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Amazon Law (& Order). The California Season Summary…

author photo of Sylvia F. Dion

Following a series of events that rival the drama, suspense and negotiating seen on prime-time TV, it appears as though California’s “Amazon Law” may soon be no more! At least temporarily, that is! But before discussing the latest developments, let’s go back to where this drama began.

If you caught my original post on California’s “Amazon Law”, you’re probably not surprised by the sequence of events that have transpired as this law was destined for controversy right from the start! My concluding thoughts in that original post were, “like a well-written soap-opera, this story is one that will go on for some time. Don’t touch that dial – you won’t want to miss what happens next in this California “Amazon Law” story.” (See my 7/22/11 post, “California Enacts Explosive ‘Amazon Law’! ”)

And without a doubt, this drama has lived up its preview!

What was it about California’s “Amazon Law” (ABX1 28) that made it prime for drama? On one hand, California’s law contained the same presumptive-nexus, “web-linking” language found in the “Amazon Laws” enacted in other states. But ABX1 28 went beyond the typical web-linking language by expanding the definition of a “retailer engaged in business” in California to include retailers that were members of a commonly-controlled/California combined reporting group which also included corporate members that performed in-state services in connection with the tangible personal property to be sold by the out-of-state retailer. (e.g., design, development, fulfillment) Still, it wasn't so much the language in ABX1 28 that fueled this drama, as what was at stake for both California and Amazon.

So where did all the drama begin? First, ABX1 28 became effective on July 1, 2011, almost as soon as Governor Brown signed it into law. But even before the ink was dry on Governor Brown’s signature, Amazon had informed its 10,000 plus marketing affiliates (“Amazon Associates”) that it would terminate their contracts and would no longer compensate them for referrals that came through web-links on their websites. For some California affiliates, this would translate into a huge loss of revenue, and California companies, such as Santa-Monica based, began exploring the possibility of relocating elsewhere. (“ The California Internet Tax Law and Unintended Consequences”,, 6/30/11)

Next came Amazon's (and Overstock's) blatant refusal to comply. Despite the new law’s expansive nexus language and immediate effective date, both e-tailers thumbed their nose at it and refused to charge their California customers sales tax. California tax officials didn’t seem totally surprised. When asked about her thoughts on this development, Betty Yee, a California Board of Equalization member, was quoted as saying "They're not intending to comply, by all indications. So, we'll bill them at the end of this quarter, based on estimates either they provide or we come up with from other data sources. Then, if they don't come forward and pay, we'll consider other courses of action". (“Amazon, Overstock thumb nose at California tax”, SFGate, 7/3/11)

Then just days after the new law's effective date, it was revealed that Amazon was already planning its next course of action – a voter referendum which would allow California voters to decide whether the law should be repealed permanently! Amazon was given until September 27th to gather approximately 505,000 signatures – obtaining these would suspend the law and make it unenforceable until after a ballot vote in June of 2012. In the weeks that followed the petition's approval, Amazon was criticized for gathering signatures literally on the front steps of its brick-and-mortar competitors, as well as for pumping in more than $5 million towards its “More Jobs Not Taxes” referendum. (“Amazon gathering anti-tax-law signatures outside retail stores”, LA Times, 8/6/11. “Amazon ups the ante in Internet sales tax fight”, LA Times, 8/23/11)

As it became evident that Amazon’s petition efforts would prove successful (reports were that Amazon would have the 500,000 plus signatures well before the September 27th deadline), and California began to realize the potential loss of the $200 million that had been anticipated to materialize once Amazon and other on-line retailers were required to assume the role of sales tax collectors, tax legislators took unusual and extreme action. They re-wrote the law under an “urgency” clause. If the urgency bill had passed, it would have trumped Amazon’s efforts towards a voter referendum - but the bill failed, by just five votes, to garner the two-thirds votes required for the bill to pass. (“In California, Amazon Pushes Hard to Kill a Tax”, New York Times, 9/4/11)

But Amazon didn’t just sit back casually and wait for the outcome. As it had done in other states, Amazon offered a negotiation package that included building distribution centers that would employ thousands of Californians and dropping its referendum efforts in exchange for postponing the new law’s sales tax collection requirement until 2014. When California's Democratic legislators weren't impressed, the offer was rejected.

