What does the 'Amazon' tax mean for consumers, retailers?

On its most basic level, it means higher prices for purchases through Amazon and other major online retailers. It means a more level playing field for brick and mortar merchants in California who have been bypassed by shoppers not wanting to pay sales tax. And it means lost sales for the thousands of California businesses that have distribution arrangements with Amazon - and which Amazon has said it will cut off. Of course, we're still in the early innings - a legal challenge to the tax is expected, which means that the courts will be sifting through the issue for months. Results have been mixed in the other states that established similar taxes. But here are some basics, courtesy of the LAT, Reuters, SF Chronicle, and Fortune.

What exactly is happening? Beginning Friday, a new state law will require Amazon and other out-of-state online retailers to collect sales taxes on purchases made by California customers. The legislation comes after years of lobbying by state retailers who have lost business because they're stuck with the tax. It also comes as the state is desperately trying to generate revenue.

How has Amazon gotten away with not collecting the tax? A Supreme Court decision in 1992 held that online sales are not subject to taxation unless the seller has a physical presence in the jurisdiction imposing the tax. California and other states argue that online retailers do have a physical presence - usually in the form of "affiliates" who direct customers to the larger sites that make the actual sales. The relationships vary, but affiliates will often get a small piece of the sales action.

Does Amazon have a case? Not really. The Washington Post's Ezra Klein sums up:

Amazon is a business, and so you can't fault it for playing hardball in an effort to retain a competitive advantage. But this is bad policy that they're trying to protect -- it's starving states, killing brick-and-mortar stores and encouraging a race to the bottom among states who want to attract the offices of online retailers. Brown is right and Amazon is wrong.

How do the affiliates feel about this tax? Well, they're probably not happy. Right before Gov. Jerry Brown signed the bill into law, Amazon notified 10,000 of them that they were effectively being fired. Other large retailers, including Walmart and Sears, have offered to replace Amazon as a marketing partner, but the larger affiliates that make serious money with the Amazon arrangement are talking about leaving the state. That's about the last thing California's economy needs, though talk is a lot different than action.

What other states have done this? Illinois, Arkansas, Connecticut, North Carolina, Rhode Island, and New York. Amazon sued to overturn the New York law and lost in the lower courts. The company is paying sales taxes into an escrow account pending an appeal. That might also be the strategy in California.

How much potential tax money is involved? Lots. Everybody cites a 2009 University of Tennessee study that estimated an $8.7 billion loss in California between 2007 and 2012. State officials say they expect to raise $317 million a year in new revenue. Truth is, these are all guesstimates, but clearly there will be tax money to be made.

What's the next step? Wait for the Amazon lawsuit - I'm sure it's coming.