California Governor Jerry Brown signed a bill in a compromise with Amazon.com Inc. (AMZN) that gives the world’s largest online retailer a one-year reprieve from collecting sales taxes on Internet transactions in the state.
In return, Seattle-based Amazon agreed to drop efforts to repeal the tax measure through a referendum drive that had cost it at least $5.25 million. The company and the state agreed to work together for a national standard on taxing online sales.
Brown’s signature on the bill ends a stare-down with Amazon over a June law treating Internet retailers the same as brick- and-mortar stores that collect the state’s 7.25 percent levy. Today’s agreement will cost California $200 million in revenue it planned to use to help balance this year’s budget.
“It is the beginning of the end of the war between online retailers and brick-and-mortar retailers,” state Assemblywoman Nancy Skinner, a Berkeley Democrat, said at a news conference at Gap Inc. (GPS) headquarters in San Francisco.
Under the bill signed by Brown in San Francisco today, Amazon will begin turning over taxes on California transactions in September 2012 if no national standard is in place by then.
“The sales tax issue must be resolved in Congress,” Amazon Vice President Paul Misener said in San Francisco. “It’s the appropriate way and the only way California will be able to collect all of the sales tax owed by customers.”
Misener said Amazon plans to hire 10,000 workers in California and spend $500 million on facilities, including distribution centers, in the state. He said Amazon envisions “a variety of different kinds of facilities” across California over the next few years, though he would not elaborate.
Amazon severed its relationship with 10,000 California- based website operators who get fees from the company after the sales-tax requirement was imposed in June. The company then contended it no longer had a physical presence in the state, citing a 1992 U.S. Supreme Court decision that exempted businesses from collecting the levies unless they had a “nexus” to the tax state.
The Performance Marketing Association, a trade group for 25,000 Internet marketers, urged Brown to sign the bill. About 35 percent of its members lost at least half of their income due to California’s sales-tax law, Rebecca Madigan, the association’s executive director, said in a Sept. 22 letter to the governor.
“Once the legislation is signed into law, these 25,000 web-based entrepreneurs will be able to get back in business,” Madigan wrote.
The deal with Amazon also was backed by the California Retailers Association, a trade group ranging from Wal-Mart Stores Inc. (WMT) to local bookstores. Bill Dombrowski, the association’s president, said local sellers of music, books and other products have sustained huge losses to online merchants.
“We had to stop the bleeding,” he said in an interview. “We firmly believe this starts to stop it.”
The agreement with Amazon is projected to deprive California of $200 million in revenue from online sales taxes the state expected to receive between July 2011 and September 2012. In July, California revenue was $541 million short of projections, according to the state finance department, enhancing the prospect of major budget cuts early next year.
“The $200 million is a small part of the overall problem,” Brown said today. “We’ll handle this relatively easily. We’ll be hearing more about problems and challenges in the months ahead.”
Amazon rose 38 cents to $223.61 as of 4 p.m. New York time on the Nasdaq Stock Market.
To contact the editor responsible for this story: Mark Tannenbaum at firstname.lastname@example.org