California edges toward support of Internet sales tax
By Jim Wasserman
Associated Press
SACRAMENTO, Calif. — With his state staring at a budget deficit that could hit $35 billion, California Gov. Gray Davis is rethinking his longstanding objection to imposing sales taxes on Internet commerce — a move that could ignite similar steps around the nation.
With states around the country facing a collective $50 billion budget gap this year and $70 billion next year, lawmakers are increasingly eyeing online revenues to plug their shortfalls.
Last year, Internet sales ballooned to $79 billion, or about 3 percent of all retail sales, according to Forrester Research.
California alone may be losing $1.7 billion this year by not taking a deeper cut of Internet sales, which is why two bills to tax Internet sales have been filed in the Legislature.
If either were to pass, the movement to tax Internet sales would gain serious clout, said Utah Tax Commissioner R. Bruce Johnson, a leader of the push.
"It's difficult to overstate the importance of California's participation in this project," he said.
A U.S. Supreme Court decision says states cannot force businesses to collect their sales taxes unless the company has a physical presence in that state.
While California stores with online sites faithfully collect sales taxes for the state, most online sellers such as Seattle-based Amazon.com say it's impossible to collect sales taxes for an estimated 7,500 taxing districts nationally.
But 34 states, including Hawai'i, and the District of Columbia are trying to come up with a simple standard from a hodgepodge of sales tax definitions to persuade Congress to lift a national moratorium against Internet sales taxes. Also, major retailers have agreed on a way to collect Internet sales taxes in 37 states. Hawai'i is among them.
So far, California and other states with high-tech and investment sectors — including New York, Colorado, Massachusetts and Georgia — have largely watched from the sidelines.
New York Gov. George Pataki, a Republican, remains opposed to taxing Internet shopping. But Massachusetts Gov. Mitt Romney, also a Republican, has expressed a willingness to examine the issue. The Legislature sent Romney a bill Tuesday that would make Massachusetts join the states working on the issue nationally.
It's unclear whether other online commerce sites, such as auction house eBay, could be included in sales taxes. EBay spokesman Kevin Pursglove notes that some sellers on the site already collect sales tax and says the company is closely monitoring the developments.
In 2000, just months after the Internet bubble burst and tech stocks tumbled, Davis vetoed a bill passed by the California Legislature to require online merchants to collect sales taxes. Davis said it would send the "wrong signal" to a California-based industry transforming the world.
But now, officials such as California Controller Steve Westly, a former eBay executive, says it's time the state reaps sales taxes from the Internet. Westly says Davis is rethinking the issue and asked him for suggestions that could lead to bills Westly hopes will pass this year.
Davis spokeswoman Hilary McLean has been saying Davis is open to Internet sales taxes, considering how California's economy and budget have turned for the worse. She also notes Davis' 2000 veto message said the state should revisit the issue in three to five years.
Some frequent online shoppers say they wouldn't be happy about giving up the sales tax benefit.
"I buy everything online," said Noah Eckhouse of suburban Boston. "My attitude is, I'm a Yankee. A penny saved is a penny earned."
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