Will California force e-commerce companies into an antiquated sales tax system, or lead the way in creating a simple and fair tax system for the 21st century? California Governor Gray Davis chose to move the state forward by vetoing a dubious Internet tax proposal.
The U.S. Supreme Court has ruled that states cannot force an out-of-state retailer to collect sales tax on the state’s behalf. That’s why bookstores on Main Street collect sales tax, but online retailers like Amazon.com do not.
A bill passed by the California Legislature sought to require out-of-state affiliates or subsidiaries to collect sales tax if they share a similar name, similar product line or similar ownership with a company that has bricks-and-mortar stores in California.
Supporters of the bill said it leveled the playing field between bricks-and-mortar bookstores and dot-com affiliates and subsidiaries. However, all are disadvantaged when compared to out-of-state Amazon. The bill was an attempt to put a bandaid on a larger problem.
A better solution is radically simplifying a complex sales tax system that favors one business model over another. Simplification is a universal goal being sought by most other states; this bill would have had California acting unilaterally.
E-commerce retailers face a much higher sales tax compliance burden than their in-state competitors. Many are doing business in 50 states, 46 of which impose state sales taxes. But there are 30,000 separate taxing jurisdictions, none with similar laws or definitions of what is taxable.
This complicated reality is what led the Supreme Court to step in and set out the current rules protecting out-of-state retailers. The only long-term solution is to develop a sales and use tax system that is simpler and fairer for all sellers, both in-state and remote, to administer.
California industry leads the world in innovation. Building a fair and simple tax system for the 21st century makes sense for all interested parties. Governor Davis looked to the future, not to the past, and those who care about technology and about California should be grateful.
Teresa Casazza
Vice president, California public affairs
American Electronics Association
Sacramento
