California’s new sales tax law that drove Amazon to cancel their Affiliate Program has been very controversial. The law, similar to those passed by Rhode Island, South Carolina, Arkansas, Illinois and Colorado are attempts to over-reach beyond normal sales tax practice in an attempt to collect more sales tax revenue.
Normal sales tax practice says that if you have a business located in a given state, then you must pay sales tax on transactions in that state. But what California says if you have any presence in their state –including an internet presence of any kind, then you must collect and pay sales tax on all sales to California. Here is where it gets tricky.
You may be located in Ohio, Oregon or Oklahoma, but since eBay is located in San Jose, CA, the State of California says you have a “presence,” or what is known as a nexus in California and therefore must collect and pay sales tax on any sales to someone in California.
However, there is an exception in the law that excludes all non-California retailers who sell less than $500,000 to California buyers in a year. In a story in Auctionbytes, eBay’s Legal department states that they believe this exempts most eBay sellers. But we will have to see what the state says.