One in eight Americans lives in tech-savvy California, a huge base of consumers for online retailers like Amazon.com . For years, Amazon has fought efforts to collect sales taxes from buyers in the Golden State, instead putting the burden on customers to report those sales to the state's Franchise Tax Board and pay the taxes themselves.
It hasn't worked out very well.
According to the state, less than one half of one percent of Californians have been voluntarily paying sales taxes on internet purchases. While some retailers like Apple and Target have been collecting web taxes in California, Amazon and other large retailers like Ebay and Overstock.com have not.
Resistance is futile, and it ends Saturday. California has a cash deficit topping $20 billion, and the Board of Equalization estimates it's losing $1.2 billion a year in online sales taxes. So a new law kicks in September 15th forcing large internet merchants with affiliates inside California to collect those taxes. Sales taxes range anywhere from 7.25 percent to 9.25 percent.
Californians have reacted by going on a shopping binge.
"We will spend roughly between $11,000 and $12,000 on Amazon this week," says Raju Jassar. He and his wife, Sandy, are building a home in Bakersfield. Even though the home won't be completed until Christmas, the Jassars are buying as many appliances and fixtures as they can now, on Amazon, tax free. "I rushed and created an Excel spreadsheet to figure out what I liked," says Sandy Jassar. The money saved avoiding sales taxes will go to help furnish a nursery, as Sandy just discovered she’s pregnant. "Virtually everything you're going to see when the house is complete is coming from Amazon," says her husband.
"I'm just going to stock up," says Hilda Tateosian, sitting in front of her computer at an office in Fresno. She plans to spend $200-$300 before the deadline. Her tax savings? "Anywhere from $10, $15, maybe $20," she replies. "It's something. That's an extra book. That's an extra pot of coffee."
Channel Advisor monitors Amazon sales and says they've been growing faster in California than the national average. "We do see an 8 percent to 10 percent acceleration in the last 30 days, which could be driven by the upcoming tax deadline." This could be driving some sales into Q3 from Q4, but most analysts don't expect any long term hit. "You could see a modest impact, especially on higher end items on Amazon, but we're not expecting any major impact on the business," says Aaron Kessler of Raymond James, who has a market perform on the stock.
Amazon already collects sales taxes in six states, including New York, and the company tells CNBC the taxes have had no impact on sales, which begs the question of why the company fought California so long. When collecting taxes here became inevitable, Amazon bought itself a one-year delay by announcing it would build two distribution centers in California and hire over 1,000 people.
Ebay is watching the situation closely. "It's a little different for Ebay," says Kessler, "given that most of the time they're not the merchant of record, they're more of a marketplace, and so there's a debate over whether Ebay's responsible for collecting taxes versus the owner who's selling through Ebay."
Overstock.com is avoiding the new law by severing all ties with California affiliates. "We're not going to acquiesce and collect taxes just because the (state) says we should," Overstock.com President Jonathan Johnson told the San Jose Mercury News.
California’s Department of Finance hopes to collect $260 million in additional sales taxes through June 2013 because of the new law. "If positive results come from more sales taxes in California, I think you will see more states follow suit," says Aaron Kessler.
What do customers think? Will they shop less often at Amazon once they are forced to pay sales taxes? Both the Jassars and Hilda Tateosian say free shipping and competitive pricing are more important than the tax. Tateosian says she's mostly stocking up this week on principle. "I'm sticking it to California," she says. "I have a $360 speeding ticket I have to pay off, so that's my contribution."
- By CNBC's Jane Wells