Will California Internet sales tax hurt retailers?

How Will You Be Affected by California Internet Sales Tax?

Do you make purchases online?  Are you a retailer who sells products or services over the Internet?  If you answered yes to either of these questions, stay tuned!

Consumers have long valued the ease, convenience and discounts of online shopping due to the seemingly tax-less perks of Internet purchases.  In recent months, Republicans in Congress have joined Democrats to support a bill that would give states authority to force retailers like Amazon, eBay, and many other online companies to collect sales taxes. 

Beginning September 15th, 2012 the California Internet Sales Tax AB 28 law will take effect.  Customers who purchase goods or services online after this date will be subject to a sales tax between 7.25 percent and 9.75 percent, depending on your county’s tax rate.

Generally speaking, if you have a business that sells products online, the 1992 Supreme Court decision obliges that a merchant is not required to collect sales tax unless the merchant has a “physical presence” in that state.  More recently, states have been attempting to counter this decision by requiring sales tax to be collected if an “affiliate” or “solicitor” of an online company has a physical presence in that state. Several states, including New York, Rhode Island and North Carolina have already written legislation requiring sales tax in such circumstances. 

According to the National Conference of State Legislators these are the states that already have or will soon be effected by Internet sales tax.

Here is how Internet sales tax works:

Suppose that Susan, a restaurant owner, lives and works in California. She purchases all of her cooking oils and spices for her restaurant online. She normally orders from Restaurant Supplies Unlimited, a company that is headquartered and has its warehouse in Nevada. Because Susan orders her supplies from a vendor that is outside of California, Restaurant Supplies Unlimited does not have to charge Susan a sales tax.  However, if Restaurant Supplies Unlimited happens to open a warehouse in California to better supply their regular customers there, Susan’s order will be processed and shipped from within California, and now she must pay sales tax on her order.

The fact that online retailers don’t have to collect sales taxes from many of their shoppers gives them an unfair competitive advantage because it makes their prices appear lower.  Some retailers, such as Wal-Mart and smaller online shops have expected to benefit from the new tax due to the increased popularity of online shopping.  On the other hand, larger retailers such as eBay and Amazon have already begun terminating their affiliates in California. 

Read more about the new California Internet sales tax law and find out how it will affect your online shopping habits. 

What happens after September 15, 2012?

Internet sales tax is currently the subject of heated debate in the U.S. Supreme Court to determine their legality. Unfortunately for online shoppers, the California Internet sales tax will be collected for years while this dispute plays out in the courts. 

Before you start to feel disgruntled about ponying up an additional 8% on your online purchases, consider the arguments in favor of consistent sales tax applications. Local merchants regain their footing against online merchants, which helps keep communities and local shopping districts vibrant. Local governments and school districts have suffered greatly in the last four years of reduced tax revenue in this Great Recession.  A bump in sales tax revenue levels the playing field for your neighborhood shops and restores a bit more funds into sorely depleted public coffers. 

There are other proposed laws on the books that aim to require online retailers to collect sales tax in a manner consistent with physical brick and mortar businesses.  Read about them here:

Marketplace Equity Act

Main Street Fairness Act

Marketplace Fairness Act

The new sales tax requirements will compel online merchants to compete with bricks-and-mortars in other areas, such as service, shipping speed, variety and convenience, all values well worth considering and likely, to your overall benefit. 

Tell us what you think about California’s Internet sales tax?  Will this change your online shopping habits? 

by admin
Posted: September 14, 2012