The Internet causing problems for tax collections in California? Baloney, says Dean Andal, chairman of the California Board of Equalization.
“There is no huge revenue loss to the state government. There isn’t now and there won’t be one in the future, no matter how fast the Internet grows,” said Andal, adding for good measure, “The uneven playing field isn’t true, either.”
Andal’s comments run contrary to some opinions in Sacramento. A key Assemblywoman has proposed a bill to tighten up on tax collections on Internet sales. She says some Internet-based companies are not collecting sales taxes and it’s not fair to Main Street retailers. A recent state legislative analysis predicted that the Internet could cause a decline of as much as 4% in the revenue stream from sales taxes, and local government officials are worried.
In fact, Andal said, sales-tax revenue increased 9.3% in fiscal 1999 over fiscal 1998.
“We have more Internet users than anywhere in the world. You’d think that if there were a revenue loss of any kind, it would show up here. In fact, the opposite has happened,” he said. “Last year was the highest rate of increase in our state’s history.”
Andal made his comments before an April 24 speech at the Doubletree Hotel in Irvine as part of the Millennium Technology Series sponsored by the Lincoln Club of Orange County, the Orange County Business Council and the American Electronics Association Orange County Council.
Andal, one of two Republicans on the five-member Board of Equalization, has long been known as an anti-tax crusader.
Andal is also a member of the U.S. Advisory Commission on Electronic Commerce, which recently advised Congress on how it should proceed in issues regarding taxation and the 24 speech at the Doubletree Hotel in Irvine as part of the Millennium Technology Series sponsored by the Lincoln Club of Orange County, the Orange County Business Council and the American Electronics Association Orange County Council.
Andal is also a member of the U.S. Advisory Commission on Electronic Commerce, which recently advised Congress on how it should proceed in issues regarding taxation and the In California, he said the Internet is not causing a revenue decline because half of the Internet transactions are plane tickets and stock orders, which are not subject to sales taxes and about 40% of the Internet transactions are business-to-business and the buyer must collect the user tax.
“When we audit businesses and if they haven’t paid a use tax, we make them pay. We don’t miss that, and it’s often not mentioned by advocates of higher taxes,” he said.
Out of the remaining 10% of goods sold on the Internet, the big-ticket items like vehicles, boats and even planes must pay a user tax.
“They all need vehicle licenses. When they go to the DMV, we hit them up,” Andal said.
That leaves, in Andal’s analysis, about 5% of Internet transactions that are not taxed.
“What you’re left with are individual consumer items, such as a sweater from Land’s End, a book from Amazon.com. It’s not a significant revenue loss. It’s not expected to grow in the future,” he said.
Uneven Playing Field Claimed
But some have complained that this creates an uneven playing field for retailers in California, who must collect the sales tax (7.75% in Orange County).
Assemblywoman Carol Migden, (D-San Francisco), chairwoman of the Assembly Committee on Appropriations, is sponsoring AB 2412, which tightens the law on Internet companies that must collect sales taxes. But Andal said Migden “is wrong.”
“Migden’s bill solves a problem that doesn’t exist. And if it passes, the state will have to defend an unconstitutional law, and that will create all kinds of havoc in the marketplace,” said Andal, who doesn’t believe the bill will pass in its current form.
He acknowledged that some companies have set up subsidiaries to sell tax-free on the Internet. But he said these Internet companies are at a disadvantage because they are from out of state and don’t have their distribution centers near the big markets.
“It’s not an uneven playing field because when you’re down to those items, the shipping charge will exceed the amount you pay in tax. There are exceptions to that, but not significant ones.”
