The Swarm

Mix it up with The Bee's editorial board.

September 18, 2011
Amazon versus Overstock, the battle continues

Legislators were quick to praise their handiwork brokering a compromise among Internet retail behemoth Amazon and major traditional retailers such as Wal-Mart.

But as Gov. Jerry Brown decides whether to sign the bill - he probably will - other Internet retailers aren't quite so enamored, particularly folks at the Utah-based Internet retailer, Overstock.com.

Please see today's column for more about Amazon and taxes.

"States should not be legislating to benefit one company, and that is what California has done," Overstock President Jonathan Johnson told me by phone.

The issue is a little complicated. But remember back to the start of the summer when Brown signed the original legislation requiring that Internet retailers start collecting sales taxes.

The fundamental issue revolves around whether the e-retailers have a physical presence, otherwise known as "nexus," in the state. If they have that connection, they must collect sales taxes.

Internet retailers reacted to the original legislation by firing so-called affiliates, thousands of individuals who operate websites that carry Internet retailers' ads.

The state had argued that the use of those affiliates amounted to a physical presence in the state, triggering the legal requirement that they collect sales taxes.

Maybe the state was right under the law. Maybe not. Whatever. The new legislation would grant Amazon a year's reprieve from having to collect sales taxes. Amazon could rehire affiliates without worrying about having to collect sales taxes in the interim.

That's good for Amazon and maybe its affiliates. But other Internet retail companies aren't part of the deal. If they hire back their affiliates, they might run afoul of California tax authorities.

"We'll still do our best to compete," Johnson said. "But we're not going to create nexus because we don't want the burden of being a tax collector in a state where we don't have nexus."

Johnson knows plenty about Internet retail, and assumes that Amazon is giving up little in exchange for agreeing to the legislation.

He notes that Amazon intends to open distribution centers in California, to speed shipping to consumers. Once those centers open, Amazon clearly would have a physical presence, and would need to collect taxes.

"I'm guessing, but Amazon either already has nexus or is intending to create nexus in California. This deal is like taking off sleeves from their vest. They're not giving up much," Johnson said.

Amazon didn't grant an interview but offered a statement by the head of its government affairs operation, Paul Misener:

"This bipartisan, win-win legislation will allow Amazon to bring thousands of jobs and hundreds of millions of investment dollars to California, and welcome back to work tens of thousands of California-based advertising affiliates."

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About The Swarm

The Swarm is written by members of The Sacramento Bee's editorial board. They meet daily and are separate from the newsroom. Views included here are those of individual writers, and do not necessarily reflect those of a majority of the board or the positions expressed in The Bee's editorials.

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