A 1992 Supreme Court case found that states can only tax companies with a physical presence in a given state.
In this case, lawmakers argued that the online retailers such as Amazon and Overstock.com should collect state taxes because they are associated with referring companies based in California who are targeting California consumers.
The law is similar to legislation passed in Illinois, Rhode Island, North Carolina and Connecticut, each prompting similar action from Amazon. Gov. Rick Perry vetoed a Texas state-tax law in May.
Amazon has also been in an ongoing legal battle with the State of New York over its sales-tax law, and is collecting tax during litigation. Amazon CEO Jeff Bezos has said that the company will continue to drop its association with states that pass these laws.
California hopes to generate about $200 million from the provision, lawmakers have said. But according to Joseph Henchman, vice president for legal and state projects at the Tax Foundation, the laws have not generated any more revenue for states who have passed the so-called “Amazon laws.”
Henchman said that this is an issue that will continue to face Amazon and all online retailers as it becomes easier to conduct businesses in states where they have no physical presence.
“Those lines are getting blurred as technology advances and states get more aggressive,” Henchman said. He added that a federal bill that would make it easier for states to collect this money, known as the Main Street Fairness Act, is perennially introduced in Congress but has never passed.
The retailer faces several other possible run-ins with states: Eleven other states are considering similar laws.