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.

Comments

Doesn't anyone read the article?

[ksheff]

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.