Amazon, Overstock.com Jilt California Over Tax Spat

California governor Jerry Brown recently signed into law requiring out-of-state electronic retailers to collect sales tax on purchases from California residents.

Well, it didn't take long for the Web Empire to strike back. Amazon and Overstock.com immediately declared they were cancelled contracts with their respective California affiliates. This move impacts bloggers who generate income from the business they steer to web enterprises. Amazon is a significant player in this market. (Full disclosure: my site does not currently offer any advertising or refer readers to commercial sites for which I receive compensation.)

Amazon's dudgeon in this matter is both striking and troubling. The firm's spokesperson du jour on this matter, bearing the Orwellian title of Vice President for Global Public Policy, basically told the California government to drop dead. What's remarkable is that Amazon has as much power, and perhaps even more clout, than a state that generates the equivalent of the world's eighth largest gross national product. Ironically, given Amazon's and Overstock's formidable ability to create algorithmic solutions to transactional propositions, their ability to collect and tract sales tax is very much within their grasp. It's just not hard to do.

The California sales tax episode illustrates a disturbing trend. More and more, giant firms act as sovereign entities outside the control of the public and its elected officials. Often, these enterprises seem more like medieval dukedoms and appear stronger than the central government to which they would theoretically demonstrate some sense of fealty. They have money, something financially starving state and local governments dramatically lack. The portability of web-based businesses helps them curtly dismiss state regulations they don't want. Interestingly, the organized group that pushed for the California legislation was locally-based brick-and-mortar retailers. A number of them, interviewed in a useful Mercury News story, noted that the web-based firms were essentially tax-free oases. That reality put the brick-and-mortar folks what they characterized at an unfair competitive disadvantage.

As states begin to seek desperately needed revenue, Internet transactions are a likely candidate for taxation. Expect it to come to your state soon.