A bill to clarify California state law to ensure that all retailers with a physical presence in the state collect sales tax on internet transactions is making headway. The bill (AB 2412) passed the Assembly on a 42-32 vote in late May. It then cleared two Senate committees in June and August. It is expected to come before the full Senate in the coming weeks. Governor Gray Davis has not yet taken a position on the bill.
The U.S. Supreme Court has ruled that any business that has a physical presence in a state—a store, warehouse, or office—must collect sales taxes on goods purchased by state residents. This applies to all retail sales, including in-store, mail order, and internet purchases.
Nevertheless, a number of national retail chains do not collect tax on their internet sales. The list includes businesses whose physical presence in most states is undeniable: Barnes & Noble, Borders Books, Gateway Computers, and Sam Goody Records. These companies contend that their web and retail operations are separate subsidiaries. Their web sites have no physical presence and therefore are not required to collect sales taxes.
This shell game is nothing more than a ruse to evade the law and gain an unfair advantage over local retailers, contends a coalition led by the Northern California Independent Booksellers Association (NCIBA).
The coalition first approached the state’s tax authority, the Board of Equalization. When the board failed to take enforcement action, the group turned to the state legislature. AB 2412 was introduced earlier this year by Assembly members Carole Migden and Dion Aroner. The bill clarifies that existing sales tax law does indeed apply to internet sales made by companies with stores in California.