• BREAKING NEWS ABC shows live and on-demand -- Download the WATCH ABC app!

Calif. considers online-affiliates sales tax

March 28, 2011 12:00:00 AM PDT
The Internet continues to grow in popularity, including billions of dollars in online buying and selling. With so much commerce done across state lines, people and companies are confused about online taxes. California state lawmakers are hoping to clarify that.

With the state budget still in dire straits, Democrats are trying once again to force some "e-tailers" to collect the sales tax. But this year threats are complicating matters.

For boutique owner Felicia Strati, it's been frustrating to see her customers walk out the door, only to buy the same exact thing on the Internet, often tax-free.

"Customers, they come in. They look at the merchandise and they go ahead and say I'll buy it online and avoid taxes. So it affects our well-being," said Strati.

VegSource.com in L.A.'s San Fernando Valley offers resources and products for vegetarians.

As an Amazon.com affiliate, VegSource gets a cut from some sales when customers click on a product link that takes them to Amazon to buy it. Often no sales tax is charged because Amazon is based in Washington state.

"Amazon has helped us because they've been a very large source of stability through the years," said Sabrina Nelson, VegSource.com.

A proposal is gaining momentum in Sacramento that would force California-based websites facilitating purchases as an affiliate to start charging sales tax.

"I believe it will bring more fairness and it will support small business," said Strati.

Most Californians don't know they're supposed to pay the equivalent of a sales tax on their state income tax filings under "use tax."

The state estimates it loses out on more than $1 billion every year.

E-tailers like Amazon and Overstock recently sent letters to the state of California threatening to sever ties to 25,000 affiliates if they're forced to charge a sales tax.

"That business decision will be to terminate their business relationship with the affiliates that are based in California. That's a loss of jobs," said Sean Wallentine, Calif. Board of Equalization.

VegSource points out it'll lose income. Therefore, it will pay less income tax.

"It will be harmful to us and it won't be helpful to the state of California," said Nelson.

Amazon.com cut off its affiliates in Illinois, North Carolina, Rhode Island and Colorado after those states passed laws forcing them to collect the sales tax. It's still doing business in New York, still collecting the sales tax. But the company is suing to be able to stop that. There are 25,000 affiliates in California; 10,000 of those alone are with Amazon.