Amazon Offers California Lawmakers a Nexus Deal

In the last days of August, Amazon.com put an offer on the table for California government officials to consider that would take the Internet sales tax issue off the table for the next few years. Specifically, the Internet retailer said that it would commit to building two warehouse distribution centers in the state, adding about 7,000 jobs to the state economy. In return, Amazon has asked that the state’s new Internet sales tax be held in limbo until 2014.

The state of California passed legislation in July that required out-of-state retailers to begin collecting sales tax on their sales to California residents if the state could prove that the sellers had nexus with the state. The state has a number of tests it uses to determine nexus, including one that targets companies who have affiliate relationships. These are commonly identified as referral programs, whereby unconnected individuals advertise products through website links. If you go through an affiliate’s website and end up making a purchaser from a retailer, that affiliate receives a commission.

In response, many small and large Internet retailers like Amazon.com and Overstock simply cancelled all of their existing affiliate relationships in California, rather than accept a sales tax collection obligation. Amazon also sponsored a petition to have the law repealed by voter referendum. California lawmakers are considering, in turn, enacting a new piece of legislation that contains all of the same collection and nexus requirements as the existing one, but has an additional clause stating that it may not be subjected to a referendum. If introduced, lawmakers must get a 2/3rd consent and pass the new legislation by September 9th, when the California legislature goes into recess.

Government reaction to Amazon’s proposal has been mixed. Some legislators prefer the existing law, which, on paper at least, is expected to raise some $300 million in new tax revenue. Other legislators are in favor of the proposal, because of the jobs and the bump in payroll and other taxes that 7,000 new hires will provide. They point to the fact that there is no guarantee that any of the salestax revenue will be collected, and that it is far more likely that retailers will simply relocate out of California, or cancel affiliate relationships.

September 9th is approaching quickly, and it will be interesting to watch what happens in California during these final legislative session days.

Nexus is a shifting, slippery target. If you’re concerned that you may possibly have a nexus issue, we’ve got a number of products to help. Our Design Your Own Nexus Strategy product is a 140+ page eBook that talks about all aspects of Nexus, and provides handy checklists and other information to help you determine what may or may not apply to you. We’re also offering a Nexus Evaluation Program where you answer some questions and get a fully customized, detailed report on your specific nexus situation.

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2. Amazon puts California on Notice that Affiliates will be Terminated if Amazon passes Nexus Legislation
3. California Governor Vetoes Affiliate Nexus Legislation
4. Nexus: How Do States Force You to Pay?
5. Illinois Government Sued Over Amazon Nexus Law