Calif. Launches Internet Tax

By Jon E. Dougherty at 30 Jun 2011

(Newsroom America) -- California will begin imposing a sales tax on Internet transactions, a move which has already cost the state a major online retailer.

Gov. Jerry Brown signed the measure - AB 28X - into law Wednesday. It is scheduled to take effect immediately, the Orange County Register reported.

Proponents said the new tax will raise about $200 million annually, but critics said that may not happen, especially if a number of online retailers bail on the state. Experts also said they believe the tax will cut small-business Web site revenues 20-30 percent.

One major retailer - Amazon.com - has already done so, the paper said, noting that the company immediately ended deals with more than 25,000 California-based Web sites.

In a letter to its retail partners, Amazon.com said the bill "specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by California-based marketing affiliates like you - even if those retailers have no physical presence in the state.

"We oppose this bill because it is unconstitutional and counterproductive," the letter said. "It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action."

The bill, which taxes sales through affiliate advertising, won't affect customers, but is likely to have a major affect on small-business sites that make money by placing Amazon.com ads on their pages.

"This law won't impact Amazon that much but it is a crisis for website owners who make revenue by placing ads on their websites for thousands of online retailers," Rebecca Madigan, executive director of the Performance Marketing Association, a Camarillo-based nationwide trade association, told the paper. "Most of them don't have a physical presence in California."

Traditional brick-and-mortar businesses in the state applauded the law.

"We thank Governor Jerry Brown and the leaders in the California State Legislature who have demonstrated their leadership and commitment to California businesses by passing and signing e-fairness into law," the California Retailers Association said in a statement, according to the paper.

"Small and large businesses across the state have been held at a major disadvantage by the current law that out-of-state online companies like Amazon.com and Overstock.com have exploited for years. This has cost us jobs and revenues," the CRA said.

© 2010 Newsroom America.

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