My latest op-ed as seen in the Mountain Democrat and Fox & Hounds Daily
They’re at it again.
Lawmakers in California, in a desperate attempt to generate revenues are again seeking to force out-of-state retailers to collect taxes for online purchases made by California shoppers. If they are successful in passing this legislation, not only will they fail to raise even one more nickel in tax revenue, they will cost the state thousands of jobs.
It’s a bit complicated, but allow me to explain: California has a cutting edge industry of internet entrepreneurs called "affiliates." You’ve seen "affiliates" while surfing the web: blogs and websites that provide "click through" ads to online retailers. If you click through and make a purchase, the affiliate gets a small percentage in payment from the retailer.
If the Legislature passes a so-called “nexus” law, which will require out-of-state retailers to collect and remit California’s sales tax, those online retailers will terminate their relationship with California’s affiliates. They have done it in other states and have said they will do it here.
Paul Misener, Amazon’s Vice President for Global Public Policy, recently sent me a letter citing four pending measures aimed at requiring out-of-state online retailers to collect sales tax. He warns: “If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon ‘Associates Program.’”
Misener notes that similar statewide terminations have already occurred in North Carolina, Rhode Island and Colorado after those states enacted similar laws.
A Board of Equalization analysis cautions that the proposed legislation’s projected revenues would fall by 50% as a result of Amazon’s action and be “further diminished” if other online retailers also terminated their affiliate programs. The analysis also warns of an “adverse impact on state employment,” resulting in lower corporate and personal income tax revenues for the state.
With the exodus of affiliates comes a government-sponsored brain drain as those whose mastery of online marketing and entrepreneurial drive have made it easier for California shoppers to find what they’re looking for move their companies elsewhere to find a new home.
How did this whole thing get started? And, why is California even considering a new law that would further damage the economy?
Most people know that they pay a sales tax on typical transactions, but few Californians probably know they have to pay an equivalent tax – the use tax – on their out-of-state purchases. Yet for 75 years, it has been the law. As a member of the Board of Equalization, the publicly-elected tax board charged with collecting this tax, I believe the best course of action is to make it easier for Californians to be aware of their obligations and pay them.
Lawmakers’ efforts aside, neither the Board of Equalization nor the Legislature has the authority to force out-of-state retailers to collect sales tax. In 1992 the Supreme Court ruled that the Constitution prohibits states from asserting taxing authority outside their borders unless the retailer maintains a physical presence in the taxing state.
The unintended consequences of a nexus law would be disastrous for thousands of California families. Killing private sector jobs only worsens our state’s budget crisis. Lawmakers should reject such ill-conceived measures and instead start helping Californians get back to work.