AB 155 - A Compromise Solution

What happened next emphasizes just how important it was for both California and Amazon to reach a compromise. In the very last hour of the 2011 legislative session California legislators, by an overwhelming majority, voted in favor of AB 155, a compromise bill. The highlight of AB 155, which modifies California Revenue and Taxation Code Sec. 6203, is that it temporarily and retroactively repeals the nexus expanding provisions of ABX1 28! How long this repeal will last - or should I say, how long before Amazon and other remote retailers that meet certain thresholds have before they are required to start collecting sales tax - depends on several factors; 1) whether federal legislation, such as the Main Street Fairness Act now pending in Congress, is passed, 2) when federal legislation is passed, and 3) whether California elects to implement an enacted federal solution. More specifically:

  • If federal legislation authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller is enacted by July 31, 2012, and California does not, by September 14, 2012, elect to implement the federal legislation, the repeal of ABX1 28's nexus expanding provisions will remain in effect until January 1, 2013.
  • However, if federal law is not enacted on or before July 31, 2012, the repeal of ABX1 28's nexus expanding provisions will only remain in effect until September 15, 2012.

What this means is that Amazon could enjoy at least a one year reprieve from collecting California sales tax even if the company re-commissions its in-state marketing affiliates immediately. Another significant change introduced by AB 155 is that it increases the "$500,000 in California sales in the prior 12 month" threshold in ABX1 28 to $1,000.000. That is, once the repeal of ABX1 28 is lifted, remote retailers will be presumed to have sales tax nexus by virtue of a commission based web-linking arrangement if they made total sales of $1,000,000 or more of tangible personal property to California customers within the prior twelve months and paid more than $10,000 in commissions to their California affiliates.

Final Thoughts

The compromise solution isn't a done deal yet. The suspense continues as AB 155 is currently on Governor Brown's desk awaiting his signature. While he's publicly voiced his disappointment in the outcome (understandably, given California's huge deficit and unemployment issues), the general feeling is that he'll approve the bill by the October 7th deadline given the overwhelming support it has drawn, not just from the California legislature, but from Board of Equalization members, such as George Runner, who recently disclosed that not a single out-of-state e-tailer had registered to collect sales tax since California's "Amazon Law" was passed, and of course from Amazon, who considers the compromise bill a "win-win" and has promised to support a federal solution. But here's an interesting note, the pending federal solution currently in Congress is the Main Street Fairness legislation (S. 1452 and H.R. 2701) introduced by Congressional Democrats in July. Although a few Republicans, such as Senators Bob Corker (TN) and Luke Kenly (IN), have voiced their support of the Main Street Fairness legislation, no Republican has formally added their name to the roster of supporters on either bill! Another note is that the Main Street Fairness legislation, even if passed, would only grant the authority to require out-of-state retailers to charge sales tax to full-member Streamlined Sales & Use Tax Agreement (SSUTA) states. California is not currently one of the 21 SSUTA full-member states. So at least at this time, the Main Street Fairness legislation wouldn't apply in California. While these latest developments may have been the season finale - one thing is for sure, this drama isn't done yet!


Missed my last post? Catch it here, Internet Sales Tax Confusion. Myths or Misperceptions?

What’s up next? An Overview of Affiliate Marketing and How “Amazon Laws” Affect Small-Medium Businesses, More Updates on States “Amazon Laws” (exact titles TBD)

About the Author: Sylvia Dion is the Founder and Managing Partner of PrietoDion Consulting Partners LLC, a SALT advisory firm which provides SALT services to businesses in the U.S. and throughout Europe, Canada, Latin American and Australia. Since 2011 Sylvia has served as a contributor to the SalesTaxSupport blogs and currently blogs on Internet Sales Tax, U.S. Sales Tax for Foreign Sellers, and Massachusetts Sales Tax. Sylvia has written articles for State Tax Notes, Bloomberg BNA and other premier tax journals. You can follow Sylvia on twitter and on Google+ and can contact Sylvia via e-mail at

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. Other contact options (and Consultation Requests) are also available on Sylvia's associated Firm Profile page.

