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CA Sales Tax: Will Amazon Law Fill State’s Internet Shopping Cart?

author photo of Sylvia F. Dion

Hey California, here comes that sales tax revenue you’ve been waiting for!

That right! Later this week - on September 15th, to be exact - California’s temporarily repealed “Amazon Law” will go into effect, which means that Amazon and many other remote retailers will be required to charge California customers tax on their on-line purchases.

If you’ve been following my contributions to the blog this last year, you may recall that I reported on the enactment of California’s “Amazon Law” and the flurry of excitement that surrounded one of the country’s most explosive Amazon Laws. Yes, the California Amazon Law story was THE Amazon Law story of the summer of 2011. Which is one reason I wrote not just one, but THREE separate posts covering the hullabaloo (yes, hullabaloo!) that followed.

To quickly recap, on June 28, 2011, Governor Brown signed California’s Amazon Law, Assembly Bill x1 28 (AB x1 28), into law. Even before the law's effective date - just a few days later, July 1, 2011 - Amazon announced it would sever its contractual relationship with its tens of thousands of in-state marketing affiliates, an action the Company had taken in several other states that had enacted similar laws. (But as I’ll explain in a bit, the new law included other nexus expanding language that would attribute nexus to Amazon regardless of whether those marketing affiliate contracts were terminated or not.)

Next came Amazon's (and Overstock's) blatant refusal to comply as both retailers continued to make sales to California customers sans sales tax even after the law's effective date. Of course, it wasn’t long before Amazon revealed its next course of action, petitioning for a voter referendum which would allow California voters to decide if the law should be repealed permanently! Amazon spared no expense promoting its “More Jobs Not Taxes” referendum – heck, company representatives practically stood on the steps of several brick-and-mortar stores collecting the 500,000 plus signatures that would be required to put the issue on ballot. Next came a failed attempt by California legislators to pass an urgency bill which would have trumped Amazon’s voter referendum efforts had it passed. This was followed by Amazon’s negotiation offer to build warehouses and create jobs in exchange for a repeal of California’s Amazon Law. Finally, California gave in - at least temporarily – with the signing of AB 155, a compromise bill that retroactively and temporarily repealed the provisions of California’s Amazon Law until at least September 15, 2012.

Whew! I told you it was THE Amazon Tax story of last summer. And I’ve only glossed over these events. If you weren’t a reader at this time last year (or just want to revisit these events), I invite you to read my three prior California Amazon Tax posts, “California Enacts Explosive ‘Amazon Law’!”, 7/22/11; “Amazon Law (& Order). The California Season Summary…”, 9/14/11; and, “A Tale of Two States -The ‘Amazon Law’ Saga Continues”, 10/4/11. I promise you’ll be entertained as the series of events that surrounded California’s Amazon Law rivaled the best prime-time TV drama.

But enough with the drama, there’s an Amazon Law that will go into effect in California on September 15th – and its impact won’t be limited to mega on-line retailers, like Amazon and Overstock. No, many internet retailers – and that includes many smaller internet retailers – may be required to register and collect California tax on sales to California customers.

California’s Amazon Law Includes Both Click-Through and Affiliate Nexus Provisions

What exactly does the soon to be re-instated California Amazon Law say, and which out-of-state (remote) retailers will be impacted? If you’re an out-of-state retailer who sells to California customers, or a CPA, attorney or consultant who advises customers or clients who may be impacted by California’s new law – here’s what you need to know.

Incidentally, the provisions of AB x1 28, and a provision in AB 155 that increased the dollar threshold that remote retailers must exceed, have now been incorporated in California Regulation 1684. Collection of Use Tax by Retailers. Specifically, these new provisions incorporated both click-through nexus and affiliate nexus language into California's regulation. (Note that the term “affiliate nexus” can be confusing because click-through nexus deals with a remote seller’s contractual relationship with in-state marketing affiliates. But in a legal sense, affiliate nexus means nexus by virtue of common ownership of entities operating in the nexus state.)

Click-Through Nexus Provision

California’s newly amended regulation requires that retailers “engaged in business” in California register with the California Board of Equalization (BOE) and collect tax from California purchasers. The new law states that a retailer will be considered to be engaged in business in California "if the retailer enters into an agreement or agreements under which a person or persons in this state, for a consideration that is based upon completed sales of tangible personal property, whether referred to as a commission, fee for advertising services, or otherwise, directly or indirectly refer potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet website, or otherwise", provided if that within the preceding 12 month period, the retailer’s total cumulative sales of tangible personal property (TPP) to California consumers exceeded $1,000,000 and the retailer’s total cumulative sales of TPP to California customers which originated from referrals of the compensated person or persons exceeded $10,000. (Cal. Reg. 1684(c)(3)(A),(B))

In a nutshell, an out-of-state retailer whose California compensated marketing affiliates generated more than $10,000 in California sales and that had more than $1,000,000 in total California sales (regardless of how those sales were generated) is considered a retailer engaged in business and subject to California’s new law.

Affiliate Nexus Provision

The new law also states that retailer is “engaged in business” in California if the retailer is a member of a commonly-controlled group and a member of a California combined reporting group that includes another member of the retailer’s commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with tangible personal property to be sold by the retailer, including, but not limited to, design and development of tangible personal property sold by the retailer, or the solicitation of sales of tangible personal property on behalf of the retailer. The regulation also clarifies that “services” performed in connection with the TPP sold by the retailer also include services that help the retailer establish or maintain a California market for sales of tangible personal property; and services performed in cooperation with a retailer if the retailer and the member of the retailer’s commonly controlled group performing the services are working or acting together for a common purpose or benefit. (Cal. Reg. 1684(c)(2)(A),(B)(i)-(ii))

In effect, this affiliate nexus language means that nexus will be attributed to an out-of-state retailer who is a connected to an in-state corporate parent, subsidiary or brother/sister corporation (commonly-controlled/California combined group member) if the California based related company performs services, e.g., design, manufacturing, fulfillment, in connection with the TPP sold by the out-of-state retailer or whose California activities help the out-of-state retailer establish or maintain a California market. It's this additional affiliate nexus language that will cause some out-of-state retailers to be required to register to collect California sales tax even if they have no marketing affiliates in the state.


