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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.
Unfortunately this is something we've all known has been a long
time in coming. When it comes to the government and collecting
"their" money, they won't let any opportunity pass them by.
It will be interesting to see how this will impact online
retailing though. Not having to pay sales tax has been helpful
to sites like Amazon for keeping their costs lower than brick
and mortar stores. Although I think many people don't figure
the cost of sales tax into the purchase of an item as frequently
as they should (I know I don't), so it may not have that large
of an effect.
One interesting sales tax law in my home state (Utah) is that if
you buy something from a state that doesn't have sales tax
(Oregon) then you have to pay sales tax to Utah. Just one of
the lovely little "bend over and grab your ankles" type of laws
on the books. I'm hopeful they won't enact the same type of law
for internet commerce, but I don't have much hope.
Doug Tolton
"The destruction of a value which is, will not bring value to that which isn't." -John Galt
Integrating a system to charge, process and report state taxes, and losing business due to your higher prices,
OR:
Moving away from california.
This only affects people who live in CA and buy from California merchants. So this isn't going to affect the rest of us. Personally I don't see what the big deal is... California can't charge sales tax to "non-residents" because as yet the constitution still identifies interstate commerce as non-taxable.
Food not Bombs is a nice platitude but it breaks down when you notice that the Bombees are usually well fed
If you don't think a US$1,000 per capita budget deficit is reasonable, you too can Recall Gray Davis.
I thought it was already the case that businesses who performed business over the Internet (or through catalogues or whatever) had to charge sales-tax as long as their business had a physical presence in the state?
E.g., I live in NJ, I buy from a company that has no physical business presence (i.e. a store-front or hq or warehouse) in NJ. I am not charged sales-tax. Legally, I am required to declare these items when I do my income taxes for the year and pay the sales-tax then. If I buy online from a store that exists in NJ (e.g., Best Buy), then they must charge sales-tax and that amount is included in my bill.
Maybe this is just NJ, or maybe I'm just confused. Any lawyers/accountants who can shed light on the matter?
This is not the greatest sig in the world, no. This is just a tribute.
(tongue firmly in cheek:)
Hm, so if I buy things from stores that charge me California sales tax am I eligible to get a vote in California in addition to my Texas one, and get Californian social services as well as Texas ones? Could I transfer from UT-Austin to UCB without losing instate tuition status?
If not, this is taxation without representation.
News for Geeks in Austin, TX
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.
Design for Use, not Construction!
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?
Kent M Pitman
Philosopher, Technologist, Writer
no, it means people in California must pay sales tax when purchasing from online retailers with a physical presence in California.
I heard a story here in Oregon on the local news that the Oregon legislator is discussing a tax on fast food. I agree with this kind of tax that same way I agree with taxes on cigarettes and liquor. The state ends up paying for health care for obesity, lung cancer and liver problems.
However, I think that this internet tax does not have the same kind of reasoning. The internet is bringing revenue in for the state and now the state is trying to find a way to make more money.
Where the Music Matters
Californians will be the most heavily taxed state in the union inside of a decade.
Thank Gray Davis and his complete incompetence, but don't forget to give a shout out to the hippies and celebrities who hold so much sway out there.
I swear to god, there's something wrong with people's heads in that state. I've mentioned before I write police software for a living, and we have some California sites.
Most municipalities out there have this screwed up system for dealing with false alarms, and it all boils down to: after the seventh alarm, your permit is revoked, you're charged with being a public nuisance. Both of which make some sense, but get this, the police are to no longer respond to your residence.
I mean, any crooks in LA and it's surrounding counties, theres the hot tip o' the day. Find a business that has had seven false alarms within 12 months (thats a sliding window, not a calendar year), and it's free for the pickins! Smash the window, shoot the owner in the face, the police wont come!
All because some dipshit politician with his head up his ass thought that the police refusing protection to citizens would be a great cost-cutting measure.
Of course, the police will still show up. They cant afford not to, there are too many liability issues (imagine the feeding frenzy if some clerk bled to death on the floor of a 7-11 because the police wouldnt come out for alarm #8).
Bah, that states done. You could fill a library with stupid laws and idiotic political moves in california. Cecede and form Moronia, already.
I don't need no instructions to know how to rock!!!!
Our state (CA) is slashing budgets for public schools, while spending $100 million on a new death row for San Quentin.
How LEFT wing is that?
"It's overkill, of course. But you can never have too much overkill." - Anonymous Slashdot Coward
will companies relocate to avoid charging their customers the tax?
