The California Amazon Tax: Is It Unconstitutional and Will It Kill Their Economy?

The California Amazon Tax: Is It Unconstitutional and Will It Kill Their Economy?
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Tea Party protest sign

If you haven’t heard of this tax yet, here’s the scoop: “A California law, taking effect Friday, requires large, out-of-state retailers to collect sales tax on Internet purchases from California customers.”1 The reason it is being referred to as the “Amazon Tax” is because Amazon has a huge network of online business affiliates, which includes an estimated 25,000 who operate their businesses in California.

While the spotlight may be on Amazon because of their nationwide presence and visibility, the cold reality is the law could apply to any out-of-state retailer of any size who sells via the Internet to customers residing in California if it is deemed to have an in-state “presence.”

What Does the Law Say?

In 1992, the United States Supreme Court ruled that “sellers can’t be forced to collect sales taxes unless they have a physical presence in the state.”2 Consider this: the affiliate is simply the middle man between the seller and the buyer. Being the conduit for the sales by and of itself is not the same as having or maintaining a physical presence, in my opinion.

California’s position is that the volume of sales generated by Amazon affiliates constitutes proof of a “physical presence” in California. On the other hand, ““We oppose this bill because it is unconstitutional and counterproductive,” Amazon says in an e-mailed letter that explains the termination of its affiliate advertising program.”3

Constitutional or Not?

The ultimate decision about the constitutionality of the law will no doubt be fought as far up the judicial ladder as the respective parties can push it. My personal opinion, speaking from the point of view of an Amazon affiliate, is the law is not only unconstitutional but one more evidence of the actions of greedy politicians with the mistaken idea that whenever they have spent every penny in their governmental coffers, all they need to do is levy yet another tax to refill those coffers.

However, in the meantime, Amazon has put its California affiliates on notice that it may be forced to terminate their agreements because of the new law. In real world terms, terminated business contracts equate to lost sales and business revenues. When businesses earn less money, they pay fewer taxes and may even be forced to lay off personnel.

This does not seem like a good way to increase cash flows and revenues. In fact, all one has to do is to look at California’s current financial state to see that these mob-like, shakedown tactics, in the long run, just don’t work.

Politics as Usual or Insanity in Action

Albert Einstein

According to Albert Einstein, the definition of insanity is, “Insanity: doing the same thing over and over again and expecting different results.”4 Whenever a government entity becomes strapped for revenues, their first impulse is to raise or create new taxes. However, according to John Henchman of the Tax Foundation, “Tax receipts have actually fallen in Rhode Island and North Carolina as a result of the imposition of “Amazon taxes.""

I have to wonder when politicians will stop their insanity and realize the truth: Raising taxes is not the answer to deficits, debts and decreased revenues. One needs only to take a look at history (think of what happened in 1982 or 1990) to see that new taxes cripple economic growth, cause companies to move their business to other states (or countries), reduce job creation and increase unemployment.

Why California Is Going Broke


California – in fact, the entire United States – is in a debt crisis because politicians have been on a spending spree for years. They have shirked their responsibility to their constituents (that’s you and me, by the way) to set realistic budgets, cut unnecessary programs and personnel, allocate and disburse the necessary funds, and live within those budget constraints from year to year.

For instance, the way it should work is if the money for a pet project or entitlement program is not in the budget, then it simply cannot be implemented until there is a plan in place to pay for it. Unfortunately, that’s not the way it works in Washington or in states like California. Run out of money this budget year? No problem and no need to cut expenses or stick to the budget. Just impose another oppressive, economy-choking tax and it is political “business as usual.”

The most recent egregious example of this disregard for planning how a program would be funded before implementing it is Obamacare. In spite of predictions by the CBO and other experts that the plan could not be funded without increasing the national debt to a point where it would reach a critical mass, which we are fast approaching, politicians rammed it through Congress and down the throats of Americans.

While the full financial effects of Obamacare are yet to be seen and felt, the immediate effects are loss of jobs because employers don’t know what to expect, loss of benefits because employers and employees cannot afford the new higher costs, more burdensome regulation on small business and a general stifling of the economy.

There Is No Money Tree

Dollar Sign

The financial reality is that there is no unlimited money pool for any individual or government entity. If you overspend your personal budget, you do not have the right to walk next door and demand that your neighbor give you some of his wealth.

By the same token, when governments refuse to set a budgetary plan or live “within their means,” they do not have the constitutional right to simply take take the money they feel like they need to feed their spending habits away from the citizenry by unfair taxation. Even when they try to conceal the fact that they are raising taxes by using political terms like “closing loopholes,” the net result is somebody pays more taxes.

Is There a Better Solution Than Raising Taxes?

The Republican-held House of Representatives recently responded to the so-called ongoing debt crisis by passing a “Cut, Cap and Balance Act,” which is an attempt to bring fiscal sanity to an insane situation. California and other cash-starved states could learn much from this example.

Cutting out-of-control spending and living within a balanced budget spurs job creation and economic growth, which in turn results in high revenues. Lowering taxes creates a business friendly climate that attracts businesses from other states and countries to relocate their businesses to such states.

Maintaining current tax incentives and creating new ones motivates companies to grow their business or start new ventures. Reforming or eliminating social welfare programs encourages people to stop depending on government hand-outs and go to work to support themselves. Unemployment and inflation decrease in a viable economy scenario like this.

If California and other states with revenue woes would adopt a business model of working with a yearly balanced budget, cutting spending and cultivating a climate that encourages businesses like Amazon to do business in their state, they would have no need to spend precious taxpayer dollars defending laws that may very well be unconstitutional.

Weigh in With Your Opinion - Is the Amazon Tax Law Unconstitutional?

We want to hear from you! Please use the comments section below to share your thoughts on raising or lowering taxes as a way to revitalize the economy and help states balance their budgets.


1, 2, 3 - Wood, Daniel B., “California ‘Amazon tax’ kicks in—and local businesses could be losers,” July 01, 2011, Christian Science Monitor,

Mitchell, Dan, “Will California’s ‘Amazon tax’ cause an affiliate exodus?”, June 29, 2011,

Grimes, Katy, “California Amazon tax will kill 25,000 small businesses, “ June 29, 1001,

Resko, Henry J. and Walker, Kathleen, “Sen. Mike Lee: Greedy Politicians don’t Want Balanced Budgets,” (20 July 2011),

4 - Required citation: Albert Einstein. (n.d.). Retrieved July 21, 2011, from Web site:

Americans for Tax Reform, “House Conservatives Recommend, “Cut, Cap and Balance,” RSC,

Jordan, Jim, “Opposing View: Don’t go With Gang of Six,”

Image Credits

Image: Tea Party protest sign during the Taxpayer March on Washington by dbking under CC BY 2.0

Image: Tea Party rally to stop the 2010 healthcare reform bill in St. Paul, Minnesota by Fibonacci Blue under CC BY 2.0

Image: Albert Einstein, official 1921 Nobel Prize in Physics photograph by Official 1921 Nobel Prize in Physics photograph under Public Domain

Image: Dollar Sign by Scott Steiner under Public Domain