California Takes a Pass on Taxing Internet Sales
From San Jose’s business weekly:
At a time when California is trying to find money to balance the budget, fund a statewide health-care plan and build roads and schools, lawmakers have backed away from one potential source of money: the Internet.
Eliminating that possibility was, in the words of Board of Equalization member Bill Leonard, “a non-decision” that occurred last year when the Legislature declined to fund California’s involvement with other states in an effort to synchronize state sales taxes. Simplifying the taxes charged by the nation’s 7,500 tax jurisdictions is the first step before asking Congress for the right to require sellers on the Internet to collect sales tax for local jurisdictions.
Organizers of the tax effort say California’s absence doesn’t doom the effort, but without the nation’s most populous state as well as the absence of New York, Texas and Florida, it appears unlikely that the 15 smaller states can prevail with the idea, although they plan to lobby Congress this year for the taxing legislation.
According to the Board of Equalization, California forfeits about $2 billion a year in taxes by not collecting on out-of-state sales made over the Internet.
The state does require Internet retailers who have physical stores in California to collect sales tax on sales made to Californians. The state also requires its residents to report purchases made over the Internet and pay taxes on them. Apparently few people do. (There’s a line on the income tax form, in case you’ve missed it.)
It is ridiculous to expect consumers to keep separate track of every single out-of-state online and direct-mail purchase, and it is doubly ridiculous to expect businesses to figure which combination of 7,500 different jurisdictional taxes to assess on each and every sale they make — and then to sit down and write the checks to all the various jurisdictions and get them all to the right places at the right times every single month. Absent the harmonization effort described above, which won’t work without the biggest states involved, no one except the very largest operators could handle staying in business online under those conditions.
Believe it or not, I’m sympathetic to the idea that online transactions should be taxed uniformly, but ….. not until all federal and state income taxes, and all state sales taxes, are replaced with the Fair Tax.
In the meantime, cry me a river over the “forfeited” revenue. The states are generally flush with revenue because of the strong economy, but for tax-and-spenders, it’s never enough — as we saw with Connecticut Governor Jodi Rell earlier in the week.
