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California Assembly Approves Internet Tax 454

Posted by samzenpus
from the tax-man-cometh dept.
ClientNine writes "California could collect more than $1 billion a year by taxing Amazon and other online retailers if a bill approved by the Assembly becomes law. Assemblyman Charles Calderon, a Democrat from Whittier, says his legislation doesn't impose a new sales tax, but extends one that California should already have been enforcing. AB155 passed, 47-16, with the support of one GOP lawmaker Tuesday. It now heads to the Senate. Other Republicans rejected the bill because they said it would invite lawsuits, drive business out of California, and get the state entangled in the messy task of regulating the Internet."
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California Assembly Approves Internet Tax

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  • by Senes (928228) on Wednesday June 01, 2011 @06:12PM (#36313346)
    Can anyone recommend a few states where these taxes are unlikely, preferably also a place where I have multiple choices of ISP?
    • by OS24Ever (245667) *

      oregon has no sales tax.

      • oregon has no sales tax.

        But Texas has jobs [star-telegram.com].

        • by magarity (164372)

          oregon has no sales tax.

          But Texas has jobs [star-telegram.com].

          But Texas has no Amazon.com jobs [bloomberg.com].

        • by fyngyrz (762201) on Wednesday June 01, 2011 @06:33PM (#36313580) Homepage Journal

          ...to move to Montana. No sales taxes. Low land costs. Lots of people looking for work. Plenty of inexpensive flat space for shipping and warehousing operations, also direct railroad and highway access in many candidate areas. Also, Montana operates with a balanced budget, so it doesn't get into the type of fiscal trouble that California repeatedly does and then try to "fix" it by continuously increasing the tax burden on the citizens.

          • Re: (Score:3, Insightful)

            by 0123456 (636235)

            Of course after all the Californians move there it won't be a low tax, low regulation state for long.

          • by Noren (605012)
            Amazon seems to be doing fine here in Washington. We have a sales tax, but of course Amazon collects sales tax on all purchases by Washington State residents, and always has. It's state law, after all.

            It's just when some other state decides to mandate that out-of-state companies should act as their agents to enforce their tax laws that there's a problem.
          • by Ichijo (607641)

            Montana operates with a balanced budget...

            If only Montana could do that without relying on handouts from other states [scribd.com] such as California.

          • by Maudib (223520)

            Its really easy to have a balanced budget when your state's population is sub 1 million and half of your state is excluded from needing state services because its a national park.

            Also it routinely hits -30 in Montana, travelling by road is often out of the question and there is probably only one or two decent restaurants in the whole state.

    • Can anyone recommend a few states where these taxes are unlikely

      Unlikely for how long exactly? There are states that don't have it at the moment, but whether it will stay that way long enough to make moving there worth it seems dependent on how much you buy online and how likely the legislators of that state are to realize that you can buy things on these newfangled tubes.

      While I like not paying taxes on purchases, and recognize that in practice it might be impossible to enforce on -all- web transactions, I can't think of a good reason why online purchases SHOULD be

      • by sqlrob (173498)

        Taxation without Representation sounds like a good reason to me.

        Make the buyer responsible, not the seller, which is ALREADY the way it is in most states.

      • by Nom du Keyboard (633989) on Wednesday June 01, 2011 @07:39PM (#36314258)

        I can't think of a good reason why online purchases SHOULD be exempt while things you buy in a store should have the tax.

        1: Amazon isn't using any state services such as street lighting, sewers, electricity, police protection, and the like that your state taxes pay for.

        2: You don't get instant delivery the way you will from a local merchant (i.e. the playing field isn't totally tilted towards Amazon).

        3: You have a much smaller carbon footprint buying from Amazon verses driving your car to the mall (a plus to the environment).

        4: You have to pay shipping on top of your purchase costs (the unfair Amazon discount over not paying local taxes is substantially offset by this.)

        5: If states get this tax, how long before they start trying to tax Amazon profits from every individual state?

