California Wrestles with the Internet Tax Debate

The debate over Internet legislation rages on as Gov. Gray Davis is faced with a bill passed by both houses of the Legislature in favor of making online merchants collect sales tax from California residents. The California bill, introduced by Assembly members Carole Midgen, D-San Francisco, and Dion Aroner, D-Berkeley, strives to answer the question about determining what exactly a physical presence consists of.

The current tax laws require online retailers to observe the same rules that catalog merchants do. This specifies that merchants only collect taxes if the company has a physical presence in the state the shopper is located. Though it seems straightforward enough, the rules are causing plenty of confusion and many states are watching to see what California’s move is with the expectation that others will follow suit.

The bill does not take issue with online-only retailers that have no presence in California. Instead it focuses on the brick-and-mortar facilities located within the state. Many in support of the bill are offline retailers that feel an unfair edge is allowed to on-line dealers because of their ability to avoid collecting sales tax. Another concern is that a possible result of vetoing the bill will be access to loopholes for big corporations to avoid sales taxes.

State and local governments relying largely on sales tax for a majority of funding for things such as schools and police departments are also in favor of taxing online sales.

Midgen insists that her bill isn’t attempting to do anything more than enforce laws that are currently in existence.

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