California Enacts an "Amazon Law": State Now Requires More Out-of-State Retailers to Collect Tax on Sales Made over the Internet

Friday, July 1st, 2011


By enacting Assembly Bill 28X into law earlier this week, California has joined the growing ranks of states that require large out-of-state retailers to collect taxes on purchases that their California customers make over the Internet.

This new law, effective immediately in California, is commonly referred to as an “Amazon Law” because of its impact on the large Internet retailer Amazon immediately filed suit to prevent a similar law from taking effect in New York in 2008 (that litigation is still pending as earlier decisions are now on appeal.)

California can require retailers to charge and collect tax on sales only if the retailer has a connection to California based on some physical presence in the state (“nexus”). Under California's prior law, the tests for having nexus with the state were cast in more traditional “brick-and-mortar” terms of physical presence, so that a retailer had a presence in, and therefore a connection with, the state if the retailer had workers, warehouses, or offices located there.

California's new “Amazon Law,” broadens the test for finding nexus by expanding the definition of a “retailer engaged in business” in the state. Internet retailers that have (1) affiliate advertising agreements with California-based websites, and (2) revenue related to those affiliates that exceeds threshold amounts, are now deemed to be engaged in business in California and are subject to the state's sales tax reporting requirements.

More specifically, under the new law, an Internet retailer that enters into affiliate advertising agreements under which persons in California, for a commission or other consideration, directly or indirectly refer potential purchasers (whether by an Internet-based link, an Internet website, or otherwise) to the retailer are now classified as a “retailer engaged in business” in the state provided that (1) the total cumulative sales price from all sales by the retailer to California purchasers that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and (2) that the retailer has cumulative sales of tangible personal property to purchasers in the state of over $500,000 within the preceding 12 months, except as otherwise specified.

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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at or call 866.578.8193.

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