California passed affiliate nexus tax legislation yesterday (AB 153, AB 155 and SB 234). Effective July 1st, the new rule requires out of state retailers to collect sales tax on purchases made over the internet by their California click-through customers. California is the largest state to pass such legislation and now joins several other states with click-through nexus laws, including New York, North Carolina, Rhode Island, Illinois, Arkansas, and Connecticut. Many other states are considering similar bills.
Many legislators and traditional brick-and-mortar businesses believe the law is overdue since internet retailers have been given a competitive price advances for years by not having to charge sales tax. The bill is expected to generate an estimated $317 million a year in additional tax revenue to state and local governments.
Amazon has already told its 25,000 California marketing affiliates that they will stop paying commissions for referrals to California customers. Amazon has stated that it opposes such legislation on the grounds that it is unconsitutional and counterproductive. Amazon has challenged a similar law in New York and that case is still pending in the New York courts. At this time, it is not clear whether Amazon intends to challenge the California law.
On a separate note, California’s sales tax decreases by one percent to 7.75% on July 1st.