Amazon.com, the Seattle-based retailer that is the state’s chief target, is fighting back with all the resources of a company whose stock market valuation is nearly $100 billion. In an unusual move that opponents say is a violation of the state constitution, Amazon is taking directly to voters its argument that it should not be required to collect sales tax.
Infuriated state lawmakers are responding with what some observers are calling “the nuclear option”: writing new legislation that goes after Amazon and other online retailers under an “urgency” clause. If they can get the new measure passed by a two-thirds vote before the end of the legislative session on Friday, it will trump Amazon’s efforts toward a voter referendum.
To sway a few legislators, Amazon is making a counterproposal: if California drops the tax issue for a few years, the retailer says it will build two warehouses in the state and hire 7,000 workers. In a state with 12 percent unemployment, that might seem an attractive offer.
“This is a game of chess with ultimately billions of tax revenues at stake across the country and strong competing values on either side,” said Tracy Westen, chief executive of the Center for Governmental Studies, a Los Angeles research group. “High drama for policy wonks.”
At its heart, the standoff between Amazon and California is simple: the state passed a law at the beginning of the summer requiring online retailers with a physical presence in the state to collect sales taxes. Amazon denies that its subsidiaries in the state, which include a unit that designed the Kindle, constitute such a presence.
The stakes go far beyond the $200 million the state is hoping to get from Amazon and other online retailers, money it has already put into its new budget. (Local communities stand to reap an additional $100 million.) Amazon fears that a defeat in California will sway legislators across the country, and that it will lose a critical pricing advantage. It is fighting a similar measure in New York in the courts.
Opposing Amazon are traditional retailers as big as Wal-Mart and as small as the neighborhood bookstore — the few that are left. “Amazon is killing our business in bricks-and-mortar stores,” said Bill Dombrowski, head of the California Retailers Association, which was the driving force behind the original law.
Amazon easily collected the half-million signatures necessary to put the issue on ballots next June. Since people will in essence be voting on whether to pay an additional 8 or 9 percent when they buy online, Amazon could easily triumph among voters who are watching their wallets. Democrats in the Legislature responded with an urgency bill, a rare tactic used only a few times a year.
“We’re not doing this lightly,” said State Senator Loni Hancock, a Berkeley Democrat. “But it seems like Amazon doesn’t really care about the State of California or the people whose lives are affected by whether or not we have enough money for schools and roads and to keep the libraries and parks open.”
Any Californian who buys a book or a DVD player from Amazon is supposed to pay a use tax when filing state taxes. In practice, however, few do. For years, the issue has been simmering. Then came the withering recession, and the economic calculus changed.
In the two months since the law took effect, Amazon has declined to start collecting sales tax in California. Once it submits the signatures for the referendum and they are verified, the law will be suspended until the vote.
Senator Hancock and other Democrats say they have stopped shopping at Amazon. “This is getting pretty acrimonious,” said the California treasurer, Bill Lockyer, who said he was also boycotting the retailer. “It’s snarly.”
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