California’s evolving budget crisis continues to meet headwinds with major Internet companies who are lining up to flee the state if Democratic Governor Jerry Brown signs new tax increase legislation into law.

Overstock.com will join Amazon.com in pulling all affiliate sellers from the state if lawmakers insist on additional taxes. A letter from Overstock.com to Board of Equalization Member Senator George Runner said it will terminate its California affiliates should pending affiliate tax legislation become law.

“This issue is much, much bigger than one company,” said Runner. “A law requiring out-of-state retailers to collect sales tax from California consumers could force thousands of online retailers to terminate their relationships with California-based affiliate businesses. This hurts California jobs and revenues.”

A few weeks ago Amazon voiced their concern in the form of a letter and now Overstock.com has done the same.

Mark J. Griffin, general counsel for Overstock.com, said his company has terminated affiliate relationships “in every state where this legislation has passed” and “will do so in California.”

According to Griffin, in 2009 Overstock.com terminated 3,200 California affiliates after the Legislature passed a similar measure.

“Taxes have consequences,” Runner explains. “Too often we assume companies and individuals will keep acting the same after new tax laws are passed. That is simply false. Businesses change their behavior as tax laws change.”

California’s budget woes are legendary and lawmakers on either side of the aisle have avoided making the first move –fearing voter recalls.

Take Florida for example, voters in Miami-Dade, recalled Mayor Carlos Alvarez yesterday in a landslide 90 percent vote. Disgruntled constituents lashed out when Alvarez’s missteps showed his office handing out lavish pay increases to staffers, a publically-funded stadium for the Florida Marlins and the taxpayer a larger property-tax bill. The local recall results were the largest in political history.

Meanwhile, California continues to operate without a state budget and Governor Brown emphasizes that state residents must take part in a $26 billion “shared sacrifice” – half tax hikes and half spending cuts. Brown insists it’s the state’s Republicans who are blocking budgetary progress, yet Sacramento is ruled by Democrats in both houses and the governor’s office.

California’s weary taxpayers have not indicated the consequences that will be shouldered by lawmakers if tax increases become reality. However, politicians beware- angry Florida voters recalled a popular mayor and California recalled Arnold Schwarzenegger’s predecessor Gray Davis after tax increases.

While the jury is out on the level of voter anger in the Golden State, proposed tax hikes could come back to haunt any lawmaker who signs on the dotted line.

“Supporters of this proposed policy claim that they want to create a level playing field for businesses that have retail presence in California and are required to collect sales tax,” Runner said. “Unfortunately, none of the bills under consideration will level the playing field because out-of-state online retailers will simply modify their business model to avoid collecting California’s sales tax.”

Runner contends the 25,000 Internet affiliates in California are at risk of being wiped out by this attempted sales tax grab. “This law will kill jobs and cost the state revenue as these individuals and businesses close up shop in California,” he finished.

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© Copyright 2011 Kimberly Dvorak All Rights Reserved.

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