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Amazon settles sales tax spat with Governor Moonbeam

etailer drops ballots to get one year tax break

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California governor Jerry Brown and Amazon have settled their long-running dispute over the state’s urge to charge the etailer sales tax.

In June Governor Brown, who is seeking to tackle California’s staggering debt problem, passed AB X1 28 - a bill to collect sales tax from online etailers like Amazon. The company vowed to fight the measure with a ballot initiative next year to kill the plan.

But the two sides have now reached a deal. Under the terms of the agreement the state has agreed to hold off on collecting sales taxes until September 15, 2012. This will leave open a window for the passing of a national law on the issue, which could be more favorable to Amazon (what with all the lobbyists in operation in Washington) and would remove the need for the company to negotiate with other states who could introduce their own laws.

In return Amazon has agreed to create 10,000 new full-time jobs in California, and employ another 25,000 seasonal workers by 2015. It has also agreed to drop its ballot measure to overturn the law, despite spending millions on it thus far. Amazon did not say if California workers would be subject to the same horrific conditions as some of its other staff.

“A prolonged, costly ballot battle is a benefit to no one,” said Brown in an official statement. “This landmark legislation not only levels the playing field between online retailers and California’s brick-and-mortar businesses, it will also create tens of thousands of jobs and inject hundreds of millions of dollars back into critical services like education and public safety in future years. It’s time for Washington to follow our lead and forge a bipartisan national solution.”

Amazon and others have got away with paying little or no sales tax for online commerce thanks to Supreme Court rulings that companies should not have to pay sales tax in states where they have no physical presence. This essentially gave online vendors a built-in price advantage, and it’s something that they have lobbied hard to keep. Bricks and mortar retailers however have been pushing equally hard on the other side for the elimination of what, to them, is an unfair subsidy.

“Amazon's concession to finally begin collecting sales tax in California is a groundbreaking moment that sends a strong message to Washington that it is time to stop giving special treatment to a select few,” says a statement from the California Retailers Association president Bill Dombrowski. “All retailers deserve the chance to compete, grow and create jobs on a level playing field, without government picking winners and losers.”

The California government estimated that the lack of sales tax from Amazon was costing around $83m a year in lost revenue, and with the budget deficit currently running at around $10bn then every little helps. Other states will also be looking at the case and seeing if they too can get a similarly good deal for their constituents. ®

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