California's sales tax rate is set to drop by one percentage point Friday, but that's little consolation to online retailers. Their tax rate is going from zero to at least 7.25 percent thanks to a quartet of bills known as "the Amazon bills."
That's because companies like Amazon aren't required to collect sales tax in this state if they don't have a physical presence here.
There's some debate as to what constitutes a physical presence. While Amazon may be headquartered in another state, any distribution centers located in California might expose its customers' transaction to sales tax. Amazon has no distribution centers here (that it directly owns, anyways), but they do partner with thousands of small businesses who sell their products through Amazon's store.
Enter the Amazon bills. Desperate for cash, California saw a way to tax Amazon's sales by saying that because some of Amazon's small partners are in California, Amazon has established a presence in the state and all its sales are taxable. The budget assumes that the Amazon bill will raise several hundred million dollars.
It probably won't. Amazon responded to the passage of the bill by threatening to sever its relationship with the affiliates (as it has done in other states) before it takes effect. Time for that is running out. It's also said the bill is unconstitutional under the Commerce Clause.
That probably doesn't matter to politicians in Sacramento, because they got to paper over a $300+ million budget hole regardless if the money is ever collected or not.
Will Amazon follow through on its threat to fire its affiliates? Will they challenge the state in court? We'll probably know very soon.