The new law, known as the Amazon tax, begins July 1 and is supposed to add $200 million a year to state coffers, but critics say the new price is a loss of jobs.
Most retailers with a storefront in California, like the Avid Reader, are happy Gov. Jerry Brown signed the bill that forces out-of-state Internet sites to start collecting sales tax from residents. They've always felt it was unfair customers could essentially get a discount for buying items tax free online, while stores have to charge a sales tax.
"Why should the brick and mortar person operate at a disadvantage when they're the ones that do the local hiring, who pays the local property taxes that support police, fire and all the other social services and Amazon doesn't?" said Stan Forbes, a bookstore co-owner.
The law previously only required retailers with a physical presence in California to collect a sales tax. E-tailers like Overstock.com and Amazon.com got away with not collecting money because they don't have a storefront in this state.
But those e-tailors contract out with 25,000 small businesses based in California, known as affiliates, which provide links to sites like Amazon and Overstock.
Now that the new law is forcing sites to start collecting the sales tax from California residents buying from California affiliates, e-tailors have already begun severing ties.
Amazon just told affiliates on Wednesday: "...we will terminate contracts with all California residents that are participants in the Amazon Associates Program."
San Francisco-based Ebates.com got a similar letter from Overstock. Being cut off could mean a loss of 20 percent in business and put some of its 50 employees in jeopardy. Now corporate officers are weighing their options.
"So everything from layoffs, at least a freeze of hiring... and we're a business that's been growing and hiring people over the last few years... all the way up to leaving the state," said Rob Smahl, the Ebates.com Chief Marketing Officer.
Assm. Nancy Skinner, D-Berkeley, has been trying for years to push through the so-called Amazon tax.
"If Amazon decides to be the bully that they've threatened to be, we've got lots of great retailers: Sears, Barnes and Noble, Target, Home Depot... all that have affiliates programs," said Skinner.
Amazon also cut ties with affiliates in Arkansas, Illinois, and Connecticut, after those states passed similar laws. Interestingly, the Seattle-based company did not cut ties to New York.