California Senate Passes Amazon Tax

February 22, 2010

Below we note that Virginia is considering an “Amazon tax,” which imposes a tax collection obligation on companies not present in a state. It’s on the table in a number of states, despite its probable unconstitutionality and ineffectiveness at raising revenue.

California, too, now. California had actually passed an Amazon tax last year but it was vetoed by Governor Schwarzenegger. They’re now trying again, and the bill (ABX8 8) has passed the State Senate. From a sponsor:

Amazon has “built an entire business model based on tax avoidance,” said Assembly tax committee Chairman Charles Calderon (D-Montebello).

The state Senate approved the legislation Thursday as part of a deficit-reduction package, and it is expected to pass the Assembly as well.

Two quibbles. First, the tax being imposed here is legally owed by the consumer, not by the company. Rather than collecting the tax from the consumer, which it can do, California prefers to force an out-of-state company to be the bad guy. The constitutionality of this remains very questionable.

Second, businesses engaged in interstate commerce have always been treated differently than in-state businesses. That’s mainly because states have always been eager to dump their tax burden on faceless non-voters like out-of-state companies. For two centuries states couldn’t even tax interstate commerce because of this tendency. The Supreme Court relented in the 1960s and 1970s but state overreaching should still be a worry.

There is certainly a public policy choice between a few consumers not paying sales tax and states being able to impose all of their taxes on every individual and company nationwide. Our system of constitutional restraints on the power of states should inform that choice as well.

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