The law, which goes into effect Sept. 15, 2012, forces Amazon to collect sales tax for purchases made by California residents, the Los Angeles Times reported Saturday.
That means Amazon will no longer have a 7.25 percent price advantage, represented by the amount of tax brick and mortar stores in the state must pay.
That means, "they will be forced to innovate," said Anthony Dukes, a marketing professor at the university of Southern California.
Some have suggested Amazon, with no price advantage, will move toward a service of one-day delivery or something similar to compete against local stores.
"Amazon can offer a fuller array of services like same-day delivery and Amazon Fresh, which is its grocery delivery," said Jordan Rohan, an e-commerce expert at the bank Stifel, Nicolaus & Co.
Gov. Jerry Brown signed the law at a Gap store in San Francisco.
Amazon, which is based in Seattle, said it plans to build distribution centers in California, creating 10,000 full-time jobs in the state.