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California's Internet Tax Bill Slithers Forward
jjr writes: "An article over at Cnet talks about how bill on internet tax is going to the Governor's desk next week for signing. This bill will affect alot of companies since California is a hub for a lot of Internet companies. We will see how this one plays out." Note that California (not that it's the only state with such ambitions) seems eager to snare wads of interstate money by snagging it even when people buy goods or services online which the brick-and-mortar versions of the same merchants don't carry.
As I recall from an article I read a long while ago, B&N spun off their web site as a seperate business operating from a single warehouse. They had wanted to set up a system where they could ship directly from their stores, but this would have kicked in the very kinds of taxes that are being proposed now. Since they are in a very tight price competition with other book sellers, most notably Amazon, they opted for the more difficult method of the spin off approach.
What I don't get is if B&N's web site is truly a seperate company operating outside of CA, just where in the hell do they get the right to tax that? Let's not forget what the state sales tax is actually for. It's to have businesses pay back to the state for the infrastructure (roads, police, etc) they benefit from. B&N's web site does not benefit from CA services in any way, thus should not be obligated to taxation. The brick and mortar stores do benefit from local infrastructure, so they do pay.
When it comes right down to it, B&N was playing by the rules all along. It's the state of CA that's looking to inject a loop hole into the mix so they can tax an operation outside the state boundaries. This is like Texas trying to collect taxes from a McDonalds in Oklahoma because McD has a presence in Texas.
When Gray "Never saw a tax I didn't like" Davis signs this garbage into law, you can bet there's going to be a load of cash paid out to trial lawyers that will eventually over turn an obvious constitutional infringement.
The line must be drawn here. This far. No further.
I'm a CA resident and when the time comes to sell my rather substantial portfolio, I'll be doing it as a Nevada resident. Nothing like not having to pay 9% to the lefties who run the show in Sacramento to make living in the desert palatable. That plus the 'must-issue' concealed-carry gun law there.
"If I have seen further than other men, it is by stepping on their glasses." - Michael Swaine
Before people get their underwear in a bunch about whether this violates the interstate commerce clause or whether the internet should be taxed, etc., please read the article.
The sales tax would only be charged if a CA resident is buying a product from an internet site of a company that has a physical presence in CA. If the company has no physical presence in California, the residents do not have to pay any sales tax. Residents of other states do not have to pay CA sales tax either. If it was a California mail order firm, they would have to charge you sales tax too. If one looks at the order form for a catalog, there is usually a place near the shipping and handling field where it says something like 'Illinois residents add x% sales tax'. IMHO, shopping via the internet is just like shopping from mail order catalogs. But you can spend your money faster because it's interactive. (Since this was instigated by local bookstores against BN & Borders, there are book price comparison sites that will include sales tax in the final cost if it is required.)
I would not be surprised that more states start beefing up their existing mail order catalog tax laws for the internet. Some states require you to pay sales tax on anything bought via mail order, no matter where it's from and have a section for that on their state income tax forms. As far as they are concerned, the internet isn't any different.
The retail company that I work for recently opened an e-store. Since we have brick-n-mortar operation in about 80% of the states, someone must have saw laws like this coming, because we charge sales tax for everybody. Even residents of states we don't have any presence in at all. While I didn't work on the project, I'm guessing it goes something like this:
- The company keeps a sales tax table for all zip codes in the US. We have to do it for the retail stores, so it's no big deal for the internet store.
- Take the customer's shipping zip code and use that to retrieve their sales tax rate.
- The total merchandise cost is multiplied by this rate to get the total sales tax paid. This is charged to the customer, and is stored in a data warehouse along with any warranty informaiton.
- Periodically, a report is run to show the total amount of merchandise bought and sales tax paid by zip code. This is broken down by state and sent along with any other legal paperwork to each state tax commission with a check (this may be totally electronic or involve real paperwork depending on the state)
There are probably software vendors that sell packages that do this or provide the service of handling the paperwork for each state. If there aren't that do this now, if many states follow CA's lead, I'm sure there will be companies offering such services to smaller internet businesses. It's probably simpler than all what's required by each state & the federal govt for COBRA, employment insurance, and all the other insurance/human resource related crap. Good grief, it seems like just about every town/city/county in PA alone has a different income tax, payroll tax, or some odd requirement that's slightly different from anyone else.the good ground has been paved over by suicidal maniacs
Hrm. CA law isn't clear that in-state purchases should get sales tax?
I believe that the situation is this: when a business has a presence in the state of California, and an order is made with that business, the business must collect sales tax even if fufillment of that product comes from out of state. That is, if I go to my local B&N bookstore and order a book to be shipped to my home, they collect sales tax even if the book was shipped from a warehouse in Nevada.
The law is not quite so clear when dealing with a subsidiary who does not have a presence in California, but who is owned by a company with a presence in California. In particular, B&N the web site is a subsidiary of B&N the bookstore chain, and so it is not as clear if the subsidiary should be required to collect California sales tax.
Some web presences of brick and mortar operations have been collecting sales tax, even though the wholely owned subsidiary providing that web presence is located out of the state of California. Some have not. The law clarifies this.
Of course this is AFAIK, IANAL, YMMV, etc.