California’s Amazon Tax: AB 178, Sales Tax, and Web Publishers

By , February 28, 2009

California is considering a bill which would effectively terminate advertising by out-of-state merchants on web publications owned by Californians.

February 28, 2009 – The “Amazon Tax,” Assembly Bill (AB) 178, was introduced in February 2009 by California Assemblymembers Nancy Skinner and Charles Calderon.

AB 178 if enacted into law as written, would seek to force nearly all out-of-state retailers to collect California sales tax if they pay any California residents (individual or corporations) for advertising. Based on the public statements by Nancy Skinner and my conversation with a legislative staffer, I expect that the bill will be revised quickly to narrow its scope to mirror New York’s “Amazon Tax,” which was intended to force many online retailers from outside New York to collect New York sales taxes if the retailer paid commissions to residents of the state in exchange for internet advertising promoting the retailer.

AB 178 would amend the law to provide that California sales tax must be collected by: “Any retailer entering into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers of tangible personal property, whether by a link or an Internet Web site or otherwise, to the retailer , if the cumulative gross receipts or sales price from sales by the retailer to customers in this state who are referred pursuant to these agreements is in excess of ten thousand dollars ($10,000) during the preceding four calendar quarterly periods. This paragraph shall not apply if the retailer can demonstrate that the resident with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the commerce clause of the United States Constitution during the four quarterly periods in question.” (bold/emphasis added)

Under New York’s “Amazon tax,” if an internet merchant had an “affiliate program” with any New York residents participating, the merchant would be required to collect sales tax for all orders shipped to customers in the state. The New York law was interpreted by the state’s tax agency to exclude ordinary advertising on web sites, and to apply only to firms whose New York affiliates drive sales of $10,000 or more.

Although Amazon and a few other large internet retailers began collecting and remitting sales tax in New York, the law inspired many other retailers to terminated their “affiliate program” relationships with New York residents. A few retailers adopted cumbersome legal agreements to document that the New York law does not apply to them. Many internet retailers simply ignored the New York law (many are probably still not aware of it). The effect of the law was to limit the income of thousands of New York web publishers who participate in “affiliate programs,” thereby reducing the state’s income tax revenue while collecting “some” additional sales taxes.

As a California resident, I considered the New York law to be unwise, but of course its most likely effect on me was that my income might increase because New York publishers could no longer participate in many affiliate programs, but I could.

But now I’m facing the same problem: the State of California wants to impose a “loophole” that would collect “some” additional sales tax revenue while substantially reducing the income of thousands of California residents — me included.

Under a U.S. Supreme Court decision (Quill), a state can only force out-of-state companies to collect sales taxes if the company has a “nexus” or “physical presence” in the state (such as hiring an employee who works in the state) or if the sales-tax-collection requirement does not impose an unacceptable “burden on interstate commerce.” The U.S. Supreme Court ruled that a national office-supply retailer whose only “nexus” was that they mailed catalogs into many states could not be required by those states to collect sales tax. This is because of the complexity of different states’ tax laws, and the costs associated with computing, collecting, and remitting sales taxes to many different states. (Many states have multiple sales tax rates depending on the resident’s location, and different states tax different types of products and services.) In addition, few companies wish to face the prospect of paperwork compliance with dozens of different taxing agencies — nor potential audits by so many different tax agencies.

Ever since the Quill decision, there have been several “multi-state sales tax collection” efforts, seeking to either impose a single federal sales-tax collection system (which is very unlikely) or to create a “streamlined multi-state sales tax” system that would allow retailers to easily compute, collect, and remit sales taxes for many states. California has not participated fully in these negotiations.

After a lot of thought and discussion, I’ve concluded that the only likely way to block passage of an “Amazon Tax” in California would be to clearly document that the actual sales tax revenue from this law would not justify the loss of jobs (and income tax revenue). Unfortunately, I don’t believe there is any valid way to compute how much additional ales tax New York has collected because of the law, nor is there any clear way to measure lost jobs, income, and income-tax revenue for New York residents. Unfortunately, this really means that I must focus my efforts on planning my business in light of the likely passage of AB 178.

There is a very active discussion of the New York and California laws on an affiliate discussion forum called “,” with special sub-forums set up specifically for New York and California affiliates: and

Here are some other links to resources about AB 178:

Assemblymember Nancy Skinner’s News Release Announcing AB 178 “Amazon Tax”

Blogs and Articles Opposing the Bill:

Supporters of AB 178:

  • · American Booksellers Association – they are circulating a “sample letter” for booksellers to sign and send to their legislators in support of AB 178.

News Articles:

Other sites:

4 Responses to “California’s Amazon Tax: AB 178, Sales Tax, and Web Publishers”

  1. markwelch says:

    This bill was dropped from committee hearing by its author in 2009, and again in January 2010. However, the same language was added into the state’s budget act; fortunately, Governor Schwarzenegger vetoed this provision in order to deter out-of-state merchants from terminating their advertising relationships with California web publishers.

  2. markwelch says:

    The “Advertising-Nexus” language was revived again last week as an amendment to the budget bill, just hours before that bill was approved by the California state Senate. Hopefully the Assembly will reject this amendment, or else I hope that this provision will once again be vetoed by Governor Schwarzenegger (that’s what happened last year).

    For more discussion, see

  3. Mark Welch says:

    The same unconstitutional “affiliate nexus” language is in a bill that’s now sitting on the Illinois governor’s desk:

  4. Shannon Macri says:

    Connecticut has now been added as a state Amazon can’t have affiliates in. The sales tax problem. Lets see where all this goes.I always had a feeling quite a few years ago that this was going to happen. I feel terrible for the Amaazon affiliates that were making big money to now get dumped.
    Shannon Macri, Meriden,Connecticut

Leave a Reply


OfficeFolders theme by Themocracy