California Considering Online Sales Tax

by Mike Godfrey, Tax-News.com, Washington

03 March 2003

The debate in the US about the taxation of goods bought online has been rumbling on for some time. The very nature of internet commerce makes the introduction of sales tax laws in individual states problematic; and a long-standing Supreme Court ruling says that a company has to have a physical presence ('nexus') within a state in order for a sales tax to be collected there.

However, with $79bn spent buying over the internet last year (3% of sales), it is seen as an increasingly lucrative source of extra tax revenue in a period when the states face combined budget deficits estimated at $50bn, rising to perhaps $70bn next year (excluding California). Indeed, California alone is said to be forfeiting some $1.7bn in extra tax revenue from its failure to collect a general online sales tax.

Though Governor Davies rejected such a move back in 2000, he said at the time that the issue should be looked at again in three to five years, and in the light of California's recent fiscal troubles, Davies's spokeswoman Hilary MacLean has now intimated that the governor is more open to a new tax.

The participation of California in levying an online sales tax is seen by some as an important step in tipping the scales towards the imposition of a nationwide tax. With two bills already introduced into the legislature, the issue is clearly being taken quite seriously, and leading advocate of the move R. Bruce Johnson, Utah Tax Commissioner confirmed "It is difficult to overstate the importance of California's participation in this project."

Whilst some important figures, such as New York's Republican governor George Pataki are opposed to a unified national sales tax, 34 states, including District of Columbia, are currently working on a simplified code through the SSTP task force (Simplified Sales Tax Program) so that an online sales tax can be incorporated into the current muddle of sales tax rules.

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