SAN FRANCISCO — Joining several other states, California Gov. Jerry Brown on Wednesday signed legislation to require out-of-state Internet sales companies to collect and remit state sales taxes. The law takes immediate effect.
This story first appeared in the June 30, 2011 issue of WWD. Subscribe Today.
The bill expands the definition of a company having physical presence in the state to require collection, aside from having an actual store. Now companies with subsidiaries in California or business relationships that refer potential customers — even a Web site link on an unrelated site — are required to collect sales taxes.
The measure was passed by lawmakers in conjunction with a state budget bill as a means of tapping new revenue to help close a gaping state budget deficit. However, two years ago, similar legislation was vetoed by then-governor Arnold Schwarzenegger, who cited the measure as an overall revenue loser and job killer for Internet sales companies threatening to sever affiliate business ties in protest, such as Amazon.com and Overstock.com
State officials estimate $1.15 billion in state sales taxes go uncollected each year from consumers and businesses from out-of-town “remote sellers,” such as Internet companies and catalogue businesses.
But with Amazon alone accounting for 50 percent of Internet sales of large firms without a physical presence before the law, it’s estimated new sales tax revenue would drop to $114 million in 2011-12 and $234 million in 2012-13, adjusting for Amazon breaking its ties with the Golden State, according to the Board of Equalization.
Contacted Wednesday, an Overstock.com official confirmed the company would follow through with moving its California advertising affiliate business to other states. “We believe the law is unconstitutional and necessitated this decision. There will be no other changes to the way we do business,” said Mark Griffin, senior vice president of legal for Overstock.com.
The state Internet sales collection bills have been supported by many traditional brick-and-mortar retailers, who argue they’re at a disadvantage having to shoulder the cost of sales tax collection and remittance. They are also seeking legislation from the U.S. Congress to create a national standard under which states must collect taxes from remote sellers.