Amazon turns to voters on sales tax fight

Amazon wants to bring a referendum before California voters to stop the state from forcing online retailers to collect sales tax.

Don Reisinger
Former CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
2 min read

Amazon is trying a new tactic in its bid to fight states that force online retailers to collect sales tax.

On Friday, the online retail giant filed a petition for a referendum with the California attorney general's office, the Associated Press is reporting. The referendum would ask voters to overturn a new California law that forces online retailers to collect sales tax there.

Amazon is especially concerned with one of the law's stipulations, which requires online retailers to collect sales tax if affiliates operating in California push customers to an online retailer's site to buy products.

Amazon is not required to collect sales taxes in states where it has no physical presence. However, several cash-strapped states have passed laws expanded their e-commerce taxing to include affiliates, and thus source revenue from Amazon. In response, Amazon has shut down affiliate programs in several states, including Illinois, Colorado, North Carolina, and others. Last month, Amazon announced that it would no longer offer its affiliate program in Connecticut or Arkansas because of these issues.

In a letter to affiliates in Connecticut last month, Amazon said that it is opposed to affiliate taxing, and believes brick-and-mortar retailers were behind the law changes.

"We opposed this new tax law because it is unconstitutional and counterproductive," Amazon wrote to its Connecticut affiliates. "It was supported by big-box retailers, most of which are based outside Connecticut, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue."

Amazon has consistently beaten the "unconstitutional" drum. In 2008, Amazon, with Overstock.com, launched its first lawsuit against sales taxes in New York, saying that state's requirement for online retailers to collect taxes was "invalid, illegal, and unconstitutional."

Amazon's argument revolves around a U.S. Supreme Court ruling in 1992 that said retailers cannot be forced to collect sales taxes in states where they have no physical presence. Amazon argues that by charging sales taxes, New York and other states in which Amazon doesn't have a physical presence are violating that ruling.

After Amazon's and Overstock's argument in New York was struck down, a state appeals court ruled in November that "dismissal of the entire complaint was premature," paving the way for the lawsuit to continue.

Even so, since Amazon filed its lawsuit against New York, the online retail giant has been collecting sales taxes on shipments to customers in the state.

Amazon's decision to try a different tack in California and request state residents to vote on the issue is an interesting one, and could potentially pave the way for a very public battle between Amazon and big-box retailers that support the taxing of online companies.

However, for Amazon to bring its referendum before California voters, the company must collect 500,000 signatures by the end of September. If the campaign is successful, the referendum will be held in February.