A ballot box battle brewing over the 'Amazon tax'

This op-ed was originally published by the Los Angeles Daily Journal.

By Associate Clinical Professor Jessica A. Levinson

A small but well-publicized part of California's newly enacted budget, the so-called "Amazon tax," looks to be the catalyst behind California's next big ballot initiative battle. The law requires Internet retailers with a "physical presence" in the state to collect a sales tax from customers in the state and expands the definition of physical presence to include online retailers that have related companies or affiliates in the state. After the passage of the law, Amazon promptly cut ties with approximately 10,000 affiliates in the state.

Who would like this tax? Well, in addition to those hoping to raise revenues for the state (the state estimates that it could receive in the low hundreds of millions in tax revenues each year if residents paid taxes on online sales), anyone losing business to online retailers. Exhibit A: Wal-Mart Inc.

So what is an online retail giant to do? Since this is California, a resource-depleting two-front attack is the likely course.

First, online retailers have filed a referendum petition to repeal the tax. Yes, that's right, there is another ballot measure coming as soon as June 2012, perhaps. This petition has already faced legal problems.

The Amazon tax was passed as a trailer bill to the budget and contains an appropriation of $1,000 to the Board of Equalization for administration. The law includes an appropriation because the recently enacted ballot measure - Proposition 25 - lowered the required threshold vote on budgetary matters, including appropriations, from two-thirds to a simple majority of both Legislature houses. Proposition 25 also provided that budget-related bills take effect immediately upon enactment, and therefore added a new category to the list of statutes that go into immediate effect.

The wrinkle is that the referendum power, contained in Article II, Section 9 of the California Constitution, provides: "The referendum is the power of the electors to approve or reject statutes or parts of statutes except urgency statutes, statutes calling elections, and statutes providing for tax levies or appropriations for usual current expenses of the State." Those four categories of statutes exempted from the referendum were the same four that, before Proposition 25, made up the list of statutes going into immediate effect. There was some question as to whether Attorney General Kamala Harris would approve the ballot title and language for the proposed referendum or whether the list of statutes exempt from the referendum should include the new categories of immediate effect statutes created by Proposition 25.

Harris did allow the proposed referendum to go forward, and ballot proponents must now gather about 505,000 signatures. She is not alone in her thinking. Proponents of Proposition 25, some legislators and the Legislative Counsel think the referendum is still be permissible, and that the right to referendum is in fact protected in the state Constitution. The Legislative Counsel concluded that while Proposition 25 "expanded the categories of immediate-effect statutes, it left untouched the categories of statutes that are excluded from referendum."

An opposite conclusion by Harris would have meant that budgetary statutes passed by a simple majority of the Legislature were referendum-proof.

Opponents of the proposed referendum could take their fight to the courts when and if online retailers gather the required number of signatures and submit those signatures to the Secretary of State.

But wait, there's more. This proposed ballot measure is likely to have company. Supporters of the tax bill such as Wal-Mart may gather signatures for a competing measure. Let the ad wars begin.

Under the second part of the online retailers' attack, they will likely make a federal case of the Amazon tax, literally. They will argue that under a 1992 U.S. Supreme Court case - Quill v. North Dakota - the state does not have the power to impose the tax. There the Court ruled that North Dakota's use-tax on sales by a mail order company that did not have a physical presence in the state violated the Commerce Clause. One note of caution, the Internet looks very different today than it did two decades ago and the Court may not have envisioned the pending issue. The question will boil down to whether Amazon and other online retailers have a sufficient "nexus" with the state.

Jessica A. Levinson is a visiting associate clinical professor at Loyola Law School. She also consults for Common Cause. She studies governance issues, including campaign finance, ethics, ballot initiatives, redistricting, term limits, and state budgets.