Is California Closer To Internet Taxes?

During the dot-com boom, Internet taxes weren't exactly California Gov. Gray Davis' priority. In fact, the governor actively opposed online sales taxes because, he said often, they might well put a crimp in the dot-com boom.

That was then; this is now. Fears that California loses more tax revenue to Net sales than any other state may now have California getting on the Net taxes bandwagon.

Two bills that would let California tax Net sales by non-California vendors passed a key state Senate tax-writing committee March 26. Sponsors of the bills hope they'll help the state make up for a reported $1.75 billion in lost tax revenues and help close a $35 billion budget gap over the next 15 months, according to several published reports.

Perhaps unsurprisingly, key sponsors refused to call it just "taxing the Internet." Sen. Debra Bowen (D-Redondo Beach), who wrote one of the two bills, said, "This isn't about 'taxing the Internet,' it's about equity, because people should be taxed on what they buy, not how they buy it."

Bowen's bill would require California to join the 35 other states and the District of Columbia in the so-called Streamlined Sales and Use Tax Agreement, and help them push for taxing remote online sellers. The other bill would require online sellers with brick-and-mortar facilities in California to collect sales taxes on all transactions with California customers.

"Why should you pay sales taxes when you buy something from the mall while your neighbor, who shops from a catalog or over the Internet from the comfort of her living room, can avoid paying those same taxes?" Bowen said. "After all, the need to pay for police services, fire services, road construction, park maintenance, and much more doesn't disappear just because someone chooses to shop at a virtual mall."

Yet Bowen said her bill wouldn't make California change its tax structure - but she did caution that if California eventually adopts the SSUTA, the state will have to change its tax structure.

"Continuing to sit on the sidelines as California has done for three years while that discussion takes place shortchanges local police, fire, park, library, and transportation services," she said. "It also continues to penalize not just the California businesses that have to collect California sales taxes, but it also hurts the people who shop locally and are forced to pick up a larger share of the tab for those critical services that everyone in California relies on to be there when they need them."

Though few actually do so, California law requires residents to report and pay sales taxes on their online purchases. Davis vetoed another brick-and-mortar online tax bill in 2000. The Bowen bill is set for a hearing in the Senate Appropriations Committee in April, while a hearing on the brick-and-mortar bill wasn't yet set, according to the state Senate.