When Amazon cut off its ties with its California affiliates last month, it did so in reaction to an Internet sales tax signed into law by Gov. Jerry Brown.

The law requires Internet retailers who have established business ties in California to begin collecting sales tax from state purchasers. Amazon moved quickly to end its relationships with thousands of California affiliates to avoid coming under the law.

An affiliate is a business that refers visitors to Amazon, such as through a website, and gains a commission from a referral that leads to a sale.

Bruce Gray, a certified public accountant at Gray, Salt & Associates in Claremont, said the new law could be a boon for small businesses in the state.

Question: Who does this Internet sales law impact?

Answer: It’s going to primarily affect businesses not in California who are doing sales in California via the Internet and possibly via a local sales representative. The business itself may not have a physical location in California. If they have a contract with a local sales rep or promoter, they’re doing business in California. If they’re using anyone in California to fulfill orders or promote sales on their website, (that) would bring them under the nexus laws here requiring them to collect sales tax.

Q: How about businesses in California? How will they be affected by the new law?

A: It would level the playing field for (small businesses in California). Many consumers will seek out Internet-based businesses who don’t charge sales tax. The sales tax is fairly high here. If you’re buying a $100 item, you’re adding another $9 to the cost. If the retailer doesn’t have to collect it, the consumer will say I’ll get a better deal.
(Under the new law), if an Internet retailer establishes nexus in California, then the retailer would have to collect that tax. If they’re selling something at the same price as someone in California, there’s no advantage to go to the out-of-state retailer.

Q: The big news has been Amazon cutting ties with its California affiliates in order to gain exemption from the law. What businesses could lose out because of this move on Amazon’s part?

A: I’m not sure that’s going to have a huge impact other than those engaged in supporting Amazon locally. If their contracts are terminated, they’ll have to seek other resources. I suspect those are small businesses, doing fulfillment and promotions for Amazon. It may be someone who does public relations, one of the clients is Amazon, they do advertising promoting Amazon. Or it could be a warehouse operation that ships items for Amazon. In Rancho Cucamonga, we have a huge distribution group, lots of distribution warehouses there.

Q: What is the aim of the law?

A: To generate more revenue. (The state’s) trying to catch people who are flying under the radar and consumers locally who will try to purchase things out of state and not report that purchase. Let’s say I go and order a computer on the Internet from a company with no relation with California. At the end of the year, I’m supposed to claim that purchase and report it on my tax return. California believes a significant amount of revenue is being overlooked or lost as a result of people not complying. They believe a large amount of sales are not reported that by changing the law to tighten up who qualified as a retailer in California they will be able to collect a lot of money that wasn’t available. And as we know, California is in desperate need of cash.

Q: What can small business owners do to benefit from the new law?

A: There may be opportunities for marketing as some of these companies pull out. There may be an opportunity for them to (say) we’re local, and we can get your product shipped to you more quickly than if it’s coming from New York. This I think will benefit the local small-business community from the standpoint that people who otherwise would’ve gone to out-of-state retailers may no longer choose to do that because there is no longer a fiscal advantage.

Q: What should consumers know about the new law?

A: For consumers this is going to increase to some level the cost of services or goods because now (the state’s) going to enforce the collection of sales tax even though (consumers) should’ve been paying it anyways. It’ll keep them honest – (the taxes) will be collected on their behalf.

Source: sbsun.com