California's Tax Committee Approves Online Sales Tax Bill

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On March 26, California's Senate Revenue and Taxation Committee approved a bill that would clarify existing California sales tax laws and force retailers with bricks-and-mortar stores or warehouses in California to charge sales tax for purchases made online by California residents. The bill, S.B. 103, was introduced by Senator Deirdre Alpert (D-Coronado) in late January.

"This bill would make it easier for California's Board of Equalization to, at the very least, go after Barnes & Noble and Borders [to compel the retailers to collect tax for online purchases]," said Hut Landon, executive director of the Northern California Independent Booksellers Association. Landon, along with bookseller Andy Ross of Cody's Books in Berkeley, had testified in late March before the Taxation Committee in support of the legislation.

Under S.B. 103, a retailer would be considered engaged in business in the state if it holds a substantial interest -- either directly or through a subsidiary -- in a retailer that has stores in California; and if the retailer sells the same or substantially the same line of products, operates under the same or substantially the same name, or allows stores in California to advertise or promote the retailer's products, as reported by the E-Commerce Tax Report.

The bill contains virtually identical language to an e-fairness bill, A.B. 2412, which was sponsored by NCIBA in 2000, said Landon. [To read a previous article on this topic, click here.) The NCIBA-sponsored legislation passed California's legislature, but was vetoed by Governor Gray Davis, who cited that he did not want to hinder the growth of the Internet.

Alpert's bill may have a much better chance of being signed. A spokesperson for the governor indicated that Davis might be more willing to consider the issue of tax collection on e-commerce due to the state's $34.6 billion budget shortfall, as reported by the Information Technology Association of America's Tax in the News. Moreover, the State Board of Equalization said the measure would boost revenue for state and local governments by $21.8 million per year, according to the E-Commerce Tax Report.

"[Alpert] is doing what we did three years ago, except that the governor seems more receptive to this now," Landon explained. "And the legislators are more educated about the topic now…. We feel pretty good about its passage this time around."

S.B. 103 moves onto the California Senate Appropriations Committee and potential Senate and Assembly floor votes this summer. -- Dave Grogan