Community Commentary: Internet sales-tax revenue will be boon for state

July 08, 2011|By Alan N. Boinus

In an effort to create a balanced budget and some fiscal stability in California, Gov. Jerry Brown and the Democrats in the California Legislature finally passed a budget over continued Republican intransigence over the Democrats' desire to raise revenues rather than cut services like K-12 schools.

Democrats sidestepped Republicans by finding a means to generate revenue without raising taxes (in fact, sales-tax rates are down now) by closing a loophole in the law that had allowed Internet giants like and to avoid collecting sales taxes on their Internet sales. It is estimated that closing this loophole will add $317 million to the treasury.

Amazon has been avoiding collecting sales taxes since its inception in 1995. It has signaled that it will have no part of the new law and will likely fight it in the courts.


Amazon is playing on the ignorance of many shoppers who do not think they owe a tax when shopping at Amazon, giving the impression that one gets better deals on Amazon.

But this is not true. Sales tax is owed by California residents, regardless of where they shop, be it Amazon, Best Buy or elsewhere. The Board of Equalization estimates that taxpayers are paying an average of 1.4% of the total use tax liabilities they owe with "high-income" taxpayers paying an average of 4% of their liabilities.

Many knowingly evade their tax liability and shop on Amazon because sales tax enforcement at the consumer level is nearly impossible to enforce. They are essentially "tax cheats" and sadly, Amazon has become a "tax cheat-enabler."

"You can't give one segment of retail a 10% discount every day. It's just not fair," said Bill Dombrowski, president of the California Retailers Assn.

The loophole was created when the Supreme Court said Internet companies do not have to collect taxes unless they have a "physical presence" (such as stores or warehouses) in the state where they are collecting taxes.

Unlike some of their big competitors like Target and Best Buy, Amazon does not maintain stores in California. But Target and others cried foul, charging that Amazon's practices are predatory and places them at a competitive disadvantage because they collect taxes at their retail and online stores because they have a retail presence here.

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