Yesterday California passed legislation requiring any out-of-state retailer with an affiliate in California (or warehouse/drop-shipper, or any other physical or economic presence) to collect California’s sales tax. It’s the seventh state to enact affiliate nexus legislation, after New York, North Carolina, Rhode Island, Connecticut, Illinois, and Arkansas.
This is a signficant move, but unfortunately it’s the wrong one. As a result of this legislation, affiliates face either losing their income or moving out of the state. In fact, in less than 24 hours, Amazon and Overstock have already ended their affiliate programs in California, just as they did in the other states when they passed similar legislation.
A better option is still available for California by simply joining the Streamlined Sales and Use Tax Agreement and urging Congress to enact federal legislation such as the much anticipated the Main Street Fairness Act (or MSFA). Enactment of the MSFA will enable the states to repeal affiliate nexus laws, and in so doing, restore a significant revenue source for many of their smallest businesses, while also gaining the legitimate authority to collect significantly more revenue.
So, the good news is that as the eighth largest economy in the world, California attracts a lot of attention. There’s a reason for the saying “As goes California, so goes the nation.” Congress cannot possibly ignore the message that California is sending: states want and need federal legislation allowing them to require out-of-state retailers to collect sales tax.
But if anyone in Congress is still wondering if this is matters in their district, here is a small portion of the local news websites that have published the news that Amazon has dropped its California affiliates (not including California sites):
- Atlanta Journal-Constitution
- Fox Chicago News
- Cleveland Leader
- Washington Post
- St. Louis Today
- Fort Worth Star-Telegram
- KOCO.com Oklahoma City
- Phoenix Business Journal
- Denver Post
- Miami Herald
We are confident that with California’s bold statement, Congress will acknowledge the unmistakable THUD heard ’round the country yesterday. California’s legislation is just the latest plea from states that federal legislation regarding online sales tax collection is absolutely necessary. It’s time for Congress to act.