Gservo
31st January 2003, 04:20 AM
Davis may back Internet tax plan
By Ann E. Marimow
Mercury News Sacramento Bureau
SACRAMENTO - After years of adamantly rejecting an Internet tax plan that he said would slow the growth of the dot-com economy, Gov. Gray Davis is now willing to consider a proposal that would force many online companies in California to charge state sales tax.
In a significant shift, a Davis spokeswoman said Wednesday the governor is willing to consider an Internet sales tax -- the first of its kind in the nation -- to help fill what he estimates is a $34.6 billion budget shortfall over 18 months.
Key lawmakers are pushing forward with a plan to require companies that do business online and have a retail outlet in California, such as Toys R Us and Barnes & Noble, to collect sales taxes. It also would apply to catalog sales.
``California's fiscal climate has changed; the dot-com economy has changed,'' Davis' spokeswoman Hilary McLean said. ``While he didn't favor it in the past, he is willing to review it in the bigger context.''
State Sen. Dede Alpert, a San Diego Democrat, has breathed new life into an earlier proposal that was endorsed by the Legislature but vetoed by Davis in 2000. The bill would require any company with a physical presence -- retail store or warehouse -- in California to charge sales tax on purchases made online by California customers. But it excludes businesses that do business only online or customers from another state.
Millions in revenue seen
Annually, it is estimated the tax would reap tens of millions of dollars.
Business groups in Silicon Valley, such as the American Electronics Association, have lined up against past legislative efforts to tap the Internet for new tax revenue, saying it would disadvantage California companies in a competitive market.
Republican state Sen. Tom McClintock of Thousand Oaks said Wednesday that creating an Internet sales tax on California companies would just drive consumers to online companies that have no California store or warehouse.
``You are literally one mouse click away from a competitor with no presence in California,'' McClintock said. ``All that does is shift commerce from BarnesandNoble.com to Amazon.com.''
Recognizing that possibility, at least one other senator is urging California to join a coalition of 35 states that are working to make it possible to collect taxes on out-of-state online purchases. Under that plan, taxes also would be charged on online purchases made by Californians from businesses that have no physical presence in the state.
States are currently prohibited from collecting taxes on out-of-state purchases because the U.S. Supreme Court ruled that the variety of tax systems would burden retailers. The coalition, however, led by the National Governor's Association, hopes to make state sales tax systems more consistent in what is taxed and what rate is charged. The coalition then plans to challenge the Supreme Court decision once 10 states have adopted the simplified system.
Congress has imposed a moratorium through Nov. 1 on Internet-only taxes, but it's unclear if Alpert's bill would be exempt from that because it also includes catalog sales.
State Sen. Debra Bowen, D-Redondo Beach, argued Wednesday that the recent holiday shopping season is evidence that the governor's budget proposal to raise the state sales tax by one cent is unlikely to raise the $4.6 billion that Davis estimates.
Internet sales booming
But while purchases at shopping malls increased less than 2 percent this season, Bowen said, Internet sales increased 24 percent.
``I don't think that we're in danger of squashing e-commerce at this point,'' she said.
Alpert's bill would specifically close a loophole in California law that allows companies to escape paying taxes for online purchases even when they also operate a bricks-and-mortar store. Some companies, such as Barnes & Noble, have organized their retail stores and Web site operation into separate entities to avoid paying taxes, according to Alpert's office.
Some companies, such as the Gap, already collect tax on Internet sales.
The proposal would clarify that an online operation and a retail store are one in the same company if the two are selling a ``substantially similar'' line of products and using a ``substantially similar'' business name.
When Davis vetoed similar legislation, sponsored by San Francisco Democrat Carole Migden and Berkeley Democrat Dion Aroner, he said, ``Imposing sales taxes on Internet transactions at this point in its young life would send the wrong signal.''
But he also left the door open for the future.
``In the next three to five years,'' he said in his September 2000 veto message, ``I believe we should review this matter.''