        6: Without Amazon and the like, your local stores have a virtual monopoly over providing you these items. How much do you think that is a good thing for the consumer?

        • by dgatwood (11270) on Wednesday June 01, 2011 @09:19PM (#36315098) Journal

          I don't have a problem with California collecting sales tax on online purchases, so long as that tax is significantly less than the full sales tax, in light of the fact that they shouldn't pay for services they aren't getting. Of course, it won't be. They'll charge the full tax rate simply because they can. As for shipping, costs offsetting it, Amazon offers free shipping on most orders. In spite of rolling the shipping cost into the purchase price, they still come out cheaper than local merchants most of the time, and that's before you factor in sales tax. So it is leveling the playing field a bit, but it still doesn't compensate for California's exorbitant cost of living, land costs, construction costs, etc.

          The bigger problem here is that Amazon only has a legal obligation to pay that tax as long as they have a nexus in California. Amazon has no physical presence in California. California is attempting to extend the definition of nexus to include affiliates.

          So here's what will happen: California will pass the law. The day it goes into effect, Amazon will terminate its affiliate relationships with everyone in California, and will continue doing business normally without paying a dime of sales taxes. This is what has happened in every state that has passed similar laws, and there's no reason any sane, intelligent person would believe that Amazon would value California affiliates so highly that they would not cut them off in a heartbeat if it meant not losing a sizable percentage of California sales to other companies that don't have to charge CA sales tax. So basically, when this law is passed (and it almost certainly will be, given that our lawmakers are, by and large, idiots), the result will be a substantial loss to California's economy, which will result in a substantial loss in state tax revenue (all of those affiliates were paying California income tax on their earnings) without bringing in a single penny in sales tax revenue.

          That said, it will set a great precedent if California does this. I'd be willing to place a bet that once Amazon shows that it has the stones to scrape off its California affiliates with about as much concern as you or I would scrape gum off of our shoes, no other state will be so stupid as to try this. Then again, there's that Einstein quote....

          Only two things are infinite, the universe and human stupidity, and I'm not sure about the former.
          —Albert Einstein

          • The day it goes into effect, Amazon will terminate its affiliate relationships with everyone in California, and will continue doing business normally without paying a dime of sales taxes. This is what has happened in every state that has passed similar laws, and there's no reason any sane, intelligent person would believe that Amazon would value California affiliates so highly that they would not cut them off in a heartbeat if it meant not losing a sizable percentage of California sales to other companies that don't have to charge CA sales tax

            I'm not familiar with the internal workings of Amazon, but I don't see how they could possibly just drop the world's 8th largest economy and suffer no losses. Are you saying the amount they'd lose by paying taxes would be greater than the amount they make on sales to California? Because I'm skeptical of that. I guess I'm not sane or intelligent.

        • If you have half a brain, your shipping is capped at $75 bucks per year... and that also gets you access to a 5,000+ (and growing) title video library.

          We pay a lot more sales tax than $75 per year.

          I like the internet model- but I understand how states depend on there actually being local businesses to continue operation.

          7. you like having jobs right? Buying from Amazon pumps huge amounts of money DIRECTLY out of the state's economy into another state. Where you used to buy from a local store and their emp

        • 6: Without Amazon and the like, your local stores have a virtual monopoly over providing you these items.

          I don't think amazon and the like would disappear because they were taxed like other businesses. Even if they did, I still wouldn't be limited to "local" stores. Even if I were, that's STILL not a monopoly.

    • by dingen (958134)
      Why do you care? Are you running Amazon or another online retailer?
      • by Dahamma (304068)

        The bill affects Californians buying products from out-of-state products. It only affects the retailers in that they no longer get unfair competition vs. businesses located *in* California. Sales tax is paid by the buyer - it's just usually collected by the seller, since the buyer can't be trusted to pay it. CA has always taxed these purchases and buyers are supposed to report their purchases, it just hasn't had a way of enforcing it...

