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Amazon.com Fights Board of Equalization

Amazon.com is standing strong against California’s attempts to extort money from the online bookseller. Just a few days ago, Governor Jerry Brown (whose aura smiles and never frowns) signed a bill into law aimed at extracting taxes from online retailers. As it is now, the state requires consumers to keep receipts of online purchases, calculate sales tax on those purchases, then send a check to Sacramento. Obviously, this policy proved difficult to enforce.

California’s Board of Equalization (the sinister-sounding body charged with collecting the state’s sales tax) issued a stern warning to Amazon and its comrade-in-arms Overstock.com: pay up or we’re coming after you. California’s case against the retailers rests on going after affiliates and subsidiaries in the state. Amazon has already begun cutting affiliates like gangrenous limbs. California still thinks the law will work; fortunately, they might be wrong, as a Declan McCullagh of CNET writes:

The only problem for enthusiastic politicians and tax collectors is that the new law might not be entirely, well, legal.

In 1994, a California appeals court rejected state tax collectors' arguments when they tried a similar approach. The case involved a Colorado-based company, Current, which sold greeting cards, gift wrapping paper, and so on through the mail. It had no contacts with California.

Current's parent company, Deluxe Corp., did do business in California. The state Board of Equalization, operating under the theory that the finer points of corporate structure weren't that relevant, levied $344,088 in taxes on Current.

The appeals court tossed out that argument, saying that courts in Pennsylvania, Illinois, and Connecticut had considered similar cases and had all ruled against the tax collectors. Those decisions were "persuasive," a three-judge panel unanimously ruled, and Current and Deluxe "did not have integrated operations or management" and were "separate and distinct corporate entities."

In a state whose government bankrupted itself by behaving like a Valley girl with mom’s credit card, funding its boondoggles extremely necessary programs and developing a veneer of fiscal responsibility is of paramount importance. This law won’t help much with either. Sucking more money out of businesses and consumers won’t make politicians more circumspect. Attacking businesses won’t fix the mess the government got itself into.

It will, however, alienate the sector that propelled California’s economy and reputation through the last twenty years. It’s safe to say, this brand of predatory taxation isn’t likely to make businesses more attracted to California. And with another tax imposed on consumers, living in California will be even more expensive than it already is.