California State Assembly Passes Online Sales Tax Bill

States, The Innovation Economy June 7th, 2011

, Deputy Editor,

WASHINGTON June 7, 2011- The California State Assembly passed a bill last week that would require online retailers such as Amazon to collect state sales taxes on all goods the site sells within the state.

The bill is similar to those that a number of other states and the U.S. Congress are currently debating.

“Each year, California loses over $1.145 billion in revenues as a result of unreported use taxes.  A large percentage of this use tax gap is attributable to out-of-state Internet sales,” said Assemblyman Charles Calderon, the author of the bill.  “More importantly, the lack of use tax collection has provided a competitive advantage to many out-of-state companies, allowing them to undercut their in-state competitors.”

The bill passed the lower house of the California legislature by a 47-16 vote and will now move the state Senate.

The California State Board of Equalization, which administers and collects sales tax, estimated that on average each household owes $61 in taxes for online sales that are not collected. Collecting taxes on Amazon sales alone would generate $83 million in revenue for the state.

“[The bill] would help to level the playing field by imposing a use tax collection obligation on retailers that use in-state sister companies to help develop or sell their goods,” Calderon said.

South Dakota, Missouri, Nevada and Connecticut are all also currently investigating collecting sales taxes from online retailers.

Illinois passed a similar piece of legislation in April, which the state estimated would generate $170 million in revenue.

After the Comptroller of Public Accounts in Texas asked Amazon to pay $269 million in uncollected sales taxes, the online retailer closed its distribution facility in Irving, Texas in February.

When the North Carolina legislature passed a law last October requiring Amazon to collect sales taxes for goods sold through its North Carolina-based affiliates, the retailer shut the affiliates program down in that state. The program allows small businesses to sell goods on the Amazon site.

New York passed a piece of legislation similar to the North Carolina law in 2008.  Amazon is currently challenging both the New York and North Carolina laws in state courts.

In May, Rep. Lamar Smith (R-TX) proposed the Digital Goods and Services Tax Fairness Act of 2011, which would create a simplified way in which digital goods and services could be taxed. Sen. Dick Durbin (D-IL) is also working on an online sales tax bill.

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