They should move on up to Oregon; we don't have a sales tax and we've got a lot of people who would like to have a job.
I think California figures that it is simply too difficult to move a web site. Once you get all of those internet requests aimed at a particular state, ecommerce aren't going to just dig up and move their address. Think of all the heavy machinery and man power it would take to point a domain from one state to another!!!
It is interesting to see California leading the way to in the sales tax fray...since the net has done a pretty good job of transferring wealth from other states in Ca. Only in the last year have other states begun making good inroads onto the web.
"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.
==========
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.)
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Those of us in Minnesota always pay taxes on goods purchased over the internet or otherwise. It is called Use tax, and the idea is it protects our local business - while generating revenue for the state as an after thought... (I don't buy it either)
Nothing here to see - move along...
+++ UGUCAUCGUAUUUCU
You can't tax something that doesn't exist ;)
I thought Oregonians were "liberal", oh well. Most people who eat fast food are low income; that's all they can afford. Also, have you noticed where a lot of fast food eateries are? In low income or rural areas. All the rich people can afford to shop at Trader Joes and Whole Foods ... the poor folk are stuck eating Big Macs. A fast food tax is a dumb idea, and shouldn't fly if Democratic voters have a clue and can put a and b together. Now an internet tax, that's taxing the well to do, so it's "okay". Not many ghetto kids are buying DVDs online at Amazon, get it?
*applause*
Let's see - we have a two-year boom in capital gains tax collections (oh yeah, you non-Californians probably don't know that we pay an extra 9.3% state tax on top of the 20% federal rate for long term capital gains), so we jack up spending by 40%+ over a term.
Then, when boom turns to bust, we're shocked - shocked, I tell you! - that revenues have fallen. But there's an election coming up, so we keep spending.
And taxing. Mandatory health insurance? Sure, why not fuck over the few remaining businesses in the state, they've got money! Jack up the taxes on employers for extension of maternity leave, too! Money grew on trees during the dot-com boom, the private sector obviously has an infinite supply of the stuff, so what's another 1-2% of that infinite supply when there's prole votes to be bought?
In answer to your question, "n+1", where "n" is the number of ways a given transaction is taxed in the preceding election cycle.
In Nevada, there's no state income tax, and there are places where you can walk down the street with a beer in one hand and a cigarette in the other.
In California, you pay the highest taxes in the nation - higher than most of Canada - and soon, you'll need proof of age-21 to purchase dangerous foods like cigarettes, beer, and now Oreo cookies.
Atlas, if you're listening, it's time to shrug.
Comment removed based on user account deletion
I live in Colorado, and I have a small business. I'm an artist. If I sell a piece via the internet to someone here in CO, I have to colect sales tax; just as if the purchase had occurred face-to-face at an art show. Why? Because my business is located here. If that same purchase is made by someone in, say, NJ, no sales tax is charged. I don't have a business presence in NJ. Simple as that.
I have heard a lot of discussion about taxing all internet-based purchases, and I think (hope) that two things are going to prevent such a thing from taking place. First is the sheer scope of such a proposal. Collection and distributing the taxes would be a logistical, not to mention jurisdictional nightmare. Who gets what percent? Are states experiencing budget shortfalls entitled somehow to a bigger slice of the pie? Or does the whole thing get gobbled up at the Federal level? It's the sort of monkey wrench question that would make even the most dedicated tax lawyer blench.
Second, and more important, is the constitutionality of such a measure. If I don't reside or have a business presence in NJ, why in the hell am I paying a sales tax into their coffers? In a nutshell: no taxation without representation.
(Yes; I know about the sorry example of Washington, DC. Don't get me started on that one. So far as I'm concerned, it just proves my point.)
Doing my level best to piss off the religious right wing...
Stupid, stupid move.
All these CA companies who had good internet sales now charge 6-8% more than any other site. They'll lose a fair portion of those sales. Their overall profit now decreases, which means they do not have as much income. Now CA still does not collect much of the sales tax - but it also has killed off a portion of the corporate income tax. To top that off, already struggling companies will lay off more people since their profits are down. More people on unemployment and less individual state income tax. Instead of coming out ahead, CA has set itself up to create an even worse economic situation than it is already in.
Again, I say, stupid, stupid move.
I was taking one day at a time, but then several days got together and ambushed me. (from a Rhymes with Orange comic)
Currently , federal trade laws require any 'online' store that has a brick & morter store in a state that an order is taken from [err .. so if you live in CA, and we have a store in CA, and you order off our website in Towson MD] you are charged sales tax.
