California Senate Approves Net Tax Bill

Grant Erickson points to this internet.com story, which says "On Thursday, the California state Senate approved a bill that requires businesses with stores in the state to charge their customers sales tax for purchases made over the Internet." The state's huge ($35 billion) budget deficit is named as a driving force for the measure.

Comments

This changes nothing

[unfortunateson]

As the article says, it only changes enforcement of the laws on the books, and maybe broadens existing rules just a bit: service and other facilities within the state now count as brick & mortar to cause you to be responsible for in-state sales tax.

Amazon already keeps its distribution facilities in Oregon and Nevada for just this reason. They might get caught if they have a supply/delivery depot set up for same-day delivery in LA.

This is mainly to put some muscle into collecting from folks like Wal-Mart, Barnes & Noble and Borders, who claimed to have separate businesses running their internet. The new law states that the same 'brand name' is a trigger for tax collection.

Re:moving on out?

[NetSettler]

Doesn't California have a state income tax? Why isn't it enough that the state makes money on the income of the business that is able to make the sale? I've never understood this. How many different ways does the government have to tax the exact same transaction before it becomes too much?

Again California shoots off its own foot.

[Ungrounded Lightning]

"On Thursday, the California state Senate approved a bill that requires businesses with stores in the state to charge their customers sales tax for purchases made over the Internet."

If this goes into effect, what will the effect be? Simple.

California's sales tax is typically over 8%. (It varies by location, because cities and counties are allowed to add on their own small deltas.)

So the result will be that companies which are primarily net retailers will CLOSE ANY STORES THEY HAVE in California. Standalones will move their operations to other states. Even large retail chains with an internet sales outlet may split into subsidiaries.

8ish percent of gross is a LOT in a heavily-competitive market. And the WHOLE POINT of buying something on the Internet is that the price differential must be more of a draw than the lack of a local facility is a repellant. So if a company has to charge an extra 8ish percent if it continues to have a presence in the state, it will, if at all possible, eliminate its presence in the state, rather than watching the bulk of its business switch to its competitors or just go away.

The net effect on California's budget will be negative. It will lose more in taxes, on store sales, employee income taxes, and other taxes on the businesses that fold up and move (or die) than it collects. It will also incur extra costs from the business shutdowns - such as unemployment and/or other social program costs for workers that don't move to follow the business.

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If this also passes the assembly it will almost certainly be signed into law - because Gray Davis is clueless about anything financial. (Witness his reaction to the "electric deregulation" debacle.)