Turn out the lights, the party’s over
For 15 years the world’s eighth largest economy has been afforded quite a sales tax break from Amazon. Unfortunately that party is now over. Amazon (ticker; AMZN) has been mandated to begin collecting sales tax from California customers. When one stops to think about it, Amazon has enjoyed somewhat of an unfair advantage over its brick-and-mortar competitors. Identical items costing the same were actually less expensive to purchase through Amazon based on an almost 10% sales tax that covers most of California.
Amazon has developed a massive following and is often able to offer online items at 10% savings already. For Californians, that savings was doubled based on sales taxes not being applied. Sure, there are shipping costs, but often times those were nominal in comparison to the savings and or the cost of gasoline by purchasing online.
Marcus Wohlsen of Wired.com posed an interesting comparison. “Amazon’s most popular camera is the Nikon D600, which sells for close to $2,100. California sales tax rates vary from city to city and county to county but top out at just below 10 percent.” This week, that same camera will cost 200 clams more for Californians – for many, that extra expense is a car payment.
State retailers pressured for equality years ago
Retailers saw the writing on the wall years ago. Many lobbied politicians and their chambers of commerce that eCommerce needed to make changes and level the playing field. Well, that didn’t happen until the state itself began to suffer chronic budget shortfalls. Isn’t it funny how state governments become retro-active instead of being pro-active.
When JB (Jerry Brown) and his sunshine band entered the Governor of California’s office in 2010 his group of merry men pushed Amazon hard for sales tax. The knights of Amazon promised JB warehouses and jobs (just what the world’s 8th largest economy needed). Amazon execs showed up at the Gap’s San Francisco headquarters last year for a signing ceremony in which JB approved a bill to postpone enforcement against online retailers of the state’s sales tax rules.
Amazon succeeded in getting California to back off while the company lobbied Congress for a nationwide e-commerce sales tax policy. What a joke that was or is. In my opinion, there were those that felt that such a law would never happen and possibly be in somewhat of a stalemate indefinitely – hey, it’s the congressional way.
According to Marcus, “the AP says the newly enforced sales tax rules that extend beyond Amazon to some 200 out-of-state online retailers will bring an additional $200 million into state coffers, including about $80 million from Amazon alone.” At the present time that $200 million would alleviate only about 2% of California’s massive $10 billion deficit. One issue that I ponder is whether or not that deficit would have been that high had this have been implemented years ago.
As for the $200 million, I hope that at least half of that money is put to good use; preferably back into education and civil service programs that continue to be slashed left and right.