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California Fiasco: $20 Billion at Risk

Making the news lately is an issue that's been driving me up the wall for the past two years.

Large out-of-state corporations like Target (Minnesota), Home Depot (Georgia), Barnes and Noble (New York) and Wal-Mart (Arkansas) have invested hundreds of millions of dollars in sponsoring laws to try to limit's ability to advertise.

It's not retail sales that are the issue to the sponsors of these proposals, it's simply huge corporate interests trying to manipulate our government into giving their own online sales attempts a leg-up over Amazon by limiting Amazon's freedom to advertise online.

The corporations sponsoring these proposed laws are hoping you'll be more likely to see their own online ads instead of Amazon's, giving their online operations a tiny fraction of a percent advantage over Amazon. To multibillion-dollar corporations, even tiny percentages are big business.

The really funny part of this is that the big corporations have been able to trick less well informed local stores into siding with them!

The way the big corporations have tricked the same local stores they've been trying to run out of business all these years to side with them is to misrepresent these sponsored proposals as somehow compelling Amazon to collect and remit state sales tax. Of course these laws won't do that, but since that sounds so good to local stores who know little of the intimate internal details of the Internet (that's why they're still local stores and haven't become their own Amazons), they've taken the bait hook, line and sinker, along with the sponsored lawmakers who pitch these hurtful laws as if they will somehow compel Amazon to collect state sales tax.

These proposed laws have no power to force anyone into collecting sales taxes, but will cost Californians over $20 Billion in the next few years if they pass. If you actually read the proposals, the only hook they use to compel tax collection is to equate paying free educational websites like this for advertising to be the same as having a retail store here in California.

If passed, all Amazon or anyone has to do to excuse itself from collecting any taxes is to stop paying free sites like this for advertising, and they are completely excused from collecting any taxes!

Amazon will go on selling into California exactly as they always have, and they still won't collect any sales tax from anyone. Amazon loves websites like this, but not enough to pay anyone for advertising since it would cost them more to comply with the proposed laws, which would require they collect sales tax for everything they ship to everyone, than the value they get for their advertising. Amazon would have no choice but to stop advertising on in-state-based websites, which is exactly what happened in the other states that tried this, and exactly as the huge sponsors of these laws plan.

Amazon has already promised that they'll stop paying for advertising, still cheerfully sell into California and still collect ZERO taxes if any of these laws pass, and that's exactly as they've done in states like Illinois, Colorado, North Carolina, Rhode Island and now Arkansas. (They only collect tax in New York so that they retain a legal right to appeal this foolishness).

For instance, when Illinois tried this the other month, the only thing that's happened is that numerous business and jobs picked up from Chicago and moved next door to Indiana, or some to Wisconsin. Indiana has collected no more taxes, and already lost lots of jobs and businesses.

Here's the real problem: Websites like this one brought in over two billion dollars, cash, into California last year from websites like Amazon that pay us for advertising, and that number continues to grow each and every year. It's clean, green, fresh money that grows our economy, generates no pollution and no traffic, and supports families like mine, our churches, our communities, our schools, our police, fire, roads, social programs, and, well, everything that makes a healthy community.

If these proposals pass, Amazon stops paying everyone in California, and still sells into California, still advertises into California on out-of-state-based websites, and still collect no taxes. Everyone in California loses, except the big out-of-state corporations that sponsored these great-sounding but deliberately and cleverly flawed proposals in the first place.

If these laws passed in California, this site could move. I don't want to have to move this site, but I'd have no choice – and I pay a lot of taxes. My real personal concern is for the people of California, who may again get screwed by the golden rule of those having the gold making the rules to benefit themselves. Most people don't enjoy the freedom we Internet people do – most people have to go to jobs with the same physical location every day, and those are the people who will be hurt as the California economy shrinks if this got passed. My family and I love California, and we don't want it to be hurt. If these pass, California gets no new sales taxes, loses income taxes sites like this used to pay, and most importantly loses billions and billions of dollars that are flooding in today from sites like Amazon paying for advertising.

Local stores would get get trashed as California's economy shrinks as the real dollars that are coming come here today move out of state. The corporations who sponsor these laws don't care: if this site moves, I still get my lumber from Home Depot — in Las Vegas, Reno or Henderson, Nevada.

The bad news is that these laws actually made it into a proposed budget presented to our Governor in June 2011, and the good news is that our governor realized that the official California Department of Finance estimates that these laws would collect zero taxes, but also lead to numerous lawsuits, and most importantly, would eliminate over 2 Billion dollars in advertising revenue that currently comes into California each year — and growing  — from sites like Amazon. Our Governor rose above lobby money and ruled for the people.

It's easier for lawmakers to look good by passing new laws than to enforce the Use Tax laws that we've had on the books since the 1920s. Let's hope our governor continues to do the right thing for the people of California, which is not to pass these laws as part of anything. They'd collect no sales taxes, and would cost Californians over 20 Billion dollars over the next few years. Internet advertising is big — bigger than newspapers and bigger than network TV — and all these proposed laws like AB153 (Skinner), AB 155 (Calderon), SB 234 (Hancock), SB 655 (Steinberg) and ABX1 28 would do is stop billions and of advertising dollars from reaching California each year — in exchange for nothing. These bills are like cancer: they keep growing, changing names and sponsors and only help themselves, so I can't keep them all straight.

If these dopey laws pass, Amazon and everyone stop advertising, which hurts everyone, and continue to sell as they always have without collecting sales tax.

The only way to solve this is at the national level for collection, and for the state to enforce its existing use tax laws. I know you readers in California pay your use taxes, but the problem is the tax cheats who don't. Too bad the state would rather talk about new laws than enforce the ones it already has. Just like business, it's all about fixing the blame rather than fixing the problem.

There's not much for us regular folk to do, since most of this is played out among lawmakers with the hundreds of millions of dollars of lobby money coming in from the big out-of-state retailers sponsoring these bills to hurt us, California and the Internet.