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

That is the sound of inevitability....

[dtolton]

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.

Re:That is the sound of inevitability....

[stanmann]

Actually, all states have that law... and most states have procedures to reclaim taxes paid in that state for items "used" out of state. Check your local law. In Theory, you are required to pay "USE TAX" on all items used in any location, MOST states empower merchants within that state to collect the USE TAX and refer to it as SALES TAX.

Re:That is the sound of inevitability....

[JustAnotherReader]

I really don't see how the net is so special that things you buy over it shound't have tax on them.

The thing is, mail order has been exempt from this forever. Ordering online is the same thing as ordering over the phone from a catalog. So there is a long standing precedent of not taxing people from outside of your state with your sales tax.

Now, being a Californian I have another point I'd like to make. When Davis came into office we had the biggest surplus in all of Californian history. At the end of his first term we now have the biggest deficit in our history. Were did all that money go?

It went two places: First, in typical political short sightedness our government started spending spending spending on various new government programs. How soon they forget the lean times.

Secondly, we deregulated our utility companies. However, they were deregulated without adequate competition. Deregulation was suppose to make prices go down. But since the same companies owned both the electricity generating companies (Like Sempra Energy) and the delivery companies (Like San Diego Gas & Electric) the greedy bastards took advantage of this new cash cow. The companies that use to make a profit when our electric bills were $75 to $100 a month tripled our electric rate (sometimes higher). My personal electric bill went from $78 one month to $224 the next.

So what does our governor do? Does he take over the generating plants like he threatened to do? No, he makes a deal with the electric companies to pay them off via the state's general fund.

So our huge surplus of ca$h went not to civil programs, not to a savings account that would generate interest for future lean times, not to tax rebates for those of us who paid them the money, it went back to the electric companies who were screwing us in the first place.

So thank you so very F*cking much Mr Davis! You've taxed us, you screwed us, you got in bed with the electric companies and screwed us again, and now you're going to tax us some more.

That's why many of us are trying to recall the Bastard.

You know, everybody seems to be asking how the nation can afford another tax cut. But nobody ever ask me if I can afford another tax increase.

Ok, No big deal

[stanmann]

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.

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?

Re:moving on out?

[yintercept]

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.

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.

==========

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.)

Move your sites to Montana!

[greenskyx]

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...