Online Buying’s Untapped Tax Trove

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WIth an embattled budget $10 billion in the red only days before it is due, the state may turn to an untapped cache:  a tax on goods bought online.

The legislature has taken this step before, only to see it vetoed by then-Governor Arnold Schwarzenegger.

But this is a new day in a new era.

The time may be right for California to capture between $1 and $1.5 billion annually simply by applying the same sales tax to on-line purchases that is collected at brick-and-mortar stores.

It's tough to give up that tax-free perk we all enjoy when buying everything from books to basketalls from online sources like Amazon.

But five factors suggest the time may be right:

Legislative gridlock over the deficit

Democrats and Republicans are at a standstill regarding traditional solutions.

After cutting $11 billion from the new budget, the Democrats won't cut further, and Republicans won't agree to tax increases from traditional sources.

Most of the sacred cows (think alcohol, tobacco, oil) remain, well, sacred thanks to intense lobbying and legislators unwilling to offend these interests.

A different governor

For former Governor Arnold Schwarzenegger, the less taxation of business, the more likely that businesses would create more jobs.

Hmmm, that doesn't seemed to have worked.

Brown does not have the same approach or obligations. Being much more the pragmatist, he may opt for on-line taxation to help reduce the state's deficit.

Besides, Brown is into fairness, and some would argue it's only fair to tax on-line purchases the same way others are taxed.

Healthy on-line companies

A decade ago, the argument could be made that on-line companies needed to grow before they could be saddled with burdensome taxes.

That was then, but not today.

Amazon had profits in 2010 of $34 billion (that's billion with a B!). Their health is not in dispute.

There is no reason for Amazon and others not to collect sales taxes. They can still be competitive.

Other state actions

Several states have enacted legislation to tax on-line companies on the basis that their "affiliate companies"--companies that provide goods for Amazon--are present in those states.

"Pass this legislation and we'll stop providing services and goods from those companies," on-line companies have threatened.

Guess what? The more states that jump on the bandwagon, the less meaningful the threat will be. 

A strong alliance of interests

An intriguing coalition of interests have joined forces to lobby for the on-line tax.

Large brick-and-mortar stores, small businesses, local governments, and groups hurt by reduced state spending have come together to push for on-line businesses to pay their share.

This is anything but a done deal.

Even though the Assembly and Senate have passed separate versions of on-line sales taxes, the e-commerce lobby will be pulling all the stops to deter enactment.

There are also lawsuits that suggest states don't have the right to pass online sales taxes because of a previous U.S. Supreme Court decision.

Still, the momentum is there, more so than ever.

Given what many believe is the necessity of new revenues, this may be the moment for California to break through.

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