Amazon Says It Won't Collect Sales Tax; State Says It'll Send a Bill Then

Update 4 p.m. KQED's Stephanie Martin this afternoon talked to Betty Yee, a State Board of Equalization member who represents 21 counties in central and northern California. The board is responsible for collecting sales tax.

Earlier today an Amazon VP said the company does not intend on collecting the sales tax that newly passed California legislation requires it to starting tomorrow. But Yee said the state expects Amazon and other online retailers to comply with the law. If they don't, she said, the state will send them a bill for the tax at the end of the quarter.

Yee also said that the severing of ties with its California affiliates does not exempt Amazon from sales tax collection, as the law also establishes the tax obligation for businesses that own subsidiaries that may not be involved in the act of selling. Amazon has such businesses in California, including Lab126, which designed the Kindle, in Cupertino, and search technology firm A9 in Palo Alto. (This analysis by CNET's Declan McCullagh, however, says a 1994 decision by a California Appeals court rejected similar arguments by the Board of Equalization in a case involving an out-of-state greeting-card company.)

Listen to the interview below:

Board of Equalization member Betty Yee on the state's expectation that Amazon and other online retailers will collect sales tax starting tomorrow

Earlier post
KQED's John Myers asked Paul Misener, Amazon VP of Global Public Policy, whether Amazon would begin collecting sales tax tomorrow, as the legislation signed into law by Jerry Brown yesterday requires it to do. Here was his response:

“This legislation is counterproductive and will not cause our retail business to collect sales tax for the state.”

Not sure what the company's legal reasoning is. It's been suggested that by ending its relationship with California "affiliates" -- usually smaller web sites that provide links to Amazon and receive a commission from the company when someone makes a purchase -- the company believes it will no longer have the kind of ties to the state that obligate it to pay the tax. The U.S. Supreme Court ruled in Quill Corp. v. North Dakota (1992) that a business has to have a "physical presence" in a state in order for it to be obligated to collect sales tax.

From the Tax Foundation Tax Policy Blog in 2005:

The Supreme Court sided with Quill, ruling that a taxpayer must have a physical presence in a state in order to require collection of sales or use tax for purchases made by in-state customers. Physical presence means offices, branches, warehouses, employees, etc. The existence of customers alone (i.e. economic presence) did not create sufficient nexus under the Commerce Clause for North Dakota to impose a sales tax collection burden on Quill Corp..

Overstock.com announced that it's ending a similar affiliate program, stating that would be enough to exempt it from the new law. But Amazon also has some subsidiary businesses in California.

More on the online sales tax law.