Yes, September 15th is right around the corner! Remote retailers who may be subject to California's tax collection requirement, should register immediately. To answer questions and help out-of-state retailer's comply with the re-instated law, the California BOE issued Special Notice, L-324, New Use Tax Collection Requirements for Out-of-State Retailers Operative September 15, 2012, and has established a Frequently Asked Question (FAQ) webpage on its site. Retailers subject to California's new use tax collection requirements can register via California's electronic registration (e-reg) system. (A link to the e-reg system can be also be found in the Special Notice and at response #20 at the FAQ webpage.)

Will California see an influx of sales tax revenues? California - a state dealing with a serious deficit issue - is certainly betting on it! Estimates are that California is expecting the new law to generate upwards of $200,000 million in sales tax revenues, with about $85 million coming for Amazon alone. A recent Los Angeles Times news story reported that California is beefing up its enforcement division and plans to hire nearly 100 new state auditors, lawyers and other specialists over the next three years in order to "crack down on renegade Internet merchants who don't collect sales taxes."

And what about California customers and their on-line spending habits. Will California residents curtail their internet shopping habits? I had to chuckle over another recent LA Times story which reported that Californians are spending frantically in the days before the law goes into effort - ordering surpluses of items whether they need them or not, just to avoid being charged sales tax. (See "Californians spend freely on before sales tax deadline", LATimes, 9/5/12) These folks can purchase all they want right now - but as I've said before, they already owe the use tax!! (Kudos to my SALT colleague, Rusty Little, who tweeted that "Just for fun, CA should send notices to the people names in the article.") My guess is that Amazon isn't too worried - they'll just find other ways to entice customers to keep making internet purchases, such as offering same day delivery to customer's homes or to locker spaces located in convenience stores.

Anyway, California's Amazon Law goes into effect on September 15th. I guess California's message to remote retailers can be summed up as "Register, Collect or Else". As I often say when as I conclude a post - this will be an interesting development to watch so "don't touch that dial". There's more to come!


Missed my last post? Catch it here: “Marketplace Equity vs. Marketplace Fairness. Is Either the 'Right' Solution?"

What’s up next? more updates on State Amazon Laws and on the Federal remote seller proposals, new posts on sales tax issues of other e-Commerce areas (e.g., "Groupons", "Cloud Computing"...)

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.


8 Responses to CA Sales Tax: Will Amazon Law Fill State’s Internet Shopping Cart?

  • Posted by Dave on September 14, 2012 1:07am:

    Good article - There are a large number of sellers that are subject to this:
    ... an out-of-state retailer whose California compensated marketing affiliates generated more than $10,000 in California sales and that had more than $1,000,000 in total California sales (regardless of how those sales were generated) is considered a retailer engaged in business and subject to California’s new law.
    $1M in CA is not a huge threshold and will catch many off-guard on this. Keep up the good posts.

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on September 14, 2012 2:37am:

      Thanks for the comment, and YES, I couldn't agree more! $1M in California revenues is not a huge threshold. Many non-Amazon's and non-Overstocks will definitely be impacted by California's new (or should I say, reinstated) Amazon Law.

  • Posted by Kent on September 13, 2012 8:16am:

    Great article! Well written and very helpful.

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on September 14, 2012 2:35am:

      Kent, Thanks for your kind words! I'm glad to hear the post was helpful. I have a feeling I'll be writing another post on California's Amazon Law before long. Something tells me there's more to come, so stay tuned. Thanks again!

  • Posted by Author photo of Sylvia F. DionSylvia F. Dion on September 13, 2012 4:11am:

    Annette, Thank you for the comment. VERY good point about the use tax look-up table. If the great majority of on-line purchases will now be taxed at the time of sale, California's use tax table should be adjusted. California personal income tax filers should definitely be on notice once California issues the 2012 California forms 540/540A. (2011 form for comparison -> And it will will definitely be interesting to see how Amazon's sales tax collections add to the California revenues - California certainly needs revenue!

  • Posted by Author photo of Annette NellenAnnette Nellen on September 13, 2012 2:46am:

    I think it will be interesting to see if there is any adjustment in California's look-up table for determining your use tax obligation to report on your personal income tax form due to the reality that Amazon will be collecting use tax starting 9/15. How big of a role do California's purchases from Amazon play in generating California's $1.1 billion sales/use tax gap?

  • Posted by James on September 12, 2012 12:52am:

    For now, Amazon is facing a use tax collection requirement -- not sales tax -- but that is likely to change to sales tax once they begin shipping from a new warehouse in California. This distinction makes a difference to business customers who store, use, or otherwise consume TPP purchased from Amazon!

    • Posted by Author photo of Sylvia F. DionSylvia F. Dion on September 12, 2012 1:29am:

      Thank you so much for your comment. And you are correct, it is use tax collection requirement as is detailed in California's new Notice - Special Notice, L-324, New Use Tax Collection Requirements for Out-of-State Retailers. However, for individual purchasers, the collection will imposed at the time of sale and thus, individual purchasers will see it no different than a sales tax. For this reason, I thought it would best to stick with the term "sales tax" in the post. Thanks again!

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