.. I spent five years of my life running a rather successful game/hobby store in NewEngland. I know how taxes suck, but I also remember how folks used to order crap online (back when the www first started taking off.) at wholesale + 5% with no tax from jerks who simply opened up an account with WOTC or Chessex [or god forbid .. Max at the armoury.] These folks would sell out of their house, and not have to pay sales tax, or operate as a business. [or for that matter, make money.] yet I was expected to compeate with all my overhead, YET pay taxes quarterly. (Which I did, rather well infact.)]
.. LEGITIMATE business taxes. One of the reasons we *HAVE* the law that you have to pay taxes in a state you have brick & morter in .. is *because* of a retail chain in california who would not 'sell' things at their cash register, but instead point the shopper to an internet terminal NEXT to the cash register and have them buy from there (and pick their product up at the end of the counter - thus avoiding sales tax, and keeping the business's bottom line better to boot.)
:) heh.
.. Im sure Wil Wheaton won't agree, damn bleeding heart that he is .. but I still admire the guy's guts. *grin*
No choice in the matter.
So basically, California's Gov isn't making a new law, he is enforcing a federal trade thang-a-mabob. He is ALSO protecting the REAL small business from closet industry. [which is good and bad i suppose.]
Makes sence to me actually, as bad as it sounds, why SHOULDN'T an internet store have to pay sales tax? if you have a physical location where you ship goods from, and ACT like a business (and expect to rake in the $$), you should be expected to have to behave like a business.
[And before all you 'free as in beer' folks start yelling
In the end of the day, business is business. Be it online, or offline - the laws are in place already.
Sure, it would really suck to be selling cold-cast reproductions of klingon's out of my mom's basement and have to *gasp* actually have a merchant ID and pay taxes on sales. [keeping in mind, you don't have to pay INCOME tax unless you make profit, or make over X a year in sales.] But these are not the folks he is going after. $10 in taxes a year from the 3 models this kid sells isn't going to make a big dent in 35 million/billion/whatever.
California is going after the folks who are using the internet as a loophole to avoid business taxes
Not like I begrudge the chain from TRYING:) thats what free market is all about. Use a loophole until it gets plugged
Blarg
--Ne auderis delere orbem rigidum meum, non erravi pernicose!
We don't have any damn sales tax. If you really want to avoid it move all your company here, all six of us could use a job...
Barnes and Noble (the B&M book stores) and BN.com (the web site) are indeed separate and distinct companies. I wonder how this ruling will affect them.
No boom today. Boom tomorrow. There's always a boom tomorrow. - Cmdr. Susan Ivanova
Lets wake up. The working class is paying far more welfare to the wealthy than to the poor and this trend has been steadily rising.
w ww.fair.org: //www.taxpayer.net
"Microsoft enjoyed more than $12 billion in total tax breaks over the past five years. In fact, Microsoft actually paid NO TAX AT ALL in 1999, despite $12.3 billion in reported U.S. profits. Microsoft's tax rate for the past two years was only 1.8 percent on $21.9 billion in pretax U.S. profits." http://www.ctj.org/html/corp0402.htm
"Washington-based Center for the Study of Responsive Law has identified 153 federal programs that benefit wealthy corporations but cost taxpayers $167.2 billion annually [$175 billion in 2003]. For comparative purposes, federal support for food stamps, housing aid, and child nutrition costs $50 billion a year." - http://www.projectcensored.org/stories/c1995.htm
Fact: welfare for the wealthy is FAR GREATER than welfare for the poor. BOTH democrats and republicans strongly support welfare for the wealthy. The only debate is welfare for the poor which gets all the media attention despite the amounts being far less.
Result: the working class is paying for both the wealthy AND the poor, with the majority of benefits going to the wealthy. To me, "working class" are people who MUST work AND does work--so a doctor making $200k/year is working class to me.
Method: keep the media focused on welfare for the poor so the working class never even hears about the welfare for the wealthy. Do this by incenting the media by offering to help repeal existing laws that limit media monopolies or go easy on anti-trust remedies.
Why?: the wealthy take action in these matters by contributing money and contacting govt. officials while the working class whine about the poor--its easier for the middle class to look at failures of the poor instead of their own financial failure when comparing themselves to millionaires.
Opinion: Get better informed and take action! Share info, organize petitions, write letters and contribute to campaigns. Tax laws should be simplified to close the thousands of loopholes that only benefit wealthy millionaires. And I propose a fair & just tax cut that simply raises the STANDARD EXEMPTION from around $4,700 to match the poverty line of the prior year (i.e. $9,000 for single, $15,000 for family of 3).