        • by hedwards (940851)

          It's not just a matter of trust, the stores aren't required to report the sales to the state, the consumers are unlikely to know how and where to pay the taxes they owe. It's been my feeling for some time that it's ridiculous to expect customers to collect and pay the taxes as we're not given any particularly efficient way to do it and there isn't any actual enforcement of the law anyways.

          • by cpu6502 (1960974)

            >>we're not given any particularly efficient way to pay the taxes

            Yes there is. It's located on your State Income Tax return under "use taxes". You are supposed to pay x% of every purchase that was imported from another state (typically equal to the sales tax).

    • by Rozzin (9910)

      Can anyone recommend a few states where these taxes are unlikely, preferably also a place where I have multiple choices of ISP?

      New Hampshire [freestateproject.org].

    • by Plugh (27537)
      New Hampshire has no sales tax, no income tax, and thanks to the Free State Project, is unlikely to ever have either. See my sig for details
  • by Anonymous Coward on Wednesday June 01, 2011 @06:19PM (#36313444)

    So this is effectively the Use Tax which everyone was already supposed to be paying.

    The usual suspects up in arms complaining about this are likely doing so because they were previously dodging taxes by not properly including their purchases on their tax returns.

    • by RobDude (1123541)

      Exactly. Everyone loves to cheat on their taxes.

      • by SETIGuy (33768) *

        Everyone loves to cheat on their taxes.

        That's what people who cheat on their taxes say to make themselves feel better.

    • by brainboyz (114458) on Wednesday June 01, 2011 @06:28PM (#36313536) Homepage

      Except they're now forcing businesses in other states to collect and remit taxes for items sold to Californians. This should be interesting because they're creating an interstate commerce tax which should normally be the jurisdiction of the Feds. Given the Feds got bent out of shape about Arizona doing the same with immigration, they either have to push a double-standard, or correct California's overstepping of authority.

      • by iluvcapra (782887)

        Catalogues have been collecting several state's sales taxes for years -- any state they have a business presence in. Saying that this is an "interstate sales tax" is like saying that the sales tax you paid on your factory-customized Chrysler is an international sales tax because it was shipped from Brampton, Ontario. The fact that in one case you meet someone face-to-face (the dealer) in your state that makes the deal and you don't in the other makes no difference from the perspective of your tax obligati

      • by OverlordQ (264228)

        Except they're now forcing businesses in other states to collect and remit taxes for items sold to Californians.

        No they're not. They're only collecting taxes from online companies with a physical presence in California.

        FTFB:

        This bill would revise the definition of "retailer engaged in
        business in this state" to mean any retailer that has a substantial
        nexus with this state for purposes of the commerce clause of the
        United States Constitution and any retailer upon which federal law
        permits this state to impose a

        • by brainboyz (114458)

          Actually, I went and unraveled the legalese in the actual text of the law. You're partially right. They're still forcing taxes in other states to remit taxes, but have exemption clauses that put those requirements on hold until "the enactment of any congressional act that authorizes states to compel the collection of state sales and use taxes by out-of-state retailers."

          Funny how they leave that out of the summaries of the bill.

      • by cpu6502 (1960974)

        >>>Except they're now forcing businesses in other states to collect and remit taxes for items sold to Californians.

        Which means it is unenforceable. California can no more tax a non-citizen (or business) than France can tax a guy living in Poland. You can't force non-citizens to comply with your fucked-up California laws. - No taxation without representation. - No juris diction beyond your borders.

    • I like this quote.

      "Get the state entangled in the messy task of regulating the Internet."

      In other words the messy task of... governing. Welcome to government. Your job as a legislator is to solve the messy problems of regulating business, commerce and citizens.

    • by SETIGuy (33768) *
      Yes, prior to this, California had a tax on honesty.
  • Sure they will.. They might lose that much however, as companies move out of state and leave people unemployed.

    • by interkin3tic (1469267) on Wednesday June 01, 2011 @06:33PM (#36313578)

      They might lose that much however, as companies move out of state and leave people unemployed.

