California – Click-Through ("aka" Amazon Law) Update

On September 23, 2011 California Governor Jerry Brown signed Assembly Bill 155 (referred to as the Amazon Law) in a compromise with Amazon.com that gives the world’s largest online retailer a one-year reprieve from collecting sales tax on Internet transactions in the state. As a result, Amazon backed off of its efforts to get a referendum to overturn the law on the June 2012 ballot.

The “Amazon law” originated in the New York legislature in 2008 as a direct attack on Amazon.com and the multiple web-linking agreements it maintains with New York businesses, while maintaining no physical presence in the state. Amazon’s only connection to the state was the web-linking advertising agreements. It maintained on the webpages of New York-based retailers allowing browsers to “click-through” to Amazon’s website. New York realized sales tax dollars were not being remitted to the state on sales made by Amazon to New York residents because without a physical connection in the state, Amazon was not obligated to collect the New York sales tax.

Multiple other states are currently considering similar legislation as a stop-gap measure in order to decrease the deficit budgets the states are currently facing.

Under California’s “Amazon Law,” if a federal law governing the imposition of use tax collections is not enacted on or before July 31, 2012, then the provisions of Assembly Bill 155 that expand the types of out-of-state retailers that are requires to register with the State Board of Equalization to collect California use tax will be operative September 15, 2012.

Should you have any questions about how the Amazon rulings may affect your business, please contact your Marcum State and Local tax advisor.