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Avoiding sales tax online? Not for long

February 3, 2009 12:00:00 AM PST
Governor Arnold Schwarzenegger, R-California, and 18 other governors have sent a letter to the president supporting the economic stimulus plan and urging its quick passage by Congress. Now one state lawmaker has another idea to help boost the state's economy -- tax Internet sales.Most Californians don't know by law they're supposed to pay a "use" tax, similar to a sales tax, on their state income tax forms for online purchases. Now the state wants to crack down.

Many Californians, like Gwen Lampman, shop online because some sites allow them to avoid paying the state sales tax. It saves money.

"Oh yeah," said Lampman. "Hundreds and hundred and hundred of dollars, because I have so many kids."

But one lawmaker wants to change that, because the state loses out on tax revenue. Currently, if online retailers like Amazon.com and Overstock.com don't have a physical store in California, they don't have to collect the sales tax. But the proposal says any Web site that pays someone in California a commission for referring customers to their site must charge the state sales tax.

It could mean $55 million a year for California.

"Given the budget crisis that we have right now, and our small businesses struggling to keep their doors open, we need a bill like this," said Assm. Nancy Skinner, D-Berkeley.

State leaders have been struggling for three months now on how to close the $42 billion deficit in the budget. While the online sales tax would hardly solve the problem, it could help fill the state treasury and boost business at independent book stores within California, like the Avid Reader.

Book store owners like Alzada Knickerbocker say charging no sales tax online has lured customers away from their stores.

"This is an extra and unfair burden to them, to not have their competitors having to charge sales tax as they are," said Knickerbocker.

Some online shoppers aren't thrilled with the prospect of having to pay a sales tax on more sites.

"I think they're looking at it as a money grab," complains Mandell Davis. "'Whoa, there's all this money being made over here. Let's grab a piece of it.'"

The New York Supreme Court upheld a similar law despite a legal challenge from Amazon.com. That's where California got the idea.

This proposal changes the way sales tax is collected, not the actual tax rate itself. That means only a simple majority is needed to pass it.


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