Dramatic Turnabout In Amazon’s Fight With California

So wow.

Granted, I didn’t get a lot of sleep last night due the storms in my area (stay safe, Philly!) but I was rubbing my eyes at the headlines this morning for another reason: Amazon may be cutting a deal with the State of California.

It’s being widely reported that Amazon may be close to reaching an agreement with the State of California regarding the online sales tax issue. You may recall that just yesterday, I blogged that Amazon had made the state an offer in order to delay the collection of the tax under a new law slated to take effect in 2012.

California had originally claimed that there would be no wiggle room on the new law. The Golden State isn’t exactly flush with gold – or cash – right now and estimates indicated that the the state could capture up to $200 million in previously uncollected tax revenue under the law. But it appears that Amazon made the state an offer they couldn’t refuse.

The specific terms of the deal aren’t clear but it appears that Amazon will drop its push for a referendum to repeal the law if the state delays collection of the tax for one year.

So why did California back down? Pure economics. The state of California anticipates collecting nearly $90 billion in revenue this fiscal year (downloads as a pdf) and plans to spend at least that much leaving it in the red. Amazon collected more than a third of that last year with much less in the way of expense and continues to report a profit.

In other words, Amazon has money to spend to fight the new law; California, not so much. The online retail giant has doled out millions of dollars in fees for lobbyists, PR and other maneuvering to squelch the new law. Apparently, it kind of worked.

What will that mean in North Carolina? South Carolina? Texas? New York? And all those other states that have locked horns with Amazon? I’m not sure but it appears to me that this deal is almost an admission that Amazon is backing down on its legal position. The consequences of that are pretty amazing.

And one more thing: the deal is apparently contingent on there being no changes to the federal laws regarding interstate commerce. In other words, if the feds decide to move ahead on a national sales tax law or any other strategy that would subject Amazon to online sales tax in California during the moratorium, the deal is off. Curious, no? I’m torn between believing that they know something we don’t know or that this is a brilliant shot across the bow in terms of PR…

Stay tuned.

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