Other recent “Internet Tax / E-Commerce” posts by Sylvia F. Dion, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.


7 Responses to Amazon Law (& Order). The California Season Summary…

  • Posted by Umesh on August 13, 2012 6:20pm:

    Hello Sylvia,
    Great article n the whole saga. However I'm not clear on one point, may me my bad but what would be the exact date Amazon would implement the rule to collect the tax, is it Sept, 1 2012 or end of the month.

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on September 10, 2012 1:19am:

      My apologies for the late response to your question. First, I'll be authoring a new post on California's soon to be re-instated Amazon Law - look for that one coming very soon. Now, to answer your question - the effective date is actually going to be September 15, 2012. AB 155, which retroactively and temporarily repealed the provisions of AB x1 28 stated that if federal legislation (such as the Marketplace Equity Act or the Marketplace Fairness Act) was NOT enacted by July 31, 2012, then the provisions of AB x1 28 (California's Amazon Law provisions) would be reinstated on September 15 2012. Note, as you probably know, none of the federal proposals were enacted by July 31st (but they still being considered by the U.S. Congress - so there is still a possibility that a federal solution my be enacted by the 112th Congress.) Hope this helps. Thanks for taking the time to read the post and offering your question.

  • Posted by A on August 2, 2012 3:56am:

    I'm thinking to launch an ecommerce business, with offices in SF but fulfilllment done out of state by an outsourced provider.
    From what I understand, there are ways to structure the company to avoid a tax nexus in CA... (maybe subsidiary or some ither method). How do I learn about these? I prefer to work in the SF area rather than relocate, but could make the HQ somewhere else.

  • Posted by Michael on October 6, 2011 1:26am:

    Hi Sylvia. Great coverage of the Amazon/Streamlined saga. I'm on the BAC Board for the SSUTA (formerly a seated member of the Governing Board). Luke Kenly is definitely a supporter of the MFSA, but he's a state senator rather than a U.S. Senator (sitting President of the SSTA Governing Board). There are many Republican state senators and Reps that support the MFSA (many of whom now sit on the Governing Board of SSUTA). The disconnect between Republicans at the state and federal levels has been a topic of discussion at the Governing Board meeting in Seattle, currently under way.

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on October 6, 2011 6:49am:

      Thank you for your kind words! It's an area that I'm quite interested in and am following closely. Thank you also for the clarification on Senator Luke Kenly. I had read that he "voiced" his support of the MSFA and knew of his GOP status. Actually, I will make a modification to the post in a minute for the benefit of all readers. It's very interesting how the lack of Republican support at the federal level compares with that at the state level. I'm not sure if you caught my most recent post (published on the blog on 10/4/11 ), "A Tale of Two States - The 'Amazon Law' Saga Continues", but in that post I give an update on the California drama, and discuss Michigan's recent introduction of its Amazon legislation, H.B. 5004. As you're probably aware, H.B. 5004 was introduced in the Michigan House by State Representatives Kowall, a Republican, and Ananich, a Democrat, and is co-sponsored by 18 additional Michigan Representatives, the majority of which are Republicans! Talk about bi-partisan support! You're correct in that this is a "saga" indeed. As I mentioned in a reply to another reader's comment, we just might be witnessing "state tax history" in the making. Thanks again!
      Sylvia Dion

  • Posted by Lorraine on September 18, 2011 2:48pm:

    Hoping Governor Brown signs! Please keep us posted

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on October 2, 2011 11:06am:

      Thanks for your comment. As you may have already heard, Governor Brown did move forward with the signing of California AB 155. He signed on 9/23, well in advance of the October 7th deadline. So at least for the time being, Amazon and other on-line retailers with no nexus to California will not be required to collect sales tax. I'll be adding a new post this week with more on this and other "Amazon Law' developments. Thanks again for interest.

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