California And Amazon
All of you reading and commenting here have been very sweet and generous about going through my Amazon links, and I've been using the money I get to stay afloat in these tough times. I'm very distressed that I may lose this income (starting at the ed of September) and would like to prevent that. For anyone who hasn't heard, here it is from CNN Money, by Dan Mitchell:
FORTUNE - California Gov. Jerry Brown on Wednesday signed the so-called "Amazon tax" into law. The measure forces out-of-state retailers (not just Amazon) to pay taxes on sales within the state. Earlier on Wednesday, Amazon (AMZN) sent notices to its affiliates in California, warning them that if the measure became law, the company would have to terminate its contracts with them because it's the affiliates' presence in the state that makes Amazon subject to the tax. Amazon has pulled similar maneuvers in other states where such taxes were imposed.California, like other cash-strapped state governments, is flailing about for new sources of revenue. Proponents of the tax claim it will raise $317 million in revenue a year. But California should look around at other states that have tried this tactic: it usually doesn't work out so well.
A 1992 decision by the U.S. Supreme Court in Quill v. North Dakota held that online sales are not subject to taxation unless the seller has a physical presence in the jurisdiction imposing the tax. That has allowed Amazon and other retailers to undercut competition from bricks-and-mortar retailers by selling tax-free in states where it has no physical presence.
...California could lose 25,000 "small businesses," according to CalWatchdog, which calls itself an "independent journalism venture," but which is backed by the libertarian Pacific Research Institute. That number comes from the Performance Marketing Association. Madigan, its executive director, told me that it includes anyone who has sold at least $25 worth of goods. So the true number of people who will lose their livelihoods is hard to pin down. But losses there will surely be.
Mitchell wrote a very good piece. Be sure to read the rest at the link.
I got this from a regular commenter:
Sorry to hear your going to lose your income stream. Have you checked out a Montana LLC? Many RVer's (Recreational Vehicles) create a LLC in Montana to get around sales tax, etc. I think you have to do business in Montana once a year to keep it going. Link from a quick google:
If this even works, Montana's a long flight. Maybe Vegas would work instead? I've seen comments on bulletin boards that say it's not an answer. My bank account they deposit into is in California, a few miles from my house. I live in California. Also, I'm not a tax cheat or looking to be one. I just need to keep this income stream coming. I use it to keep the lights on.
Anybody who wants to weigh in on what I might do, have at it. Things are very tough now. I've cut back on everything, and I've been managing, but losing the kickbacks you all generously send my way from the purchases you make on Amazon have really helped.
The Supreme Court decision is a very interesting piece of info I was unaware of.
California will tax you even if you start an LLC in another state and make money there. If you maintain a physical presence in the state, you owe CA the difference in state income tax and earnings.
I've been looking for a solution for a friend who makes all her online money with Amazon. So far, we're striking out!
Amy @ "create a website"
http://web-design101.com/createawebsite
Amy at June 30, 2011 8:56 AM
In-state brick and mortar retailers are complaining that online retailers have an unfair 10% price advantage because they don't have to charge sales tax.
However, any price advantage goes out the window when you add shipping charges ... and a five-day wait for delivery.
I'd bet few people are shopping at Amazon.com to avoid sales tax as much as they are shopping there for the selection. The local brick and mortar retailer has physical space limits on its inventory and churn requirements that limit its ability to stock slow-moving items.
Using its affiliate program, Amazon has virtually unlimited inventory and the ability to connect shoppers with purveyors of hard-to-find rarities and out-of-production items.
Amazon's application of long-tail marketing gives it an advantage few brick and mortar competitors can match. It's not the lack of sales tax.
Conan the Grammarian at June 30, 2011 9:08 AM
The first comment refers to income tax you'd be paying anyway. So it's not an issue.
While I think you could find a work around - form an llc or file a DBA in another state and set up a bank account, it wouldn't be long before CA started looking at ways to capture the income.
There are probably laws and/or regulations already in place that will allow CA to collect penalties and fees if they determine you've set up a shill just to avoid taxes.
I'd suggest you start looking for other affiliate programs that are not exiting states that force sales tax collection. Check to see what you've sold on amazon to see patterns, and then find programs that offer those products.
Maybe revenue sharing arrangements will work? this is where a widget provider is the affiliate and you get a large portion of the commissions.
Or look for other ways to monetize your site. You don't seem to have anything here
Google's new PANDA update should result in higher payments for links within content from high traffic blogs like yours.
Terry Gibbs at June 30, 2011 9:51 AM
Vote with your feet. Leave California. It will only get worse.
Robert at June 30, 2011 9:56 AM
Let's clear up one misconception - you (the consumer) does not avoid any sales tax by buying an item from an out-of-state vendor (Amazon or any other) and using it in your home state. You are supposed to self-assess a Use tax on these items and pay that tax over to the state yourself. Which is the why the Montana LLC/RV business is simply nonsense. Its just a way to avoid registering title at the DMV (which is otherwise empowered to enforce Use taxes on automobiles purchased from another state). I know lots of guys here in CA who buy their fiancees diamond rings in Nevada to avoid CA sales taxes. But they aren't engaged in sophisticated tax planning. They are just failing to report the CA Use taxes they owe once they bring the jewelry into CA. In other words: yes, you can still save taxes by lying . . . at your own risk.
