The California legislature has passed a bill that gives Amazon.com (NASDAQ: AMZN) until September 2012 to pay state taxes on its e-commerce sales there. Governor Jerry Brown still has to sign the bill. This will resolve a stand-off in which a single company bullied the government of the largest state by GDP into giving in to its wishes.
The new bill would cut state tax receipts by $200 million this year. It is also meant to give Amazon time to see if it can convince the federal government to create national rules for taxes of e-commerce activity. Amazon would not have agreed to the California “compromise” if it did not believe it can persuade Washington that such taxes should be low — or, perhaps, that they should not exist at all.
Amazon did two things to defeat California’s effort to prompt it to pay a state sales tax. The first was an attempt to get a referendum on the ballot so the state’s voters could perhaps decide no such tax should be levied. The second, more powerful one was to threaten to kill or jeopardize thousands of jobs in the state by closing distribution centers and cutting ties with affiliates. California already has one of the highest unemployment rates among the states. Many voters would take it badly if California insisted on a course that could add to that rate.
There may be other, much older cases in which a single company forced the hand of a state in a way that favored the enterprise. But they are hard to come by.
Douglas A. McIntyre
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