Amazon’s Gambit

The online giant is hoping that its offer to create 7,000 jobs in California will convince legislators to delay the state's new sales tax law until 2014.

When Governor Jerry Brown signed landmark legislation earlier this summer, requiring to finally charge its customers’ sales tax, it marked a realization of how much shopping has changed in California and across the country. More than a decade ago, Amazon and other online businesses were exempted from collecting sales tax based on the contention that having to do so would suffocate the growth of Internet retailing. In 2000, then-Governor Gray Davis cited that very argument when he vetoed legislation that would have forced Amazon to collect sales tax just as brick-and-mortar retailers do. But over the past ten years the idea that Internet companies need a leg-up in the global marketplace has grown increasingly more ridiculous.

Indeed, it’s the traditional brick-and-mortar stores, particularly small, neighborhood stores, that are dying off now as shoppers have changed their buying habits, often making their purchases online — in order to avoid paying sales tax. Amazon, at the same time, has morphed into a retailing Goliath, its power and influence metastasizing almost as fast as its bottom line. It’s no longer the infant retailer that needs protection; it’s the Internet monster that’s threatening your neighborhood store. It’s so big, in fact, that many lawmakers shuddered when the company threatened to stop doing business in California rather than have to charge sales tax.

Over the past few months, Amazon has also made it clear just how important the sales tax exemption has been to its basic business model. As of late August, the company had poured $5.25 million into a ballot-measure drive to overturn the sales tax law that was co-authored by Berkeley Assemblywoman Nancy Skinner.

Amazon’s deep pockets also scared legislators. In recent weeks, it was becoming obvious that the company would spend whatever was necessary to win at the ballot box. Plus, legislators had to know that Amazon’s ballot measure would be popular with voters, especially as the economy continues to sputter. People have less money to spend these days, and they don’t like paying sales tax, even if doing so would help create a level playing field for their neighborhood businesses.

As a result, state Senator Loni Hancock, also of Berkeley, along with other legislators, came up with a plan: They would snuff out Amazon’s ballot-measure drive even before it got off the ground. If approved by a two-thirds vote in both houses of the legislature, Hancock’s bill would make it impossible for Amazon to put its anti-sales-tax measure on the ballot. The only question was whether Hancock could attract the handful of Republican votes needed for passage. After all, no Republicans had voted for Skinner’s bill.

But Hancock apparently had an ace up her sleeve. Brick-and-mortar retailers, particularly large chains such as Walmart, have increasingly come out in favor of the Amazon tax. These companies know full well that Amazon’s explosive growth isn’t just threatening small businesses. In addition, the big retailers have traditionally exerted substantial influence over the Republican Party. Suddenly, it wasn’t so hard to see at least some GOP legislators siding with their retailing friends against Amazon. After all, Skinner and Hancock’s bills don’t really raise taxes — they merely close a giant loophole.

Amazon apparently got the message, because last week the company offered to drop its ballot-measure drive in exchange for a three-year delay in having to charge sales tax. And instead of offering the stick approach and threatening to leave California if it didn’t get what it wanted, the company offered up a carrot: It said it would also open several large distribution centers in California that would employ about 7,000 workers.

Amazon’s offer, however, may have been too little too late. While not completely ruling it out, Governor Brown seemed cool to it, noting that the state can’t afford to lose out on the $200 million in revenue that the online sales tax was expected to generate this fiscal year, the Los Angeles Times reported. Indeed, state tax revenues are already falling far short of expectations to the point that the governor and the legislature are preparing to make dramatic budget cuts in January, particularly to K-12 education.

Still, don’t count Amazon out. The company’s offer to generate thousands of new jobs at a time when California’s unemployment rate remains at historically high levels could provide the cover that some Republicans need to oppose Hancock’s legislation before the legislative session ends this week. Amazon’s latest proposal has already won the endorsement of George Runner, a conservative Republican and an elected member of the state Board of Equalization, the government agency that collects the sales tax. If the rest of the GOP jumps on board, too, then expect the 2012 ballot-measure campaign to be one of the most expensive on record.

Solar Manufacturer Bows to China

Solyndra, a Fremont-based solar manufacturing company, closed its doors last week and laid off all of its 1,100 workers despite having received more than $520 million in loans from the Obama administration. The maker of solar tubes, as opposed to traditional solar panels, was once touted by the president as being an innovative industry leader, but it was unable to compete with Chinese companies that are producing solar products much more cheaply — thanks to inexpensive labor and massive subsidies from the Chinese government. The Bay Citizen reported that US companies now account for just 7 percent of the global solar manufacturing market, down from 43 percent in the mid-1990s.

Three-Dot Roundup

Oakland City Attorney Barbara Parker is vowing to work more collaboratively with city leaders than her predecessor John Russo, who repeatedly clashed with city council members and Mayor Jean Quan, the Oakland Tribune reported. Parker has decided that the city attorney’s office will once again work with the council on ways to update Oakland’s medical cannabis laws. Russo had refused, forcing the city to hire outside attorneys. … Two to three buyers have emerged to purchase the shuttered Andronico’s supermarket stores, which are now in bankruptcy, the Tribune reported. Owners of Andronico’s said that at least one of the buyers intends to invest millions in the stores to remodel and reopen them. One of the buyers also plans to rehire many Andronico’s workers. … As expected, UC Berkeley law school professor Goodwin Liu was confirmed unanimously to the California Supreme Court. Liu’s easy confirmation came in stark contrast to his previous unsuccessful nomination to a federal appeals court, which was blocked by US Senate Republicans who claimed he was too liberal. … And President Obama overruled the EPA, blocking the implementation of new air pollution standards. The White House cited the potential damaging effects on employment and the economy, but environmental groups immediately condemned the action.


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