CLICK HERE FOR TAXES
California, Other States Want Piece of Internet Pie
By JENNIFER BELLANTONIO
Dave Hollander, president of surfwear retailer Becker Surf & Sport, sighs when asked what he would do if he had to collect out-of-state sales taxes on his online sales.
Right now, Torrance-based Becker, which sells surfwear on its Web site and through its stores, including those in Huntington Beach, Corona del Mar and Mission Viejo, just tracks taxes on California sales.
“I can’t imagine what my bookkeeping and software development costs would be to implement an array of sales taxes,” Hollander said. “It would be a nightmare. We have orders pending from all over the world and two-thirds of the U.S.”
Hollander isn’t the only Internet retailer worried about taxes.
For the past several years, a tax battle has been building momentum. A number of states, grumbling about lost revenue from Internet sales, are looking at ways to force Web retailers to collect sales tax and give it to them.
Court rulings covering catalog and Internet sales have kept states from requiring merchants based elsewhere to collect sales taxes on their behalf, unless a company has a physical “nexus,” such as an actual store, in that state.
But a number of states want to change that.
About 40 or so states have been working to simplify their tax rates as part of the Streamlined Sales Tax Project. The effort, spearheaded by the National Governors Association, would require participating states to have only one tax rate for personal purchases or services, including those online, by the end of 2005.
Former Gov. Gray Davis signed a bill in October that moves California toward sales tax streamlining come Jan. 1. Three years ago, he vetoed a similar bill.
But Davis reconsidered with the state’s budget crisis.
In exchange for simplifying tax systems, state and local officials want federal approval to tax interstate commerce done via the Web.
Congressman Christopher Cox, a Newport Beach Republican, said a proposal related to the Streamlined Sales and Use Tax Project is “basically nowhere legislatively.”
The legislation was referred this fall to a subcommittee of the U.S. House Judiciary Committee, he said.
“The problem with the so-called Streamlined Sales Tax Project is at present there is neither uniformity or simplicity,” Cox said. “There could be thousands of different tax rates and the burden of paperwork and compliance that the project seeks to eliminate would remain. Much more work needs to be done.”
For now, Aliso Viejo-based online retailer Buy.com Inc. said it is “going to keep an eye on” the issue, according to Larissa Hall, vice president of marketing.
“It’s too early to speculate on what’s going to happen,” she said.
It’s a touchy issue.
Besides a paperwork hassle, online retailers could lose business if consumers,who in some states can shop around to avoid paying sales tax,decide to go to a local store instead.
In California and other states, consumers have to pay sales or “use” tax on things they buy online or via catalogs from out-of-state retailers.
The trouble is out-of-state retailers don’t automatically charge California sales taxes (some do, some don’t). And the state doesn’t have a good way of collecting the money.
California residents must voluntarily write a check to the State Board of Equalization on sales tax they owe, which typically doesn’t happen.
The board estimates that California loses $1.2 billion annually in uncollected use tax, the bulk of which is via e-commerce.
But the state is trying to clamp down.
In October, Davis signed Senate Bill 1009 to get the issue on the radar.
The bill, which takes effect on Jan. 1, will put a line on 2003 state income tax forms that reminds residents to pay their owed use taxes on out-of-state catalog and Internet sales.
They would be prompted to fill out a separate form and send it to the State Board of Equalization. Seventeen states already have similar lines in their income tax forms.
The law also bars companies that fail to collect sales tax from doing business with the state.
Most big companies already do this, though some, such as Dell Inc. and Barnes & Noble Inc., don’t.
California is following the lead of at least five other states, including Connecticut, Illinois and Missouri, which have enacted similar laws.
“Buying from catalogs or over the Internet has never been tax free,” said state Sen. Dede Alpert, a San Diego Democrat, in a statement. Alpert sponsored the bill.
“This will make it easier for Californians to do the right thing and pay the taxes they owe,” she said.
Becker’s Hollander said he doesn’t see a tax form reminder having a big impact.
“I don’t think anybody will do it,” he said. “I don’t think it’s an issue. I don’t see this Internet thing slowing down at all.”
Irvine-based Autobytel Inc., an Internet automobile referral service, doesn’t sell anything online. But the company is watching the tax issue nonetheless, according to Andrew Donchak, executive vice president and chief marketing officer.
“Over time I don’t think people are going to make a decision to buy or not to buy based on the sales tax on the Internet,” he said. “The desire for the goods ultimately will be more important than sales tax.”
