California Legislature Passes Amended Sales Tax Fairness Bill into Law

Late Friday, September 9, California legislators voted overwhelmingly to approve an amended sales tax fairness bill that was the result of a last-minute deal California lawmakers made with Amazon.com. The amended law would provide Amazon.com with a one-year sales tax exemption while increasing the minimum small business exemption to $1 million from $500,000 in annual sales. Under the bill, Amazon.com must begin collecting and remitting sales tax to the state beginning September 15, 2012, unless federal sales tax fairness legislation is passed. Gov. Jerry Brown has not said whether he will sign or veto the amended bill.

In return for the one-year moratorium, before the vote on the amended sales tax fairness bill, Amazon.com said that it would drop its efforts to overturn sales tax equity state legislation via a referendum vote. The California legislature passed the amended law, which contained an “urgency clause,” by two-thirds vote, meaning the bill cannot be overturned via referendum vote.

Under conditions of the deal, if Amazon.com opens a distribution facility in California between now and September 2012, it would trigger nexus and the online retailer would be required to collect and remit sales tax to the state.

The last-minute deal with Amazon.com was surprising in light of statements by Democratic lawmakers last week that they would not negotiate with Amazon.com and would look to pass an amended sales tax fairness law by two-thirds vote to forestall any potential referendum vote. Had the legislature taken that route, Amazon.com would have been required to begin collecting and remitting immediately, but the bill failed when it did not garner Republican support in the Senate.  At that point, Amazon.com and lawmakers looked to work a deal to avoid the referendum vote.

Had Amazon.com insisted on a referendum vote, it would have been exempt from collecting and remitting sales tax until at least June 2012, the date of the vote.

Loni Hancock, a Democratic state senator from Berkeley, told the New York Times: “We would have liked them to begin collecting the tax already, but this is a positive step forward.” Amazon called the new measure “win-win legislation,” which would allow it “to bring thousands of jobs and hundreds of millions of investment dollars to California,” the Times article reported.

The Amazon deal has increased the spotlight on the federal solution, and ABA is calling on booksellers to contact their senators and governor in support of the Main Street Fairness Act, S. 1452. To read more on this advocacy outreach, click here [1].