There has been a lot of news recently about the new decrease in sales tax rates here in California, but very little about a recent law signed by California Governor Jerry Brown that attempts to levy sales tax on internet sales of goods to California residents by out of state retailers. This new law, affectionately called the “Amazon Tax” actually reaches any out of state seller, not just, and attempts to compel them to collect sales tax if they use third part affiliates located in the state to sell or ship products.

These transactions were previously exempted, and this new attempt at taxing by the state has a very good chance of backfiring. As soon as the law went into effect, informed their 8000 California affiliates that they were terminating their affiliates’ contracts. Overstock .com is reported to be doing the same and it can be expected that most internet sellers of goods who previously worked through California affiliates will be sourcing those products out of state to avoid creating the “nexus” that subjects these transactions to tax.

Some sources have estimated the number of theses affiliates for all internet sellers at around 25,000! If that’s true, the potential scorecard for this new legislation would be:

Additional taxes collected – zero
California businesses damaged or destroyed – 25,000

Is it any wonder that the public wasn’t too concerned when the State Controller suspended legislator’s pay for failure to balance a budget?

Read more tax articles from Paul’s tax blog