Iconic Business Law Disputes in California

RyanD
March 12, 2013

The year 2012 was important for California businesses both in the retail and the agriculture markets. The California state government rejected a bill that required food companies to label their products that contained genetically modified organisms, GMOs. It also passed a law that required online retailers like Amazon to collect California state sales tax on certain goods.

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Proposition 37 and Genetically Modified Food Labels

Proposition 37 is a bill in California that required food companies to label food with genetically modified organisms. Cereals, soft drinks, and frozen food were some of the major targets for the labels, as they often contain modified foods. Since the bulk of a grocery store is filled with such food, the intended law affected most products. Some food companies fought to block the bill.

Food like corn, soy, and wheat are the most commonly genetically modified foods. Food scientists change the genes of the food in order to produce bigger plants for less money. This means cheaper products for customers, and more profits for the business, but some people are concerned about the healthfulness of GMOs. These foods require fertilizers, pesticides, and herbicides, often banned in Europe, in order to grow.

The proposition did not pass, mainly due to pressure from food companies, but also due to the financial cost to the state for enforcing the new regulations. California estimated the cost of regulation to be $1 million annually. Citizens were split evenly in the public election.

Federal law only requires that certified organic foods do not contain GMOs, so the regulation of GMO labels comes down to state governments. A law passed in California would have long-arm effects in other states.

California Economic Nexus Law

Businesses that have a physical presence in California, such as a warehouse, must pay sales taxes to the state as of November 2012. If a company based in another state, but with a warehouse in California, sells and ships a product to a customer in California, that company must pay the 7.7 percent sales tax plus additional freight shipping taxes.

The taxes are offloaded onto the customer. No physical presence means no sales tax. Used goods, cold food, and electronic products, like eBooks, are nontaxable.

The case of Quill Corp v. North Dakota was the first Supreme Court case to set precedence for by-mail orders, which increased in frequency with the advent of the Internet and companies like Amazon and eBay. The problem was resolved in the 1992 case, and the court settled on an economic nexus rule.

An economic nexus denotes a physical tie to a state with respect to online, mail-in sales. More states, like California, Virginia, and New Jersey, are adopting the nexus rule to increase state revenue from online, out-of-state sales.

Improvements to the Nexus Rule

California updated its nexus law to require companies with sales in the state over $500,000 to pay the sales taxes. The law protects small businesses from having to pay nexus laws, while it allows California to collect on large enterprises like Amazon and eBay. Most states on the West Coast adopted similar laws based on the California legislation, which made it of national importance.

California often sets the precedence for business law on a national level. Their government style often brings controversial topics, like GMOs and online sales taxes, to trial before other states.

This article was written by RyanD, an avid law blogger on YouBlawg. He writes this on behalf of the law offices of Philip C. Tencer, your number one choice for representation when experiencing Business Disputes in San Diego. Check out their website to see how they can help you and your business.