Californian Internet Tax Bill Gets Another Airing

Mike Godfrey, Tax-news.com, Washington

01 February 2001

A bill that requires companies to collect sales tax on all goods bought in shops or online in California has just been reintroduced in the state's assembly. Regardless of physical presence in or out of California, the bill, A.B. 81, calls upon the state Board of Equalization to enforce an existing law that requires online retailers to collect the sales tax on goods bought by Californian consumers. Currently, the tax law abides by a 1992 Supreme Court ruling that says a company only needs to charge a sales tax when the goods are purchased in the state where the company is physically present.

Responsible for the re-introduction of the bill are Assemblywomen Carole Migden and Dion Aroner. Both have said they are of the opinion that some e-tailers based in California have used the loophole to form online subsidiaries outside the state. The new law would rectify this by establishing clearly defined rules to force those subsidiaries to collect sales tax just like other bricks and mortar establishments.

Ms Migden said: 'A significant number of large corporate retailers are evading the law by not collecting sales tax. Fairness to the entire business community demands that the state enforce current law even-handedly so that all retailers, particularly large chains -- including brick-and-mortar, mail-order and dot-com outlets -- each share the same responsibility to collect the tax on the goods they sell.' She cited Borders Books as an example of a company that has taken advantage of the unclear nature of the legislation and, as a result, has not collected sales tax on its Internet sales through its online subsidiaries.

Ms Aroner added: 'The way the state Board of Equalization has decided to neglect enforcement of the law is totally unfair to community-based businesses. I believe the law is clear. If you are located in California, you collect sales tax. Forming a dot-com subsidiary does not relieve you of this obligation.'

So California is once again at the centre of the controversial sales tax issue. When the Internet sales tax bill was first introduced last year it was estimated by the Pacific Research Institute that over 300,000 people would be rendered unemployed as a consequence. According to the Institute's report, the new law would see around 60,540 jobs permanently eliminated in 2001, followed by a progressively higher number of people losing their jobs each year.

In addition, said Sonia Arrison, director of the Pacific Research Institute, there will be a severe decline in Internet sales as consumers won't want to pay tax and delivery costs. 'Taxing the goose that lays the gold eggs is a mistake that California lawmakers should avoid,' states the report. But while Carole Migden and Dion Aroner are intent on pushing the bill through, the controversy is set to rage for some time.

.

Recommended

Write a comment