Rescue California

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State to pursue Internet sales tax

June 05, 2003

SACRAMENTO - California, one of the last holdouts against a multistate nationwide campaign to collect more sales taxes from online shoppers, would finally join their efforts under a bill passed Wednesday by the state Senate.

The Senate voted 25-13 to make California join a drive to simplify sales tax collection systems nationally, paving the way for widespread tax collection in the fastest-growing sector of American shopping.

Sen. Debra Bowen, D-Marina Del Rey, author of the bill, said it will put California "at the table" of a national discussion, but not immediately change a 58-county sales tax system ranging from 7.25 percent to 8.5 percent.

Bowen criticized California for three years of "continuing to sit on the sidelines" while other states launched a process to eventually tap billions of dollars in new revenue. California, New York and Massachusetts, home to major Internet and technology business sectors, had been among the chief holdouts to formally joining an effort known as the Streamlined Sales Tax Project. But Massachusetts and New York joined the effort recently.

Under the bill, which now goes to the Assembly for consideration, California would become a late new player in a major debate over taxing online shopping nationally.

"We've really built up some momentum this year," said R. Bruce Johnson, a Utah state tax commissioner and co-chair of the national movement. "If we can get California's participation, there would just be literally a handful of states that aren't participating." They include Idaho, New Mexico and Mississippi.

Bowen calls the widespread custom of no-tax online sales unfair to governments struggling to pay for public services while sales taxes go uncollected. She also cites the competitive disadvantage borne by traditional merchants obligated to collect sales taxes.

"It's about tax fairness, because people should be taxed on what they buy, not on how they buy it," she said in a statement after Wednesday's vote.

Estimates vary widely over government losses from uncollected sales taxes from Internet shopping. A University of Tennessee study put it as high as $45 billion a year by 2006, while the New York-based Direct Marketing Association, which represents catalog and online merchants, puts 2006 government losses at $3.2 billion. One state study estimates California's losses at more than $1 billion yearly.

The streamlined sales-tax states are drawing up a simpler uniform tax system to overcome a U.S. Supreme Court ruling that bars states from forcing online retailers in other states to collect their sales taxes. That ruling supported Internet and catalog retailers' claims that it's impossible for them to collect sales taxes for 7,500 individual taxing districts across the United States.

A companion bill passed by the Senate last month would also make online retailers with physical stores in California collect sales taxes from state residents. Backers say that bill would bring $13.8 million to the state every year and $6.2 million more for local governments.