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California Senate Approves Net Tax Bill

May 12, 2003
By

Mark Berniker






As a result of the ongoing financial crisis in California, legislators are no longer willing to forego revenues generated by sales taxes on Internet purchases.

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.

California Governor Gray Davis, vetoed a similar bill back in 2000, but has publicly said he is prepared to consider the measure, given the state's $35 billion deficit.


Senate bill SB103 was approved by a vote of 23-15 and the state expects to collect at least $14 million in additional sales tax, while local municipalities could garner close to $6 million from the measure. State Senator Dede Alpert, a Democrat from Coronado in San Diego County, is the author of the bill.

Alpert says the new law doesn't create a new tax; it just creates new enforcement for collecting an existing tax. The proposed new law not only requires sales taxes to be collected for Internet-based sales to businesses located in the state, but also phone and fax orders, as well.

State Senator Alpert issued a press release Thursday stating the bill passed and that it clarified "that an out-of-state retailer is obligated to collect tax on sales to California customers if it has representatives operating in the state who repair or service property bought from the retailer; it has an ownership interest in a California business; or it sells the same products under the same name as the California business."

The statement went onto say "the Senate's action comes on the heels of the April 23 vote by the State Board of Equalization, California's elected state tax commission, directing its staff tax auditors to conduct a full-scale nexus audit of the California activities of Barnesandnoble.com, a 'dot com' retailer which both sells Barnes & Noble products online and used Barnes & Noble stores in California to distribute discount coupons in 1999. The Board also directed Barnesandnoble.com to cooperate fully with the nexus audit."

Barnesnoble.com press officer Christine Tzen was not available for comment on the new law, or the state's audit of its business activities in California. New York-based Barnes & Noble has already been ordered to pay a $1 million fine after the California Board of Equalization found it did not properly collect sales tax on Internet purchases.

Carole Migden, chairwoman of California's Board of Equalization, is quoted in State Senator Alpert's release saying the bill's passage "sends a loud message to national retailers: do not try to use the Internet or your out-of-state location as a tax haven for your California stores. If the end result of your commerce is a physical presence in California, you're going to be treated like every other store on every other Main Street or mall in California."

The bill now goes to the State Assembly where some say it is expected approve. It would then going to Governor Gray Davis's office for final approval. No timetable was given how quickly the bill will move through the California legislature.

A 2001 study by the University of Tennessee said that state's would lose out on revenues from uncollected levies from Internet sales of up to $45 billion by 2006 and $55 billion by 2011. The study suggested that without policy changes, some states could lose as much as 10 per cent of their tax base as a result of e-commerce.

But some republican California State Senators are not supportive of the bill and have warned that it could cost California businesses, if national franchises move their Californian operations to other nearby states to avoid the Internet tax provisions. New York and other cash-strapped states are said to be considering similar measures to the landmark Californian Internet tax bill.

Other companies besides Barnesnoble.com, which are likely to be impacted by the law, include Amazon.com and Dell Computer . Under an agreement with close toy 40 states and the District of Columbia, several major national retailers, including Wal-Mart Stores, Toys R Us and Target, already collect sales tax from their online customers.


 

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