Sales Tax Fairness, Advertising-Nexus Laws, and Common Sense

By , March 6, 2011

One of the “Advertising Nexus” tax bills (pending in the California legislature) is scheduled for hearing tomorrow (Monday) in Sacramento.  Yesterday, I found this editorial on the American Booksellers’ web site,  and was annoyed enough to write this reply:

Dear Mr. Cullen:

I’m confused by your use of the term “sales tax fairness” to refer to the Advertising-Nexus bills pending in the California legislature (http://news.bookweb.org/news/forbes-wonders-if-amazoncom%E2%80%99s-sales-tax-battle-losing-effort).  I was also surprised that you wrote about Amazon’s “threat” to terminate its advertising relationships with California web publishers as if it were a new development “this week.” Amazon’s letter is nearly identical to its June 2009 letter in response to the same “advertising-nexus” language (see http://www.abestweb.com/forums/showthread.php?t=120899).

These bills are not about “sales tax fairness” — they’re about pandering to California booksellers and other local businesses.  * * * * The state Board of Equalization has now concluded that if any of the bills were enacted, there would be no new sales tax collected, and income tax [revenues] would be reduced.

I strongly believe in “Sales Tax Fairness.”  I’m one of the few California taxpayers who actually report and remit use tax for purchases from out-of-state retailers.

Amazon and other out-of-state retailers should be required to collect and remit California sales tax.  The current situation is especially frustrating because the U.S. Supreme Court (in the Quill case) has provided a unusually clear blueprint to accomplish this — even without “physical presence” — but California abandoned that process and Congress has refused to act, so schemes like the “Advertising Nexus” language remain unconstitutional.

Please, let’s stop wasting our time and energy quibbling over unconstitutional “sleight-of-hand tricks” aimed only at punishing Amazon and other out-of-state retailers (without collecting a penny in additional sales tax).  Instead, we should all be working together on the issue of Sales Tax Fairness. — Mark J. Welch

In the editorial, Mr. Cullen deceptively cited New York data regarding its collection of $70 million in additional sales taxes.  We all know, of course, that Amazon was “tricked” in New York by the secret, unexpected insertion of the advertising-nexus language into a retroactive budget bill, so that Amazon was caught “off-guard.” Amazon chose not to challenge the retroactivity provision, but instead opted to collect sales tax from New York customers while challenging the law’s constitutionality in court.

Amazon has made clear (since the spring of 2009) that it would respond differently in other states.  Amazon has warned legislators and web publishers (clearly and repeatedly) that it will terminate its advertising relationships with publishers in any other state which enacts this unconstitutional language into law. When North Carolina, Rhode Island, and Colorado enacted similar laws, Amazon terminated its advertising relationships with all web publishers in those three states, and doesn’t collect sales tax from its customers in those states.

The booksellers are angry that Amazon benefits from “sales tax unfairness,” and they’re right to be angry about it.  They should be angry at state legislatures and Congress, but pandering politicians have successfully duped booksellers into directing their anger at Amazon and other out-of-state retailers instead. The politicians don’t want to eliminate “sales tax unfairness,” but instead to manipulate the issue as a pretext to garner support from local business owners.

The result, so far: laws that punish Amazon and in-state web publishers (by interfering with advertising relationships), without addressing sales tax unfairness.

3 Responses to “Sales Tax Fairness, Advertising-Nexus Laws, and Common Sense”

  1. Mark Welch says:

    Okay, I was wrong: the sponsor didn’t drop the bill this time. Instead, she took advantage of the fact that people like me had tired of wasting time on political games, and brought in testimony from lots of folks who supported the bill, who spewed lots of misinformation. There were some web publishers and others who testified against the bill (and I want to thank them for the time and money they spent on this).

    The bill was placed in “suspense” — there was no vote, but it can be brought back for a vote in the committee at any time (probably when we’re not paying attention).

    In the current economic and political climate, I don’t expect any legislators to listen to (or understand) opponents of the bill, nor is it likely that Governor Brown will have time to recognize the false promise of the bill.

    Despite the fact that this bill will bring in no new sales tax revenue, it now appears “more likely than not” that it will be enacted into law, and I’ll lose advertising revenue (along with tens of thousands of other California web publishers). Amazon and hundreds of other etailers will shift their advertising budget to publishers located in other states and offshore.

  2. Mark Welch says:

    Illinois will be the next state to enact an “Advertising-Nexus” tax law, as the governor’s office announced today that he will sign the bill.

    http://www.revenews.com/angeldjambazov/illinois-gov-quinn-flaunts-fairness-in-passing-nexus-tax-cuts-off-nose-to-spite-amazon/

  3. Chris Roberts says:

    Hi Mark – I’m an affiliate in California who stands to lose about 50% to 75% of my income should this bill come to pass. I have read your posts on ABestWeb and it’s clear that you’ve done a lot of research on this topic. I am in the process of writing letters to my legislators, but wanted to find out if you were aware of any other efforts being made to bring together California affiliates in opposition to this bill.

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