      Maybe, but there are teachers, school employees, government workers, law enforcement, and a large number of other people working on tax dollars that are definitely facing unemployment too due to the budget shortcomings. The legislature should ideally weigh the harms of that against the potential disadvantages of actually collecting a tax they said they were going to tax and those companies should have been budgeting for in the first place...

      But of course I'm not even fooling myself, this WILL BE decided based on lobbyists and how willing we voters are to believe that all taxes are evil things that only hurt us.

      • by cdrudge (68377)

        The legislature should ideally weigh the harms of that against the potential disadvantages of actually collecting a tax they said they were going to tax and those companies should have been budgeting for in the first place...

        This is only for sales/use tax. Retail companies don't budget for it...it's passed on directly to the consumer in almost all cases, or wrapped up in the price for where it's not a line item.

        By having to collect a tax, it puts an online retailer at a disadvantage over other retailers th

      • You do realize that those groups you listed effectively control the California Legislature through the power of their public employee's unions. In other words, any tax on anyone is acceptable as long as it presents the chance that employment of union members does not decrease nor the benefits granted to said members.

        The big correction coming down the pike is government employees losing the majority of their benefits and possibly facing a lot of forced time off without pay. Its a fair question about which st

    • by cdrudge (68377) on Wednesday June 01, 2011 @06:42PM (#36313684) Homepage

      Why would they leave? Tax is only being collected on purchases of in state companies to in state residents and that's up for debate. Products going out of state from California businesses aren't taxed unless the business has a nexus in the destination state, and that's not up for debate either. Only out of state businesses without a nexus in California are not required to collect sales/use tax for California, and that's the issue.

      It's the last sentence that California is trying to change. Amazon for instance says they only have an advertising relationship in the state (e.g. they use a Ca-based marketing agency, buy ads, etc), no actual physical presence. Even if this gets passed and signed into law, it surely will be challenged as being unconstitutional, going against the interstate commerce clause.

      Moving out of state really doesn't change anything for existing businesses. The only ones really affected are out of state businesses that feel they don't have an in-state presence, but California feels they do.

    • by hedwards (940851)

      Anybody that was tax conscious has already left the state. The taxes are sky high and the government seems hell bent on marrying the worst conservative benefit cuts with the worst liberal tax policies into an unholy state of high taxation and low governmental service.

    • by SETIGuy (33768) *

      They might lose that much however, as companies move out of state and leave people unemployed.

      And when the state decides that it will no longer do business with these companies and blocks their web sites from all state owned networks? Yeah, I'm sure that Amazon doesn't really want to get purchases from staff and students of the University of California system. I wonder what fraction of Amazon's MP3 purchases originate from UC campuses. I wonder what fraction of Amazon's cloud computing resources is allocated to people or projects at UC campuses. I wonder how much the competition would like to t

  • Taxation (Score:2, Insightful)

    by macraig (621737)

    Once upon a time taxes got us a Revolution. Now they just get us pissy and twittery.

    • Representation (Score:5, Informative)

      by betterunixthanunix (980855) on Wednesday June 01, 2011 @06:33PM (#36313582)
      The people of California voted for the representatives who approved this tax.
    • Re:Taxation (Score:5, Insightful)

      by interkin3tic (1469267) on Wednesday June 01, 2011 @06:35PM (#36313610)
      No, it was the lack of representation that got us a revolution. They didn't have cable news back then: no one was dumb enough to believe that the new country would run without any taxes of any kind.
      • by EXTomar (78739)

        Even then that isn't the whole story.

        To win Seven Year War (aka French-Indian War), the British Government had to drop a lot of cash on a huge war machine to win. So the British Parliament did the sensible thing: Ask the Americans which where ostensibly benefiting from this to help pay for it. The break down happened when the nature of the tax and what to do with the funds where in sharp divided between the American Colonies and the British Parliament.

        So yes, it was lack of representation that was the pro

    • by iluvcapra (782887)

      Now they just get us pissy and twittery.

      This time around we have representation. And we dare not vote the current people out of office, lest the madmen on the other side of the isle take control.

