Calif. bill would collect taxes from online sales
SACRAMENTO – A bill before a California legislative committee aims to expands the ranks of companies that must collect taxes on purchases to include Amazon.com Inc. and other major online players.
The state estimates it loses about $1.1 billion a year in revenue through uncollected “use taxes” from online sales. If approved and signed into law, the bill could force Amazon alone to collect an estimated $83 million in taxes on purchases.
Supporters said the bill would level the playing field for California retailers that collect the tax. On items with identical prices, out-of-state competitors gain nearly a 10 percent price advantage because they don’t collect the tax.
“For retailers like us, this has become a serious competitive issue,” said Gene DeFelice, general counsel of bookseller Barnes & Noble Inc., who testified before the Assembly Revenue and Taxation Committee.
The bill would expand the number of companies that must collect the state use tax, a counterpart to the sales tax that is charged at the same rate. It would require out-of-state companies to collect the tax if they have a sister company in California, even if the California site’s main operation is developing products or marketing rather than sales.
“You cannot build your entire business plan on the avoidance of taxes,” said Assemblyman Charles Calderon, D- Whittier, author of Assembly Bill 155.
The measure also could lead to a legal fight. Internet retailers have long contended that forcing them to collect use tax when they don’t have a store or other physical business in a particular state is an unconstitutional restraint on interstate trade.
“This is not about fairness,” testified Jeffrey Leacox, a Sacramento lawyer representing an Internet industry group that includes Amazon, Overstock.com and other online retailers.
He said the legislation was the equivalent of forcing retail businesses to collect taxes in states where they don’t have stores.
Other critics said the ‘sister company’ approach has been shot down by the courts before and could cost the state more money than the bill would bring in.
The bill was kept in the committee Monday. A separate measure to require online retailers with sales affiliates in California to collect taxes also is pending in committee.
Amazon has become a focal point for critics of the Internet taxation landscape. The company, with $34 billion in 2010 revenue, only collects tax on sales for five states: North Dakota, Kentucky, Kansas, New York and Washington, where the company is based.
By some estimates, uncollected taxes from all online sales could total more than $10 billion a year nationwide, most of it on business-to-business transactions.
Several states have tried to force online sellers to collect the tax. In 2008, New York approved a measure to require retailers to collect tax if they had “affiliates” in the state. Affiliates-frequently small businesses-work with online retailers in various ways, such as providing used merchandise or reviewing products.
Similar laws were passed soon after in North Carolina and Rhode Island. Amazon cut off its affiliate relationships in both states, and Overstock severed them in all three.
Then-Gov. Arnold Schwarzenegger vetoed an affiliate law in California in 2009.