Why California is circling the drain: the Amazon Tax Effect

Posted by: Phineas on August 16, 2011 at 1:01 pm

**Posted by Phineas

I’ve written before of the self-defeating, bloody-minded stupidity underlying my state’s recent passage of a law forcing internet retailers with in-state affiliates to collect sales tax. (The “Amazon tax,” for short.) A few days ago, Portfolio.com provided a good example of the unintended consequences of this law with the story of a young, successful entrepreneur who left for Texas because the business environment here wasn’t worth the trouble:

Unnecessary Paperwork: The state mandates that all businesses that gross over $100,000 a year set up an account where they report quarterly on the sales tax that customers pay for goods sold. Although her company sells services, which are not taxed, rather than goods, the state told Douglass she would still have to fill out the laborious paperwork four times a year.

  • “When I closed the account (by going into a local office and spending nearly an hour explaining my situation), they forced it open again and sent me a nastygram explaining that I would owe fines for not filing the quarterly report,” wrote Douglass.

High Taxes Plus Business Fees: The state charges an income tax of 10 percent on all income over $47,055, which comes on top of federal income tax of 25 percent on income over $34,000. On top of that, state residents pay sales tax ranging from 8 to slightly over 9 percent.

  • “I paid enough in income tax for 2010 to the state of California alone to hire another new worker for my business,” wrote Douglass.

The state also charges an annual fee of $800 for a business to be a corporation in California.

The Amazon Tax: The final straw for Douglass, though, came when Jerry Brown, the state’s governor, signed a budget that included the so-called “Amazon tax.” The argument is that if Amazon has affiliates in California it has to collect sales tax. Douglass, who sells products on Amazon as a modest side business that yields a “few thousand dollars per year,” is one of the affiliates. Amazon cut California affiliates out because of the law, and according to Douglass, both she and the state of California lost out because of Brown’s move, since she paid income tax on the money she made via Amazon.

Douglass notes that she chose Texas because because it is one of only four states (the others are Nevada, South Dakota and Wyoming) that has no personal income tax, plus no corporate income tax.

(Emphases added)

In other words, not only did a state desperately in need of new jobs lose out on at least one (and how many others at other companies?), but the state didn’t just not get new revenue, it lost existing revenue, an outcome anyone with sense would have foreseen.

Times are bad enough without Sacramento aiming a shotgun at the state’s feet and pulling the trigger.

via Big Government

(Crossposted at Public Secrets)

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4 Responses to “Why California is circling the drain: the Amazon Tax Effect”


  1. Dave says:

    Unfortunately the govenor’s solution is to raise more taxes. He recently stated that there has to be another 10 billion in taxes somewhere in the State and I suppose he aims to find it. His fellow democrats are no better, they want to eliminate Prop 13 for corporations, raise the corporate tax and raise taxes on “the rich”. Given the majorities there getting in California these days they’ll probably get the chance to do all three. Bet it makes matter wores.

  2. Carlos says:

    California shot itself in the foot when it elected Pat Brown (Gerry’s daddy) decades ago.

    With only one exception since then, they have consistently kept shooting themselves all the way up that leg, shot themselves in the other foot and leg, and are well on their way to blowing out whatever innards they have left.

    And the worst part? Conservatives keep getting blamed for all the garbage leftists/liberals/statists have dumped on them for all those decades. They just can’t seem to grasp the concept that votes have consequences.

  3. Steph says:

    :(( How true! They keep it up and there will be only the unemployed and illegals living here. Let them tax those folks! Not only that but foreclosures are still high because of unemployment as well as housing values plummeting. Sacramento doesn’t get it and shoot themselves all the time. It is not family-friendly so families are moving out as fast as they can afford to do so. Rent a truck to move…one-way? Surcharge as high as $2k. They have to pay somebody to bring it back! I hate what is happening here.

  4. Kate says:

    The same legistlation is making the rounds of Harrisburg, PA….let’s hope the Republican majority gets it right.