Shopzilla as Our White Knight: CPC to replace commissions

July 7, 2009 No comments

A funny thing happened on our way to the Capital and visions of democratic grandeur…

You’ve all read about the Amazon Tax spreading from New York to other states including California, North Carolina, Hawaii and Rhode Island. Here’s the crazy thing… there is little or no revenue behind these bills, only lost revenue for affiliates and lost jobs for employees. Sounds like a great way to generate revenue for the states, eh?

AB178 couldn’t get out of committee

AB178 was California’s version. It stalled in the State Assembly’s Revenue and Tax sub-committee. There weren’t enough votes for passage. In fact, there weren’t enough votes for it to be heard in committee and it was pulled by the bills author (Assemblymember Nancy Skinner from Berkeley) the day it was to be heard.

What’s the democratic solution? Instead of debating it and hearing public opinion, the Budget Conference Committee snuck it into the budget at the last minute (that is, after 6pm on the last day of weeks of budget negotiations).

Both the State Assembly and Senate passed budgets yesterday and today that included changes to nexus. Governor Schwarzenegger has promised to veto any budget that has an increase that is passed by a simple majority instead of the 2/3 required for tax increases. Whether a game or not, legally he is correct.

$150,000,000 is a lot of money!

I can see why the state legislators are drooling at lobbyists promise of $150,000,000 in revenue for the state. That’s a lot of money! I’d go after that too if I could.

The problem is that the number doesn’t look at the downside, only at all of the upside potential. Here are the assumptions:

All stores with affiliate programs maintain their programs and their California affiliates and decide to collect California sales tax.
Oops, there isn’t a second assumption. Just the one.

What if the assumption is wrong?

I’m glad you asked. If the assumption is wrong, retailers like Amazon, Overstock.com and Zappos will terminate California affiliates. Amazon has already notified California’s leadership in the state house that it will do so and has been terminating affiliates in North Carolina and Rhode Island when their legislatures pass similar bills. It’s safe to assume that will happen here as well.

That means a decrease in income tax revenue as we will generate less revenue. That will be compounded by our sites being less competitive and losing more sales thus more income tax revenue for the state. That will be compounded by layoffs, or at a minimum less hiring, which will result in both less income tax revenue and an increase in unemployment payments by the state.

NY collected $50 million after it passed the Amazon Tax last year

Maybe there was a first mover advantage. Amazon collected NY sales tax. It has clearly stated that it will not collect from any other states unless there is a national solution. That’s what the US Supreme Court stated in Quill v. North Dakota: Only the US Congress can force collection of sales tax where nexus does not exist.

I’ve heard rumors that Amazon accounts for 30% of that increase. Assuming that is correct for California, that’s $45 million that comes off the top before anything else happens. If you think $105 million is still a big number, what happens when other retailers terminate as well? It’s not looking so good, is it?

Why should you care about California

On this one, I think that as California goes, so goes the rest of the country. With the Silicon Valley here and companies like Google, Yahoo and eBay in opposition, you have no hopes of fighting this in your own state if if passes here.

What’s my solution?

This post has gotten too long so I am going to split it into 2. Please read the next one for my way to climb back through legislators’ loophole.