California Assembly Member Nancy Skinner on Her E-Fairness Legislation

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In early February, California Assembly Member Nancy Skinner (D-Berkeley) introduced Assembly Bill 178, legislation that would clarify the state's existing sales tax law. Modeled on New York State's Internet Sales Tax provision, the proposed California legislation would require out-of-state companies that have affiliates in the state to collect and remit sales tax on sales to in-state customers.

California Assembly Member Nancy Skinner (D-Berkeley)

In her introduction of the bill, Skinner, who was elected to California's 14th State Assembly District in November 2008, explained, "This legislation will close the current loophole in California tax law that has allowed out-of-state companies to avoid collecting California sales and use tax. During this unprecedented fiscal crisis, we cannot afford to lose sales tax revenue from out-of-state companies when our own local businesses are struggling to keep their doors open." A.B. 178 is jointly authored by Assemblyman Charles Calderon (D - Montebello), chair of the Assembly Revenue and Taxation Committee.

A.B. 178 has the backing of the Northern California Independent Booksellers Association, the Southern California Independent Booksellers Association, the American Booksellers Association, CA Professional Firefighters, and the California School Employees Association, among others, and Skinner hopes to garner support from other local businesses throughout California.

Here, Skinner addresses the misinformation being spread by opponents of the bill and discusses how her legislation will help California's ailing independent businesses.

BTW: What was the key reason for introducing A.B. 178? Do you believe that the bill is even more important given the state's $16 billion shortfall?

Assembly Member Nancy Skinner: I introduced Assembly Bill 178 for two reasons: to create a level playing field for our brick and mortar businesses and to collect sales tax that is rightfully owed, thereby helping our budget shortfall.

California currently requires all of its businesses to collect and remit sales tax to the state. However, out-of-state companies who claim no nexus with California are off the hook. Current tax collection structure actually encourages companies with Internet sales to move out-of-state so that they can get around our sales tax laws. It doesn't make any sense to place California businesses at an unfair disadvantage while out-of-state businesses reap the benefits of our large consumer base, while simultaneously putting local stores out of business.

Given our budget shortfall, California needs to be proactive in collecting taxes which are due and payable. New York State enacted a bill comparable to A.B. 178 and as a result New York has collected over $40 million in tax revenue and expects to collect approximately $70 million by year's end. These are funds that go back to communities, money that will strengthen our schools and enhance public safety. This is why my bill has earned the support of the CA Professional Firefighters and the California School Employees Association among others.

BTW: Some opponents of your bill contend that A.B. 178 could place California technology companies at a severe competitive disadvantage by spurring out-of-state companies to use online marketplace and web service companies in other states and that the bill will hurt those California companies that act as affiliates for out-of-state companies ... thereby diminishing sales tax revenue. How do you respond to this argument?

NS: A.B. 178 mandates sales tax collection only on entities that receive commission from the direct sale of a product. The opposition has spread rumors that this bill will hurt online affiliates. However this is just speculation. After the passage of a similar measure in New York, many online retailers maintained their relationships with New York affiliates and began collecting New York sales tax. What we do know, without a doubt, is that California's businesses are overwhelmingly hurt by the current loophole in law. They are closing their doors and our local communities are paying the price.

Internet and technology companies like Google, Yahoo, and others that generate revenue through advertisement sales and payments on "click-through" are not affected by this bill.

BTW: Many believe that passage of A.B. 178 would mean that sales made through advertising banners would be subject to sales tax, is this true? If not, what do you see as the key differences between advertising banners and online affiliates?

NS: This bill does not affect advertising banners. The point of this measure is that if an out-of-state company pays commission to a resident or residents of California based on the sale of tangible personal property, and that company makes more than $10,000 in sales from that relationship, they should be required to collect California sales tax. The key difference is that this bill is triggered by an actual sale of a specific product not a simple advertisement. That is clear nexus, and that's the issue.

BTW: What are some of the things that ABA member bookstores can do to help support this bill?

NS: They should lobby every one of their legislators and let them know how important this measure is for the survival of their business. Many legislators are not aware of the impact that this current loophole in the law has in their communities. Educating members about the real life effect this law has on local business is key to this measure's success.

BTW: Where does the bill currently stand and what are the next steps?

NS: It will be heard at the Revenue and Taxation Committee on April 13. Currently, we are working on amending the bill to clarify that it does not apply to advertising. At this point we are trying to garner support for the measure from local businesses across the state. Every local business should send a letter to their representatives in the state legislature to voice their support for A.B. 178.

The Northern California Independent Booksellers Association (NCIBA), the Southern California Independent Booksellers Association (SCIBA), and the American Booksellers Association are urging California booksellers to contact their state assembly members in support of Assembly Bill 178.

To help California booksellers in this important advocacy outreach, the groups have prepared a template letter that booksellers can adapt and send to their assembly member in support of A.B. 178.

Booksellers can look up their California State assembly member here. When letters have been sent, booksellers are asked to notify their regional executive director and ABA's David Grogan. This will help support their lobbying efforts.