Did I mention Microsoft paid no taxes on profits of $12.3 billion in 1999 and had a tax rate of less than 2% (two percent) for the past couple of years while the rest of us are paying more than TEN TIMES that rate? Yes I did, but its worth repeating.
Well? What are you waiting for? Do something about it!
Resources:
http://www.commoncause.org
http://
http://www.projectcensored.org
http
Good thing I turned in my class paper before this came out, or else I'd have had to write 3 more pages.
A few quick thoughts on this and its relation to U.S. Constitutional law (citations, if any, at the end).
Sorry this is long.
The Constitution limits a state's ability to collect, or force a business to collect, sales and use taxes. In order to collect these taxes the Constitution's Due Process and Commerce Clauses must be satisfied.
The Due Process Clause is often referred to as the personal jurisdiction requirement and focuses on whether the taxpayer has purposefully availed themselves to the taxing sovereign. Modern due process rules have utilized a fairness test, which is refereed to in International Shoe as a "minimum contacts" test. The question, in short, is "Is it fair to drag the retailer into a CA court?" The business is usually considered to have availed themselves to the taxing sovereign if they have purposefully made sales into a particular state. The due process inquiry examines accessing the quality and quantity of the seller's contacts with the state.
Until the Quill decision in 1992, the Supreme Court had applied the Due Process and Commerce Clause requirement interchangeably. However, unlike the Due Process clause, which deals with the fairness of litigating against the taxpayer, the Commerce clause focuses on the effect the state taxation would have on interstate commerce. Therefore, the question is whether the imposition of the tax on interstate business would impede interstate commerce.
In Quill, the Court applied a four-prong test to satisfy the Commerce Clause requirement. The test dictated that the tax must "
[1] be applied to an activity with a substantial nexus with the taxing State,
[2] be fairly apportioned,
[3] not discriminate against interstate commerce, and
[4] be fairly related to the services provided by the State."
The Court stated that the 1st prong of the test established a "bright-line" requirement of "physical presence" to determine a "substantial nexus" and. the older "minimum contacts" view was rejected. Since Quill did not have a physical presence in the taxing state (North Dakota), it was not required to collect use taxes.
The Quill decision essentially exempted the mail order industry from state sales and use taxes, unless the business owner was physically located within the state. This rule has carried over to the Internet sales industry.
Two cases were the Internet retailer screwed up and got hit with CA's sales and use tax are Borders.com and Bn.com. Essentially, these two "click-through" retailers had no direct physical presence within CA. But, the two retailers had "brick-and-mortar" affiliates, Border's Bookstores, and Barnes & Nobles, Booksellers, respectively. The two legally and supposedly financially separated "click-through" and "bricks-and-mortar" companies were so closely affiliated that the CA taxing authority (and the administrative appeal Board) felt that the "click-through" company fulfilled the Quill "substantial nexus" test. These guys so intertwined their businesses that they shared marketing functions, and allowed customers to returns books purchased at "click-through" store to the "bricks-and-mortar" store.
So, the rule, if you don't want to be forced to collect state sales/use taxes, is don't put a physical presence in the state and don't so intertwine your "click-through" business with a local "bricks-and-mortar" business that the "bricks-and-mortar's" physical presence gets imputed to you via agency.
These two cases where done before CA passed this law. So, without reading the new CA, I'd guess it's a change in enforcement not a change in powers, which would be limited by the U.S. Constitution anyhow.
PS:
Every state that has a sales tax, must also have a use tax. Otherwise, the sales tax fails a Commerce clause test. However, normally, no one ever knows or cares about the use tax. And, especially after Quill, i
So very typical. Elected officials are never willing to say no to any proposed project, they wouldn't want to lose a potential vote, so everything gets approved and the bills have all kinds of unrelated riders to drive the cost up even further. How do we solve the money issue? Golly, let's tax people even more! I pay state incoming tax, federal income tax, sales tax, gas tax, license tab tax, social security, and really tax on just about everything. The only thing a local or federal government hasn't instituted is a tax on tax.
If we're going to have a sales tax then we should have no state income taxes. If we're going to have a federal income tax there should be no additional social security charge.
People have let the government become a crutch and in the long run this does more harm than good. It's like a crappy parent who sends their kid off with someone they don't know very well who ends up beating the shit out of their child. Sure that person will probably get what is coming to them but then the question also gets asked of the parents, "What the hell were you thinking to begin with?"