      • by sconeu (64226)

        This time around we have representation

        And it's the best representation money can buy!!!

    • by RobDude (1123541)

      Eh, I think we've got a biased view of how things really went down. The truth is, politics today are very much like politics in the past. It's really just a power/money circle jerk amongst the wealthy.

      We all learned about England taxing us and the Boston Tea party. What they didn't tell you in history class is that nobody was upset about 'taxation without representation'. As it turns out, there were some very wealthy people making a fortune 'smuggling' tea. They'd get tea elsewhere and thanks to the hi

  • The wording of all these "internet tax" articles are vague. Are virtual goods included in this mess?

    Amazon and other internet-only vendors may yank their California offices, but nowhere in the U.S. are there more virtual goods manufacturers than in California, Bay Area specifically.
  • We must tax innovative businesses that have low profit margins heavily, so that the taxes will be passed on to the consumer.

    Otherwise we'd have to tax the highly profitable entrenched industries (like, um, say OIL COMPANIES) that could easily absorb tax increases without raising consumer prices.

    And THAT would be so unamerican it would surely cause the earth to fall out of its orbit and go careening into the sun!

  • by sqrt(2) (786011) on Wednesday June 01, 2011 @06:35PM (#36313602) Journal

    The internet is the one sphere of human interaction where libertarianism seems to actually work, and I think the only reason it took off was because it's been a lawless free for all. Since the barriers to entry are so low for much of the internet economy, competition is the closest to free and open that humans have ever achieved; nothing like the real world equivalent. We are slowly ruining it with bandwidth caps and shaping, laws to protect imaginary property, and taxation.

  • I seem to recall having seen online ordering a number of years ago where state taxes were being collected. You'd go to a site and see, "Michigan resident add 5% sales tax". They'd sometimes even be smart about it and check your ZIP code.

    Then, some people didn't do that. Amazon didn't do it either; but a lot of small places didn't do it. States didn't do anything about it, either because they were behind the curve on the Internet, or they were too busy debating about gay abortions and hemp-scented trigge

  • by sirwired (27582) on Wednesday June 01, 2011 @06:43PM (#36313694)

    This is a requirement to enforce existing sales tax on merchandise shipped in from out of state.

    Yes, it will primarily effect internet retailers (but will also affect mail and phone-order.) But it is not a tax on the internet itself, internet access, network traffic, or any other such thing.

    I'll not get into a discussion in this comment as to if this is a good thing or not, but it pisses me off to see it referred to as an "internet tax."

    • Exactly. If you buy something in California from out of state, the vendor doesn't charge you California sales tax, and you proceed to directly use that item, you are supposed to pay use tax. That's the law; if you're buying stuff from Amazon or wherever and not paying those use-taxes you are in violation. (And yes, this means a HUGE number of people are in violation, which is sort of the point.)

      All this measure does is require that vendors like Amazon collect the tax instead. Since Amazon already does al

      • by Adrian Lopez (2615) on Wednesday June 01, 2011 @07:32PM (#36314184) Homepage

        As for counting on some sort of "only the feds can do this stuff" ruling so you can continue to break the law, this gets down to how what the lawyers call a jurisdictional nexus is defined.

        The US Supreme Court has already ruled on this. It all boils down to a simple fact: States cannot force companies that don't have a business presence in those states to collect and remit taxes due on sales to the residents of those states.

  • The sales tax exemption for Internet purchases made sense while Internet sales struggled to establish themselves in the economy and the culture. Like most tax reductions or exemptions, it was a temporary exception. Because those sales taxes pay for the state's operations. The state has expenses for services that support the sellers, like the actual incorporation and all kinds of protections and infrastructure, and all kinds of protections for the buyers. When the transactions enabled by those services aren'

  • To be fair, if I pay sales taxes on most stuff I buy at physical stores, I don't see why it makes sense for internet purchases to be exempt- especially as shopping shifts increasingly to the internet. I would go so far as to say it is irresponsible of the government not to start figuring out a (fair) way to tax online retailers the same as physical stores, instead of shoring up falling revenue by increasing taxes on the shrinking pie. That said, I think before online taxation starts it needs to be figured o
    • by cdrguru (88047) on Wednesday June 01, 2011 @08:20PM (#36314658) Homepage

      The universal answer is the only thing that counts is where the item is being shipped. Taxes have to be paid for that locality.

