California’s Democratic leadership expects to reap $200 million a year for the state from the new “Amazon tax” just signed into law by Gov. Jerry Brown. But as with previous tax and fee hikes imposed on the long-suffering state, it’s going to lose California a lot of jobs and bring in a lot less money than expected.
Amazon.com said it is severing ties with all its affiliates in California in response to the tax. As an out-of-state vendor, Amazon doesn’t have to collect sales tax on California residents. But its thousands of affiliates, who earn a cut of Amazon sales, represent a “nexus” that make it legally required to collect the tax under the new law.
So Amazon, which doesn’t want the headache of collecting state taxes across the country, has done the logical thing by cutting its risk. Amazon still sells to customers in California, but the jobs created for its thousands of affiliates in the state will disappear.
(NOTE: This is not an argument about the fairness of Amazon being exempt from collecting sales taxes that businesses inside California must collect, it is about the economic realities of a new tax).
What Democrats like Brown and the legislative majority never seem to understand about higher taxes is that people change their behavior to minimize their exposure to them, and that higher taxes hurt economic activity. They naively expect to get 100 percent of the theoretical revenue.
On the positive side — and despite the best efforts of the Sacramento Democrats to block it — Californians will get a tax cut as of Friday, when a temporary sales tax hike expires.
It will be interesting to see whether this tax cut will outweigh the damage of the ill-considered Amazon tax.
—————————————————
(DISCLAIMER: This is my opinion, and not necessarily that of my employer, the North County Times.)
Comments 1
As I understand it, e-Bay and other Internet sellers will still avoid collecting the sales tax. Most who purchase online out of state to avoid our CA onerous sales tax (STILL the highest statewide sales tax in the nation AFTER being reduced a full 1% on on 1 July when the temporary increase expires) will figure this out. Hence the sales tax collected will likely be considerably less than the $200 million projected.
Meanwhile the harm to small businesses in CA that (used to) deal with Amazon and other national Internet vending services will be painful, costly, but below the radar. Our self-induced state recession drags on . . . .