sage Peter Schrag, wrote last week:  “that was then and this is now.”  Now, Amazon (NASDAQ: AMZN) is a  multinational electronic commerce company and the world’s largest online retailer, with nearly three times the Internet sales revenue of the runner up, Staples, Inc., as of January 2010.

And a bully.

We say this with no joy, as we are happy Amazon customers and, until recently, this space was even one of those internet sites that collected a couple of pennies if you clicked on their ad and went to their site to buy something.

But with California now scratching and scrounging for every nickel it can rub together to pay for schools, universities, highways, state parks, prisons, social services and everything else, the potential to collect $200 million in sales taxes on internet sales has become a reasonable proposition.

Which is exactly what the Legislature and Gov. Jerry Brown concluded in June when they passed and he signed ABX1 28, requiring any internet merchant with a physical “nexus” in the state to collect and pay sales taxes.

Amazon immediately cut off its California “affiliates” (including us) and began to qualify a referendum on the law that would exempt it from collecting the same sales taxes that brick-and-mortar retailers – like Walmart, Target, Macy’s and Your Neighborhood Bookstore Anywhere — are required to collect.

The power of  “no.” Calling its measure “a referendum on jobs and investment,” Amazon – apparently advised by Nielsen, Merksamer, Parrinello, Gross & Leoni – has worded the measure so that in order not to overturn the tax, a voter would have to vote “yes” to keep it. This, as loyal Calbuzzers recognize, is exactly the brilliant scheme we advised Gov. Brown to implement for a vote on the state budget, since a “yes” vote is about three times harder to obtain in an election than a “no” vote.

Imagine Amazon’s campaign: “Vote NO on new taxes.” How hard is that?

(BTW: We wonder if the sad-but-predictable death of Amy Winehouse will trigger a sudden surge of demand at Amazon for CDs by other rock stars who self-destructed at 27, like Kurt Cobain, Janis Joplin, and Jim Morrison. But we digress).

Whether Walmart, Target, Macy’s, Home Depot, Best Buy and every other retailer with actual stores in California, will form a committee to fight on the other side is yet unclear. Some of the people we understand are possibly lining up on the pro-internet sales tax side – Democrats who work with the labor-friendly, resource-hungry Legislature – would make strange bedfellows with big-box corporate types. But so much money may be thrown at this measure it’s not clear political consultants will be all that picky about whom they lie down with.

As for the public, the best measure to date comes from a new poll by the LA Times and USC that found voters split 46-49% against the tax – which, in our view, puts Amazon in the driver’s seat at the start, since they’ve got the “no” side.

What happened to the sales tax? What’s pathetic about the issue is, as Institutional Knowledge Keeper Dan Walters has observed, sales taxes no longer account for the bulk of California’s revenues as they once did.

As Walters wrote: “The state’s consumer economy has shifted to non-taxed services and, to a much lesser extent, online sales. Or to put it another way, were taxable sales at the same relative level today as they were in 1981, the state would be getting another $20 billion a year in revenue, thus wiping out its chronic budget deficit.

Surely internet sales should now be taxed like sales at in-ground stores. That’s just a matter of fairness to businesses that operate in California. But sooner or later, Sacramento is going to have to consider lowering the rate and extending sales taxes to services, which have become the greater force in our economy.

The “blue-ribbon” commission headed by Gerald Parsky back in 2009 could have made a recommendation that would have moved us in that direction, except that it was so beholden to conservative interests, the commission’s proposals were tainted before they could get to the Legislature.

In the meantime, watch out for a feeding frenzy, as retailers and their highly-paid consultants start gobbling one another.


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