      Unfortunately, it isn't just at a state level.

      Once you figure out which state gets the money, it would help to have some sort of file or server that sites can check to figure out how much tax to charge- sites shouldn't have to expend resources to stay on top of tax rates in all 50 states.

      If it was just 50 states it would be simple. It isn't. There is a separate tax rate for every state, county, township, city, and village. This means you have to have an exact address - zip code doesn't really cut it I don't believe. There are several services that are available today that will compute tax for you, but they are expensive services that you have to pay for. Or, you can just turn all your sales processing over to Amazon who can obviously do it all now. Once you get to a certain size it makes more sense to just have your own files and staff to maintain them rather than paying someone else to do it at a higher cost.

      But there is no mistaking that it is a huge problem. I know there are city/county overlaps where within a single city there are two different tax rates depending on which county you are in. Buffalo Grove, IL (used to live there) is split in two different counties (Lake and Cook) which have different tax rates. I seem to recall there being even worse problems in Ohio with townships, villages and counties all having their own tax rates and the final answer was the sum of the three for a particular address. No, there is no central authority for this - everyone that is doing nationwide sales tax collection today is either paying for a very expensive service or is doing it themselves. And it changes constantly.

      My guess is that this will be a huge windfall for Amazon and a few other very large retailers that are able to offer shopping cart/purchasing services to other retailers that can't afford the services to compute the tax.

      • by T Murphy (1054674)
        Well what I'm saying government should do (not that I expect they will) is that they have to make that central authority at no cost to the businesses (so government better make sure organizing this information costs less than the tax revenues generated). It really shouldn't be very expensive once a system is set up, especially if the data is collected by state. As I wrote in another post, the idea should be that businesses get the tax information from this database, and instead of the business being respons
  • What, exactly, about the unremitting string of states Amazon has cut off from their affiliate program for passing dumb laws like this, makes anyone in the legislature think that this will add a single red cent to the state budget? Oh, California's "too big"? Ask New York how that argument worked for them.

    Constitutional issues aside, this does nothing but decrease the revenue of California Amazon affiliate businesses, resulting in lower tax revenues.

  • As I recall, this happened in Colorado, where they tried to get Amazon to collect sales tax for their affiliates who had a presence in the state. Amazon responded by dropping all those affiliates. California is a bigger business, but Amazon may not cave. Soon, the business model for affiliates will be to sell into every state except the one in which they reside.

    It amazes me how much work businesses will perform to avoid taxes. It is usually on the top three questions in the vetting of any business plan
  • What's California going to say when Amazon just up and moves off-shore and they not only lose sales tax revenue but also income tax revenue as all their employees are laid off?
  • by WindBourne (631190) on Wednesday June 01, 2011 @10:46PM (#36315622) Journal
    The idea of multiple taxing districts is INSANE. Instead, the feds should get an agreement out of ALL states that one rate is applied to all internet sales. And in that agreement, it should also say how much the feds will take, AS A PERCENTAGE, with the rest going to the state. Then each state can decide how to split the tax.
  • by Lord Kano (13027) on Thursday June 02, 2011 @12:48AM (#36316274) Homepage Journal

    Could someone please require legislators to take a freshman level economics class?

    This WILL drive business out of California. Amazon will pick the fuck up and move out of the state. The companies that don't move will be driven out of business because they can't compete with the ones who do. The SCOTUS has held that individual states don't have the right to tax entities that don't have a physical presence in that state.

    This is about some know-nothing asscock wanting to stick it to "the corporations". It completely misses the fact that it will hurt people in their state.

    LK

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