California Internet tax bill breakdown


In the past few days I have been closely following (and trying to make sense of) this California legislation that was passed by Governor Jerry Brown in regards to Internet sales tax collection for the state.  I have tried to break it down into something understandable here.  Please correct me on points if I am wrong…

Here is a quick overview of the situation.

  • Currently California residents do not have to pay sales tax on purchases made by online retailers that are physically outside of the state.  Woohoo!  We like this.  This means that we don’t pay tax on our Amazon geeko purchases.
  • Obviously California doesn’t like this.  They want their moneys.  So they decided to pass a law to collect internet sales tax.

So what did the law originally say?

  • The law had said that an online retailer needed to collect taxes on purchases if it had a physical presence, or a nexus, in a particular state. Any retailer with an office or warehouse qualified.

Well then what?

 Amazon had no physical presence in California.  Meaning that the law didn’t apply to them.  Foiled, Jerry Brown!

Then what did California do?

 They changed the law. California decided to broaden the definition to include a company’s affiliates and subsidaries.

Then what happened?

Well, Amazon and Overstock and most large internet retailers covered their bases and followed the law.  That meant that they cut off all ties with California-based affiliate programs.

Erm, what is an affiliate program?

An affiliate program is where one website drives traffic to another website.  If a purchase is made from the referral, then the affiliate collects a commission.  There are probably more sites than you realize who are earning revenue on affiliate programs.  Some bigger sites that make money off of affiliate programs include and

Get to the point, who does this really affect?  Do I have to pay tax on my Amazon purchases if I am in California?

This is the really sad part of this silly law…Amazon still won’t have to collect sales tax on purchases from California because they have complied with the law.  The people that are hit the hardest are the companies and individuals in California that were relying on affiliate marketing to make money.  They have been totally and completely cut off by nearly everyone running affiliate programs.

California won’t collect much more sales tax from large internet retailers than it did previously AND it is effectively shutting down these small affiliate businesses or running them out of the state.  

Great job, Governor Brown.  This was a total failure.


List of affiliate programs that have been cut in California.  Please add to the list from the comments.

  • Amazon
  • Overstock
  • CSN Stores