The Amazon tax bill simply shifts collection responsibility to the vendor on the theory that a State X website affiliate constitutes sufficient physical presence in State X to subject Amazon to State X sales taxes. I suspect this theory will be ultimately tested at the Supreme level.
snakeman99 at June 30, 2011 10:41 AM
Ahh, the beauty of spend and tax. Probably George Bush's fault, or Halliburton.
I voted out California when I left in 1976 and moved to Texas. Smart I wasn't because I left Texas in 1990 to live in California Junior - Minnesota - now run by someone more medicatied than I am, who wants to shut down the state because the evil Republicans won't let raise taxes on the rich.
Dave B at June 30, 2011 10:44 AM
what's weird is that this doesn't work for the state that tries it... Amazon or the other online or mail order people simply stop doing business there, and the taxes NEVER materialize. If anything, it's anti consumer. What a lot of the small retailers here have done, is to become Amazon affiliates for the more exotic stuff they don't carry...
SwissArmyD at June 30, 2011 11:46 AM
Of course this shouldn't have happened. And I hope I don't sound like I'm "blaming the victim," but...
Why couldn't the affiliates form some kind of statewide coalition (I hate to call it a "union," because of its bad connotations, but hey) that collects the taxes itself on a proportional basis from affiliates that could afford it, pays 'em to the state, and keeps Amazon out of the state collection loop? Perhaps then, CA affiliates could working with Amazon? Of course, like other "unions" (although hopefully with better-- not worse-- consequences for us workin' folks), this coalition could maybe also start lobbying to end the tax collection.
Having said all of that... if I had the money and flexibility, I'd probably be living and job-searching in Nevada right now. I wouldn't blame 'em if most of the affiliates are seriously considering doing the same.
qdpsteve at June 30, 2011 12:19 PM
Amy - I live in Oregon, which has no sales tax, and I buy thousands of dollars worth of stuff from Amazon every year because I'm a lazy slag and can't be bothered to spend all day driving to Portland and back (I live in the Oregon Outback) to shop for the things I need for my costume business which is fabulously successful despite the nationwide disease caused by the liberal-vectored pathogen Moronicobamanomics pathetica. I adore your blog, your book, your gutsy/snotty/snarky/WTF attitude, your relentless willingness to confront the obnoxiously loud, ill-mannered, self-centered segment of human society that seems to be increasing exponentially with each passing day and your positive outlook on life in spite of them, your joyous appreciation for the quiet and the beautiful and, perhaps most of all, your nuclear-cute Lucy. I only started using your Amazon link about a month ago when I read one of your posts about how tough it is to survive on so little (been there, done that, did not enjoy it) and I will make you a deal: I'll keep buying through the link (and I wasn't exaggerating about how much I spend) if you will keep from becoming disheartened. These tough times will pass and when they do and you're back on your feet you can take pride in the knowledge that you never gave up. And your friends and fans will never forget it.
Kirstin S. at June 30, 2011 2:39 PM
Amy Alkon
http://www.advicegoddess.com/archives/2011/06/30/post_14.html#comment-2317165">comment from Kirstin S.Kirstin S....thank you...that gave me a huge lift. And thank you for all you've bought, too. It really has helped, and I'm hoping to find a solution for the Amazon thing -- and working very, very hard on the next book and on how I can do radio, TV, etc., so maybe something like this Amazon thing can be a little thing.
Amy Alkon at June 30, 2011 2:47 PM
"I know lots of guys here in CA who buy their fiancees diamond rings in Nevada to avoid CA sales taxes."
Sorry, doesn't wash.
When you buy in another location from a brick/mortar store by the laws of that state, there is no mechanism for your home state's objection and trying to charge you.
But every state needs to quit being the crying toddler and shut up - because those who can will simply buy elsewhere when they don't see the benefit of buying locally.
Two lessons: NJ tried to put a tax on new trucks. Hello, idiots: Philly is an hour away.
And Congress tried The Luxury Tax: 10% on everything above $75K. Well, gee, idiots everywhere again. Boatbuilders in Florida went out of business instantly, and outfits overseas, like Feadship, Rudy Choi and Blohm & Voss hit their knees to thank God for ferally stupid Congressmen.
Today, the President is playing the "blame the rich" game again for the habitually inane, telling the sheep that "millionaires and billionaires" should pay more, and "they can still fly their jets".
What a dick.
Because if you own a small business, say, selling hot wings - BANG. You're a millionaire. You're not paying Tarika Wilson's family enough to sit at home and play with her drug-dealer offsprung, Li'l Bullet Stop. No. You're not doing ENOUGH, you selfish, criminal, racist business owner!
Rome did this, billing the merchants for entitlements, and they died out. They wouldn't have lasted as long as they did if they'd had smartphones.
Radwaste at June 30, 2011 4:32 PM
You are not supposed to call the president a dick. Prick is probably ok though.
