Can Amazon Beat a New California Tax Law?

On July 1, a California law requiring online retailers to collect sales tax took effect, much to the indignation of Amazon.com (NASDAQ:AMZN). Since the law was enacted, Amazon has refused to collect the 7.25% base sales tax, arguing that it’s unconstitutional. The company is asking voters to help overturn the law.

Amazon will seek a referendum vote that could be as early as February. According to Amazon’s (NASDAQ:AMZN) vice president of global public policy, Paul Misener, “[Amazon supports] this referendum against the recent sales tax legislation because, with unemployment at well over 11%, Californians deserve a voice and a choice about jobs, investment and the state’s economic future.” Of course, it’s more likely that Amazon’s true concern is for their own profitability, as taxing sales could hurt the company’s competitive edge.

While Amazon (NASDAQ:AMZN) filed a suit to block a similar law in New York, the company is hoping that taking the case directly to voters might expedite the process, as well as save them the cost of legal fees for a lawsuit that could span years. So Amazon filed a referendum by filing documents with California’s attorney general. Then the company will have to collect 504,760 signatures from registered voters to qualify the proposal for ballot at least 31 days before an election, and then the matter will be put to a vote.

While Amazon is relying on voters who don’t want to pay sales tax, they will be facing heavy opposition, both from the members of government responsible for the new law, and from big and small retailers alike with locations in California — retailers (NYSE:XRT) who may often find themselves competing with Amazon and that are required, by law, to collect state sales taxes.

It used to be that only Internet retailers with actual physical stores in California were required to collect sales tax, but the new law applies to any Internet retailer with related operations or affiliates in the state. Amazon has already ended its relationship with 10,000 small businesses that would direct business through Amazon.

Until this point, Amazon (NASDAQ:AMZN) has had an unfair advantage over competitors operating out of California as it has been able to essentially sell products at a discounted price to consumers. Also, in its first year, it has been estimated the law would bring in $317 million in state and local revenues, and even more in years to come. Businesses, trade associations, Democratic politicians, and interest groups such as teachers and nurses all want the state to increase tax revenue in order to fund health, welfare and social services. These people are all likely to turn up to vote in support of the new tax law.