A year ago, California changed its tax laws requiring online retailers to collect sales tax from California residents and businesses who make purchases on-line. California is expecting $200 million in annual sales tax from online retailers, with Amazon being the largest contributor by far. Amazon responded by ending its marketing relationship with thousands of California-based website businesses and began working to overturn the law. Ultimately, however, Amazon reached a compromise with Governor Brown and the California legislature to get a year’s reprieve from collecting sales tax, now scheduled to begin September 15th, in exchange for Amazon’s promise to add jobs and warehouses in California.
Until recently, it was well settled that states could not collect sales tax from companies that had no physical presence within each state. As online shopping has become more popular, and likely as more states have had revenue needs to cope with economic problems, many states have tried to change the 1992 U.S. Supreme Court holding. Specifically, states are passing laws saying physical presence may be met by a company having a local web site that earns money in the state, such as Amazon and other online retailers.
Amazon states it’s primary objection to collecting tax is the complexity of compliance with nearly 10,000 different local tax jurisdictions and has urged Congress to simplify the issue. There are two bills currently pending which may provide Amazon with a longer reprieve from collecting tax in California.
Regardless, Amazon is keeping its promise, and will begin collecting tax from California customers on September 15th and has begun hiring the anticipated 1,000 employees for its 950,000-square foot fulfillment center located in San Bernardino. Amazon will also open a million-square foot fulfillment center in Patterson, California in 2013. San Bernardino and Patterson will not only get the jobs, but will also receive the local portion of California’s 7.25 percent sales tax, estimated at about $16 million. There has been no word regarding how this development in San Bernardino will affect the city’s recent bankruptcy filing.