Dave B at June 30, 2011 4:47 PM
I believe either will get you suspended by MSNBC.
Conan the Grammarian at June 30, 2011 4:57 PM
Amy, I know it'll suck to start with, but eventually you won't be living in Californistan. I suggest Austin, Texas.
The house you're renting would cost you less than a twentieth of what it does right where you are. Hey, I know your rent's a fortune.
And you're just waiting to die by earthquake right there anyway. Not an "if", but a "when". Hope not, but...
Hard to hear, but the sooner you think about it, the better off you're gonna be!
Radwaste at June 30, 2011 5:03 PM
Think about how much the mostly uncensored, unregulated internet has done for commerce in the last 15 years. Then think about what will happen and has happened when the state(s) starts taxing more to backstop their busted budgets. The net would be no where near the force it is today if the government had been more involved. More taxes like this and regulations will be another nail in the coffin of the economy.
"Proponents of the tax claim it will raise $317 million in revenue a year".
Yeah, no. Oregon tried a tax the rich tax in 2010, it didn't earn the expected amount. The gov explanation for that was the "economic down turn". Oh, and 317 million is chump change in CA's budget.
Sio at June 30, 2011 5:33 PM
If my home state can explain to me what exactly they do that earns them the "use tax" then maybe I'll chip in.
Let me elucidate:
In Ohio, there is sales tax on clothes.
In PA, there is not. If you drive to PA and buy clothes, the state of Ohio wants tax on clothes you bought in PA.
In WV, there is. If you drive to WV and buy clothes, seeing as how you paid tax on them to WV, the state of Ohio does not want more tax.
When I can visit California, buy stuff there and pay the Ohio sales tax rate instead, then you can talk to me about some bullsh-t "use" tax.
DrCos at June 30, 2011 6:18 PM
"Also, I'm not a tax cheat or looking to be one. I just need to keep this income stream coming. I use it to keep the lights on.
Things are very tough now. I've cut back on everything, and I've been managing, but losing the kickbacks you all generously send my way from the purchases you make on Amazon have really helped."
You do not exist to pay the state. There comes a time when the burden becomes too much, and the people are right to start refusing to comply.
Has California reached that point? Its citizens who pay taxes get to decide, not the people who sup on those taxes.
Spartee at June 30, 2011 9:14 PM
There are probably ways around it.
For that matter, I remember way back in the 70's you could by a 1 ft X 1 ft parcel of land in some other state and then create a P.O. box, etc. and have a "presence" in that state. Especially if you had a bank account there as well.
Now with debit cards, there's no reason you couldn't withdraw via ATM and then put it in an account in your state.
Ask the Taxgirl: Internet Sales
http://www.taxgirl.com/ask-the-taxgirl-internet-sales/
Where to Form an LLC | Where to Incorporate
http://www.mynewcompany.com/whichstate.htm
The five states with no sales tax
http://www.kiplinger.com/tools/retiree_map/index.html?map=2#anchor
NOTE FROM AMY: One link per comment, please, or your comment will go to spam and need rescue, as this comment did.
Anonymous Coward at June 30, 2011 9:42 PM
Lovely how the article tries to frame Amazon as the big bad wolf who is blowing down the brick-and-mortar iddle bitty wocal businesses.
I live in pretty cute area of town that has a lot of local businesses. Personally, it's not the price that gets me to purchase stuff, most of the time, it's the level of customer service at the local businesses. And frankly, at a lot of them, it's pretty bad, from the snotty teenager at the tea store to the independent bookseller who gets aggrieved by having to, I don't know, sell me a damn book.
There are a few local stores that I will happily go out of my way and pay more to patronize (hi, nice candy store lady!).
This sucks - California really did a stupid here. If people are losing their income, guess who's going to be shopping at the cutesy wootsy local businesses? Uh, nobody.
Choika at July 1, 2011 7:22 AM
You wouldn't be cheating on your taxes if you pay income taxes. Set up an LLC in a no-sales tax state (OR, MT and near you). You can't collect sales tax on the sales, as Amazon is the seller - you are just providing an advertising link.
As long as you pay income taxes correctly, you are meeting your obligations.
As to the use tax comments - no one pays taxes they can avoid. The states would love to be able to force sellers to provide buyer information so they could go after it. If you buy in a low-tax state, and you live in a high-tax state, you are supposed to pay the difference in. No one does, and no one will.
I bought my wife's engagement ring out of state, asked the seller to mail it so I could avoid sales tax. I paid cash (travelers checks), and he let me leave with the ring, mailed an empty box. I saved $200 in tax, which was a lot to me at the time - I've never lost any sleep over it.
To everyone hammering on Amazon to collect the tax - they have a right not to do that if they don't have a presence in a jurisdiction. It is expensive, time-consuming, and more of a burden than the commenters realize.
In the end, CA, NY and the other states doing this will lose in court - this is pretty clear. The dream of every state is to tax people who don't vote (look at rental car and hotel taxes for examples).
Bill_v at July 1, 2011 10:27 AM
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