Amazon’s shameful California tax dodge

By Tim Rutten / LA Times – Sac. Bee /  July 21, 2011

At the turn of the last century, as the robber barons’ first gilded age lingered on, many Californians came to regard one powerful enterprise as the symbol of oppressive avarice and of big money’s corrupt appropriation of the political process.

That company was the Southern Pacific, whose railways kept a stranglehold on commerce and whose operatives dominated state government. The firm’s malevolent influence was the inspiration for one of California’s first literary classics, Frank Norris’ “The Octopus,” which – along with Upton Sinclair’s “The Jungle” – helped usher in a period of progressive reforms. Among those adopted in California were the initiative and the referendum, which were conceived as popular democracy’s check on the influence of big money over government.

That lent a special sort of piquancy to Monday’s news that Amazon.com Inc. – for all intents and purposes the octopus of cyber-commerce – has been given the OK to collect signatures on a proposed referendum to exempt itself from having to collect California sales tax on items it sells to residents of this state.

Amazon and other online retailers have argued that they ought to be exempt from collecting state sales taxes under a 1992 U.S. Supreme Court ruling that said cyber-merchants could not be required to collect sales levies unless they maintained a physical presence, such as a warehouse or office, in that state. As a consequence of that ruling, The Los Angeles Times’ Nathaniel Popper reported Tuesday, “California alone could be out $1.9 billion” in tax revenue this year.

This state is the nation’s biggest retail market, and Amazon is the biggest of the cyber-merchants doing business here. The fact that it refuses to collect sales taxes obviously gives it a competitive advantage over all the brick-and-mortar bookstores and appliance showrooms with facilities here. Moreover, Amazon, which does business all over the world and has a current market capitalization of $98.45 billion, is hardly some start-up. That’s why the Legislature, struggling with budget cuts that have inflicted deep pain, recently passed a measure requiring Amazon to collect its fair share of the sales tax.

The company long has employed a couple of dodges to avoid doing so, including maintaining subsidiaries here under other names. One of them, Lab126 in Cupertino, Calif., helped develop Amazon’s successful Kindle. It’s fair to wonder whether any of the engineers and scientists who worked on that project were educated in the California universities to whose support Amazon refuses to contribute. In fact, it’s hard to imagine anything more outrageous than a company this successful attempting to buy its way out of the minimal obligations of corporate citizenship.

Robert Stern, president of the nonpartisan Center for Governmental Studies, pointed out to me this week that taking the referendum route gives Amazon a leg up because with “a referendum, a ‘no’ vote accomplishes the purpose of the measure. People tend to vote no when they’re uncertain or confused.” With Amazon’s deep pockets – Stern estimates that as much as $20 million probably will be spent on both sides of the question – there’s likely to be all the confusion that skilled political consultants and a blitz of TV and radio advertising can buy.

Still, Stern, who may have analyzed more ballot propositions and their aftermaths than any other observer of California politics, wonders whether Amazon – even if victorious – ultimately will find that this game wasn’t worth the candle. “Amazon has such a good name in this state,” he said, “and this referendum undermines that. I think it really has hurt their image here already.”

Worse will come for the company when Californians, hard-pressed by these desperate times, begin to consider the implications of a highly profitable multinational corporation operating in this callous fashion.

If Jeff Bezos, Amazon’s founder and chief executive, has a spare moment there in Seattle, he might go on his website and buy a copy of Norris’ “The Octopus.” (As a resident of Washington state, he’ll have to pay sales tax.) In any event, he might skip to the end of the first chapter and consider how it might feel to have Amazon regarded as the poet-narrator describes the Southern Pacific:

“The leviathan, with tentacles of steel clutching into the soil, the soulless Force, the iron-hearted Power, the monster, the Colossus, the Octopus.”

Timothy Rutten is a columnist for the Los Angeles Times. Readers may send him e-mail at timothy.rutten@latimes.com.