Your eyes on California Government

SEPT. 23, 2011

By JOHN SEILER

Today Gov. Jerry Brown signed into law AB 155, the Amazon compromise bill. It suspends for a year ABX1-28, the so-called “Amazon tax” that was imposed in late June on sales by out-of-state companies with “affiliates” in California.

These “affiliates” can be large companies. But commonly they are small Mom and Pop operations that use the on-line sales machines of Amazon and other companies to sell goods. The goods actually are not shipped by the affiliates. Rather, the affiliates put up a Web site adverting a good. Once the sale is made, the good is shipped  by Amazon or another company.

After ABX1-28 was passed in June, Amazon fired its estimated 10,000 affiliates in California. These now will be hired back by Amazon — at least temporarily. And Amazon has said it now will build a distribution center here. Currently, it has none in California.

Other companies also fired their affiliates, as I reported earlier this month.

ABX1-28 was supposed to raise $200 million a year. But as state Board of Equalization Member George Runner has pointed out, with so many businesses killed, it likely could reduce overall tax receipts.

The new bill, if it goes into full effect, could bring in not only the $200 million, but $1 billion a year from Amazon and other big online retailers, according to a Board of Equalization estimate.

No one knows if the new bill, AB 155, will bring back most of the affiliates that closed up shop or left the state. It may already have done permanent damage to state companies and jobs.

The AB 155 compromise also led Amazon to shelve a ballot initiative it was advancing to repeal ABX1-28.

Today Brown himself enthused about his signing of AB 155, “A prolonged, costly ballot battle is a benefit to no one. This landmark legislation not only levels the playing field between online retailers and California’s brick-and-mortar businesses, it will also create tens of thousands of jobs and inject hundreds of millions of dollars back into critical services like education and public safety in future years. It’s time for Washington to follow our lead and forge a bipartisan national solution.”

Federal Action

And there’s the rub. With anti-tax Republicans in charge of the U.S. House of Representatives and an election coming up, it’s unlikely “Washington,” in Brown’s parlance, would pass a tax increase. The Taxpayer Protection Pledge of Americans for Tax Reform has been signed by 241 representatives and 41 senators in the U.S. Congress. That’s enough to prevent any tax increase, including a federal Amazon tax.

Moreover, the Republican-controlled House just isn’t going to care about a Democratic governor and Legislature in California trying to squeeze money out of Amazon and its affiliates. House Republicans know they hold their majority thanks to the Tea Party’s anti-tax activism.

And should Republicans win the presidency and the U.S. Senate next year, they will do so because of more Tea Party activism. Controlling the whole show — the presidency and both houses of Congress — would make Republicans even less likely, if that’s possible, to make happy California Democrats.

California’s insulated politicians don’t realize how much the rest of the country, including Democrats, holds them in contempt.

It may be that Amazon out-foxed Brown and the California Legislature.

Tax Blowback

However, AB 155′s wording includes this section:

Require the Director of Finance, on or before August 15, 2012, to certify in writing to the Governor, the Senate Committee on Rules, the Speaker of the Assembly, and the State Board of Equalization (BOE) whether or not federal law has been enacted on or before July 31, 2012, authorizing states to require remote sellers to collect taxes. 

If that requirement is not met, then the Amazon tax imposed by ABX1-28, but lifted by AB 155, again would be imposed, “September 15, 2012, if such federal law is not enacted.”

So, we could be back to Tax Square One a year from now.

Moreover, if Amazon wanted to get clever, it could object on a constitutional matter: that only the Legislature, not the BOE, could impose the tax. Such a appeal could tie up the measure in court for months or years.

There’s also this warning by Runner, who has been the state politician most sensible on this issue:

I’m glad the Governor signed compromise legislation today to help get some California affiliates back to work and bring thousands of Amazon.com distribution jobs to California. That’s very good news.

Unfortunately, this legislation is by no means a cure-all. It does nothing to solve the long-term problems created by the Legislature’s botched efforts to compel out-of-state retailers to serve as California’s tax collectors.

Absent a federal solution, which is highly unlikely in such a short time frame given all of the competing interests, we’ll be right back in the same mess in a year. The State of California will again be killing California jobs, driving away investment and inviting costly litigation. 

Let me be clear: this compromise legislation, while welcome, provides only a short-term delay to a bad law that will never produce the revenues, nor the level-playing field, its proponents imagine.

Economy Crashing

Brown’s signature on AB 155 also comes as more evidence arrives every day that the economy is crashing. No school of economics, even Keynesianism, says increasing taxes are a good idea in a recession or depression.

For the week, the Standard & Poors 500 index crashed 6.6 percent, its worst performance since the October 2008 panic.

The Greek debt crisis — often compared to California’s — is melting down the European Union.

Even China’s economic juggernaut is slowing down.

Brown seems to be living in the pre-commercial Internet, pre-iPhone era of his first governorship in the 1970s.

Instead of preparing California for the worsening economic crisis, by signing AB 155, Brown has cast even more uncertainty over the state.

Tags: AB 155, ABX1-28, Amazon tax, California budget, Jerry Brown, John Seiler, tax increase, Taxes