Amazon takes the low road

[Commentary] Greed, we are told by the moral philosophers, brings out the worst in human beings. As Amazon is about to prove, the same rule applies to big corporations. Last week, the giant online retailer announced that it was backing a ballot referendum to overturn a new state law mandating that it collect the sales tax due on purchases by its California customers.

That law, which was signed by Gov. Jerry Brown at the end of June, was designed to eliminate the price advantage enjoyed by Amazon, and many other online retailers, over brick-and-mortar stores. The advantage arises because the latter charge customers sales tax at the register, and Amazon does not — making for a difference of 7.25% to 9.75% of the purchase price, depending on the city and county you're in. That makes it seem as if you're saving a bundle by shopping at Amazon, even though you're not, really. You owe the tax even if the seller doesn't collect it, a fact that most Californians wink at, with Amazon winking right along with them. What's at stake, according to California tax authorities, is more than $1 billion a year in unpaid tax. If you need evidence that the only effective way to collect sales tax is to have the retailer do it at the time of sale, consider that in 2008, when the California tax return included a line allowing taxpayers to declare tax owed for online purchases, only $9 million was paid, less than 1% of what the state thinks was owed. Amazon and other online retailers have avoided collecting sales tax in many states by relying on a 1992 Supreme Court decision that said a state can't impose its will on a retailer that doesn't have a formal presence within the state. California trumped the court by defining that presence to include Amazon's relationship with its "associates."

These are website owners and bloggers who post an Amazon link on their sites and collect a piece of the action, typically 4%, if one of their visitors clicks on the link and makes a purchase. Under the new state law, Amazon's network of tens of thousands of California-based associates gives the company a presence in the state, ending the free ride on sales tax. In response to the law, Amazon made two moves. It cut loose all its California associates, putting many of them out of business. Then it filed the referendum, claiming that the new law will put people out of work.