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

July 07, 2011|By Alan N. Boinus

Last week, in an effort to create a balanced budget and some fiscal stability in California, Gov. Jerry Brown and the Democrats in the 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 Amazon.com and Overstock.com to avoid collecting sales taxes on their Internet sales. It is estimated that closing this loophole will add $317 million to the treasury.

Currently, Laguna Beach contributes about $25 million in sales tax revenue based on the current 7.75% tax rate. The Board of Equalization estimates an additional $500,000 in sales tax revenue would be collected from Laguna Beach under the new law.

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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., a trade association representing thousands of retailers.

The loophole was created when the Supreme Court said that 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.

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