By Ann E. Marimow
Mercury News Sacramento Bureau
SACRAMENTO - After years of adamantly rejecting an Internet tax plan that he said would slow the growth of the dot-com economy, Gov. Gray Davis is now willing to consider a proposal that would force many online companies in California to charge state sales tax.
In a significant shift, a Davis spokeswoman said Wednesday the governor is willing to consider an Internet sales tax -- the first of its kind in the nation -- to help fill what he estimates is a $34.6 billion budget shortfall over 18 months.
Key lawmakers are pushing forward with a plan to require companies that do business online and have a retail outlet in California, such as Toys R Us and Barnes & Noble, to collect sales taxes. It also would apply to catalog sales.
``California's fiscal climate has changed; the dot-com economy has changed,'' Davis' spokeswoman Hilary McLean said. ``While he didn't favor it in the past, he is willing to review it in the bigger context.''
State Sen. Dede Alpert, a San Diego Democrat, has breathed new life into an earlier proposal that was endorsed by the Legislature but vetoed by Davis in 2000. The bill would require any company with a physical presence -- retail store or warehouse -- in California to charge sales tax on purchases made online by California customers. But it excludes businesses that do business only online or customers from another state.
Millions in revenue seen
Annually, it is estimated the tax would reap tens of millions of dollars.
Business groups in Silicon Valley, such as the American Electronics Association, have lined up against past legislative efforts to tap the Internet for new tax revenue, saying it would disadvantage California companies in a competitive market.
Republican state Sen. Tom McClintock of Thousand Oaks said Wednesday that creating an Internet sales tax on California companies would just drive consumers to online companies that have no California store or warehouse.
``You are literally one mouse click away from a competitor with no presence in California,'' McClintock said. ``All that does is shift commerce from BarnesandNoble.com to Amazon.com.''
Recognizing that possibility, at least one other senator is urging California to join a coalition of 35 states that are working to make it possible to collect taxes on out-of-state online purchases. Under that plan, taxes also would be charged on online purchases made by Californians from businesses that have no physical presence in the state.
States are currently prohibited from collecting taxes on out-of-state purchases because the U.S. Supreme Court ruled that the variety of tax systems would burden retailers. The coalition, however, led by the National Governor's Association, hopes to make state sales tax systems more consistent in what is taxed and what rate is charged. The coalition then plans to challenge the Supreme Court decision once 10 states have adopted the simplified system.
Congress has imposed a moratorium through Nov. 1 on Internet-only taxes, but it's unclear if Alpert's bill would be exempt from that because it also includes catalog sales.
State Sen. Debra Bowen, D-Redondo Beach, argued Wednesday that the recent holiday shopping season is evidence that the governor's budget proposal to raise the state sales tax by one cent is unlikely to raise the $4.6 billion that Davis estimates.
Internet sales booming
But while purchases at shopping malls increased less than 2 percent this season, Bowen said, Internet sales increased 24 percent.
``I don't think that we're in danger of squashing e-commerce at this point,'' she said.
Alpert's bill would specifically close a loophole in California law that allows companies to escape paying taxes for online purchases even when they also operate a bricks-and-mortar store. Some companies, such as Barnes & Noble, have organized their retail stores and Web site operation into separate entities to avoid paying taxes, according to Alpert's office.
Some companies, such as the Gap, already collect tax on Internet sales.
The proposal would clarify that an online operation and a retail store are one in the same company if the two are selling a ``substantially similar'' line of products and using a ``substantially similar'' business name.
When Davis vetoed similar legislation, sponsored by San Francisco Democrat Carole Migden and Berkeley Democrat Dion Aroner, he said, ``Imposing sales taxes on Internet transactions at this point in its young life would send the wrong signal.''
But he also left the door open for the future.
``In the next three to five years,'' he said in his September 2000 veto message, ``I believe we should review this matter.''