California Governor Jerry Brown signed into law a bill that will require out-of-state retailers to collect California sales tax from residents.
The law, which took effect upon signing, is an attempt to raise revenues by collecting tax from consumers, and is “a common-sense idea,” Gov. Brown told the Los Angeles Times.
While the new law is predicted to raise more than $300 million per year in revenue for state and local governments, e-tailers such as Amazon and Overstock announced that they plan to stop using California-based marketing affiliates.
Affiliates receive commissions for referrals of click-through customers, but because they are based in the state, Amazon would be forced to abide by the law, which applies to retailers with a physical connection to California – such as offices, warehouses, or employees.
The Performance Marketing Association, the national trade association representing affiliate marketers, bemoaned the law’s passage, noting that it put 25,000 California businesses at risk.
“These California web-based companies earn income from ads placed on their websites. In 2010 they paid $151 million in state income taxes. The result of [the new law] will mean these small businesses will go out of business or move out-of-state to preserve their incomes. As a result, California’s current deficit and economic outlook will get worse,” the PMA said in a statement.
To read the new law, click here.
Why it matters: California is the latest state to pass a law attempting to tax Internet sales. The laws have been controversial, with lawsuits challenging their constitutionality in Colorado as well as in New York and North Carolina. A New York trial court judge upheld the state’s law, a decision currently on appeal by Amazon.