Key California Assembly Committee Hears Testimony on Sales Tax Fairness

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Given its estimated total retail and food service sales of more than $8 billion, California has been a battleground state in the sales tax equity fight for many years. Facing a $25.4 billion state budget deficit, California’s lawmakers are again examining the merits of taking steps to level the competitive playing field by requiring all retailers to comply with existing law and collect sales tax on online sales.

On Monday, March 7, the state Assembly Committee on Revenue and Taxation heard testimony regarding one of several sales tax equity bills expected to be introduced this legislative session. Scheduled speakers testifying in favor of the proposed legislation dealing with affiliate nexus were Hut Landon, executive director of the Northern California Independent Booksellers Association (NCIBA); Bill Dombrowski, president of the California Retailers Association (CRA); and Gene DeFelice, vice president, general counsel of Barnes & Noble.

In addition, Landon noted to BTW, 25 other representatives of statewide businesses, teachers, labor organizations, local governments, and police and firefighters spoke in support of the legislation in what he characterized as “a real show of support – it certainly was much more than we have ever seen before.”

In his testimony, speaking on behalf of the hundreds of independent bookstores in the state, Landon noted that the legislators faced a choice. “I told them that they can support either California retailers – especially the small businesses that create jobs and that collect sales tax for the state – or out-of-state e-tailers, whose business model is based on sales tax avoidance,” he said. “They can’t have it both ways.”

Legislation introduced by Assemblymember Nancy Skinner would make clear that the in-state online affiliates of an out-of-state retailer establish nexus for that retailer and would require it to collect sales tax. Legislation has also been introduced by Assemblymember Charles Calderon that would clarify state tax code as to what constitutes physical presence in the state. "Amazon currently owns four subsidiary companies in California, according to their website," said Landon. "Our expectation is that Mr. Calderon's bill will have have those subsidiary companies create physical nexus for Amazon in the state." 

In a recent letter to the California Board of Equalization, threatened to fire its in-state affiliates should affiliate-nexus sales tax equalization legislation be signed into law. At its hearing, the Committee on Revenue and Taxation heard from three in-state affiliates who opposed the legislation. Notably, did not appear at the hearing, a fact commented on by Assemblyman Charles Calderon and other members of the committee, Landon said.

In his testimony, CRA’s Dombrowski pointed out that there was good reason to believe that Amazon would not carry out its threats to terminate its affiliate relationships, because “it can’t afford to give up a piece of the largest consumer market in the country.” However, should Amazon carry out its threat, Dombrowski said, “the facts are that most affiliates work with multiple retailers – most of which collect sales taxes at the point of purchase.”

However, Dombrowski stressed that under the current inequitable situation, “California retail businesses are losing $4.1 billion in sales, which will cause a total of $7.2 billion in lost economic activity in 2010 alone.” And, he added, “The uneven playing field created by this loophole is costing California thousands of jobs and billions in sales tax revenue. This is about fairness and common sense.”