California Lawmakers Push for Net Tax

In a move that could have a ripple effect throughout the United States, California lawmakers are pressing Governor Gray Davis to sign proposed legislation that would mandate the collection of sales taxes on Internet purchases made by state residents.

The bill, AB 2412, which was introduced by state assemblywoman Carole Migden in February, targets California’s brick-and-click merchants, those who run both physical and online retail sites or warehouses in the state.

The proposed law would require these businesses to levy the same taxes on all of their sales — including those made on the Internet — to buyers living in the state. California stands to reap a windfall if the bill is passed, with a possible increase of tens of millions of dollars (US$) in tax revenue.

The measure was passed by the state Senate earlier in the week and is currently under review by the California Assembly. Its proponents are hoping to send it to the governor next week.

While Davis has not yet commented on the bill, his representatives have said that he is generally opposed to Internet taxation.

Hot-Button Issue

The proposal has served as a lightning rod for the debate over whether Internet sales should be subject to taxation requirements, an issue legislators are debating across the United States.

Supporters contend that the Internet sales tax issue boils down to an equitable application of tax laws, arguing that it is unfair for dot-coms to advertise their Internet businesses through their stores and accept returns through their stores to evade such taxation.

Proponents of the bill also charge that some retailers have sidestepped the laws by establishing out-of-state subsidiaries for their Internet offshoots, which allow them to claim exemption from state tax laws.

Currently, state tax laws only require businesses to impose sales taxes if they have a physical presence in the state where a purchase is made.

Barnes & Noble and Borders Singled Out

While most companies that have a retail presence in California do apply sales taxes through their online operations, Migden has singled out retailing giants Barnes & Noble and Borders for not tacking on taxes to their Web sales.

According to Migden, the bill does not create a new tax but instead equitably applies an existing one.

Others, however, maintain that any legislation imposing new tax obligations on the Internet could hamper e-commerce, as well as the state’s overall economic growth.