When a consumer purchases an item from an online retailer, they often pay no sales tax. While this may initially seem like a savings, the unpaid taxes are actually a tax liability to the purchaser. This means that a patron of an online store has the legal responsibility to pay any tax that should have been collected by the seller.
However, since retailers often don’t tell their customers, millions of dollars in sales tax remains unpaid, depriving municipalities of much needed resources.
With annual online sales estimated at $4.1 billion, this means the actual lost revenues could be substantial.
Assembly bills 153 and 155 would end the practice, increase revenues for the state, and help cities and counties deliver services to residents.
For those reasons, a coalition of businesses known as the Alliance for Main Street Fairness, as well as The League of Cities and the California State Association of Counties have come out publicly in favor of the bills.
“This legislation will close the current loophole in California tax law which has allowed out-of-state companies to avoid collecting California sales and use tax,” said Assembly Member Nancy Skinner (D – Berkeley), who introduced AB 153.
Companies based or operating in California see this as an opportunity to level the playing field, while at least some cities see it as a chance to add resources to their coffers.
“Any ability to gather sales taxes would be helpful to the community,” said Ron Manfredi, the City Manager of Kerman. “We aren’t asking for new taxes, just enforcement of the ones that are already out there.”
Manfredi went on to say that even a few thousand dollars could help.
According to Manfredi, nearby Dinuba benefits from online sales from Best Buy, but not Amazon.com. That’s because Best Buy has a distribution center in the city. So anytime someone’s order is fulfilled from that center, the city receives a cent per dollar.
Manfredi isn’t alone. A group has formed call the Alliance for Main Street Fairness to coordinate the efforts of interested people, organizations, and municipalities.
The California State Association of Counties has also come out in support of both bills. “It’s pretty straight forward,” said Erin Treadwell, the Communications Coordinator for CSAC. “[These bills] mean more money for counties.”
The League of Cities also has come out in support of both bills. According to their letters of support, the additional revenues are sorely needed by California’s cities, and these bills increase revenues by equitably revising out-of-date tax law.
A recent analysis of the bills estimated that California has lost more than $1 billion in tax revenues due to Internet sales not charging or collecting taxes. Furthermore, the analysis conducted by the Board of Equalization estimates, “That the proposed change would lead to a state and local revenue increase of $152 million in 2011-12 (a half-year effect) and $317 million in 2012-13.”
As more consumers turn to the Internet, the amount of forfeited tax revenues will grow.
“California has to get on the ball,” said Manfredi. “If we don’t address online sales now and correctly, then we’ll continue losing out on future revenues.”
Manfredi’s point is reinforced by a letter CSAC sent to Assembly Member Perea, the Chair of the Assembly Revenue and Taxation Committee. “This [bill] aims to reduce the use-tax gap caused by the increasing use of the internet by Californians to purchase goods… A portion of these uncollected taxes would benefit counties.”