The Gravy Train is Over : Amazon starts collecting sales tax on California customers

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Last Saturday, a new California law went into effect that forces and other online retailers to start charging sales tax to all California customers. Specifically, the law states that any out of state business that “sells more than one million dollars in merchandise sales to California customers will be required to collect sales tax”. Before this law, if a business did not have a physical presence in a state, it was not required to collect sales tax from customers purchasing items in that state. This rule was derived from a 1992 Supreme Court decision which dealt with mail order merchants.

The legal wrangling behind this law has been going on for many years. For large online retailers, not charging sales tax to its customers became a competitive advantage as it effectively gave customers a 7-10% discount as compared to shopping in-store. But some felt that this gave an unfair advantage over brick and mortar stores who couldn’t make use of this tax workaround. Additionally, the state of California was missing out on about $250 million of sales tax a year from online purchases, so the push from the California government was not all that surprising.

Several existing organizing systems will change because of the new law. For large companies like Amazon, the only change they’ll have to make is to their existing algorithm that determined whether a customer should or should not be charged sales tax. For smaller online retailers, a whole new organizing system may have to be implemented in order to account for the new tax laws. And for California’s state tax agency, they’ll have to expand their organizing system to keep track of all the companies that don’t comply with the new regulation.

How this will change the landscape of the retail business remains to be seen. Will lose its dominant foothold over internet sales now that customers have to pay sales tax? Will California’s economy pull itself from bankruptcy with the influx of new money (doubtful)? In this writer’s opinion, from a moral standpoint, this new law is the right move, but that doesn’t mean he’s happy about it.

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