We all know Berkeley loves to read. In fact, according to a recent report, Berkeley is the third-most well-read city in the nation.
Despite our love of the written word, Berkeley, along with many other cities throughout California, has witnessed our cherished local bookstores vanish right before our eyes as a direct result of online retailers exploiting a legal loophole to avoid collecting sales taxes from consumers.
It is important to be clear; there is not now, nor has there ever been, a sales tax exemption for Internet sales. However, many Californians are unaware that online purchases are subject to the state’s sales tax.
This lost revenue, which the state tax board estimates to be $1.1 billion annually, is critical, particularly in a time of enormous budget deficits and intolerable cuts to our schools and social safety net.
Online out-of-state merchants can under-price local stores and Californian online firms by as much as 10 percent through their refusal to collect state sales tax — they bet consumers will never pay the sales tax on their own.
Unfortunately, they have been correct thus far. In 2010, less than half of one percent of Californians paid the tax on their income tax returns.
Local bookstores, which collect sales tax and undoubtedly contribute to the health of our community, have seen their stores become Amazon’s and other Internet tax-evaders’ showrooms.
So what should we do?
First, consumers can support their local businesses and retailers.
Visit your local store in place of purchasing that new book online. A healthy local business sector is vital to a healthy community. If you do buy online, keep your receipt and pay the sales tax on its due date.
Second, lawmakers need to follow the examples of Minnesota, Virginia, New York and Arkansas by giving state tax officials the direction needed to pursue all avenues required to get out-of-state online retailers to collect taxes owed.
In conjunction with Assemblymember Nancy Skinner and and Assemblymember Majority Leader Charles Calderon, I have coauthored a package of bills that aim to close the tax loophole and put in-state retailers on level with out-of-state competitors.
Californians can contact their legislators and tell them to support state retailers, numerous regional chambers of commerce, cities and counties by supporting Senate Bill 234.
Failure to compel these out-of-state online retailers to collect sales tax gives these businesses preferential treatment by attracting consumption in California when they do not actually employ Californians or invest in our state.
This practice, unfortunately, comes at the expense of local businesses and economies.
Loni Hancock (D-Oakland) is a state senator serving the 9th district.
Comment Policy
Comments should remain on topic, concerning the article or blog post to which they are connected. Brevity is encouraged. Posting under a pseudonym is discouraged, but permitted. The Daily Cal encourages readers to voice their opinions respectfully in regard to the readers, writers and contributors of The Daily Californian. Comments are not pre-moderated, but may be removed if deemed to be in violation of this policy. Click here to read the full comment policy.
I’ll disagree with Emma on one point: every retailer in the United States should be required to collect the state sales tax for the purchaser’s state of residence.
But she’s right that the strategy used in the “advertising nexus” bills is unconstitutional, as are many other strategies. The U.S. Supreme Court has done something extraordinary in this context: in its _Quill_ decision, the court identified a couple of very specific strategies that could accomplish the states’ goals of collecting sales tax, without imposing an undue burden on commerce. One such strategy is the “Streamlined Sales Tax Project,” which California co-founded but then abandoned.
And she’s right that Californians are legally required to report and pay use tax for purchases from out-of-state retailers, but Emma and I are among the tiny percentage of taxpayers who actually do this (the estimate is that only about 0.5% of sales/use tax owed [for purchases from out of state] is ever paid). It’s virtually impossible for California’s tax agencies to identify and audit such transactions, and even if states could compel retailers like Amazon to turn over purchaser and transaction data, the enforcement costs would far exceed the tax collections in all but a handful of situations (mostly business purchasers).
My key point is that the “advertising nexus” strategy being promoted by booksellers (and now endorsed by big-box retailers) simply won’t achieve the stated goal of increasing sales-tax collections. Instead, the law’s primary effect will be to drive advertising dollars out of California, shifting profits (and income tax revenue) to other states and nations.
The ONLY reason that this law is moving forward is because its passage is being credited with generating $195 million in additional sales tax revenue, as part of the “smoke and mirrors” budget strategy that our legislators continue to pursue instead of legitimate budgeting. Six months from now, we’ll hear that sales tax collections are unexpectedly lower than expected (by at least $195 million per year), and even then, instead of adopting a triage budget, the legislature will look for more “smoke and mirrors” budget tricks to defer costs.
It’s true that local bookstores are at a disadvantage to Amazon. Amazon is open 24-hours a day, has millions of customer reviews, and a breadth of inventory a local store could only dream of. What’s NOT true is that SB 234 will level the playing field.
It’s too easy for Amazon and the other out-of-state retailers to simply stop advertising on CA-based websites. Think about it, it doesn’t matter to them (or to customers) whether their online ads are on sites based in California or Nevada or Timbuktu. By shifting their ads to another state, they avoid the burden of collecting sales tax on 37 million customers. Pretty simple decision.
These Internet tax bills look great on paper, but there’s no free lunch. California won’t see any new tax revenue, the local bookstores are no better off, but the websites that
earned money advertising will see their businesses destroyed. And these small affiliate businesses contribute millions of dollars in CA taxes each year that is at risk of
drying up. Is that what you want? Because that is exactly what has happened in other states that have passed this harmful legislation.
Given the consequences, there’s no rational support for this law. We’ve been given the rare gift of hindsight. Will our politicians have the good sense to use it?
An out of state retailer shouldn’t have to collect CA sales tax. These bills are unconstitutional and will only hurt Californians and small businesses in California. When these bills pass in other states companies like Amazon end their affiliate programs, which means many small affiliate businesses based in California will lose their income. Although most will be forced to set up their businesses in other states. So now CA will not only not gain any additional income tax, but it would lose the CA income tax these small affiliate businesses used to pay.
CA is at the forefront of the technology revolution, let’s not penalize Californians for the sake of a political agenda. People don’t shop online to dodge taxes, they do it for convenience. Feel free to patronize overpriced dusty Berkeley bookstores, but don’t blame their business decline on progress.
Also when you fill out your taxes you are asked about a use tax where you claim any unpaid out of state taxes for any purchases you would of made. Turbo tax always asks about out of state purchases, so it is the tax payers responsibility to pay their fair share, not an out of state retailers responsibility to be in charge of being the taxing authority for all 50 states.
There is nothing fair about these bills. How about some honesty and common sense thrown into the argument?
SB 234 won’t collect any additional sales tax; it’s just pandering to booksellers & other in-state retailers. If enacted, SB 234 (or the same language in ABX1 28) will merely force Amazon and hundreds of other out-of-state retailers to terminate their advertising relationships with California web publishers like me. I’ll lose 26% of my advertising revenue, while Amazon and other retailers will continue to sell to Californians without collecting California sales tax.
As one of the few Californians who reports and pays the “use tax” for online purchases, I’m outraged that California refuses to make any legitimate effort to compel out-of-state retailers to collect California sales tax. This pandering legislation doesn’t address the problem at all, but instead merely punishes California web publishers while providing mere lip service to local booksellers and other local retailers.