business news in context, analysis with attitude

The San Jose Mercury News reports that the California State Assembly has passed a bill requiring online retailers such as to collect California sales and use taxes and return that money to the state government, a move that is designed to both level the playing field for brick-and-mortar stores and add badly needed revenue to the state’s depleted coffers.

According to the story, California’s “base state and local sales tax rate is 8.25 percent, although cities, counties and special districts can add to that.

“The measure could generate $83 million alone from Amazon, which made $34 billion in 2010. The state Board of Equalization estimates that unreported sales and use taxes total more than $1 billion annually, but it's unclear how much of that is online sales and how much is from physical purchases made by California residents in other states.”

Opponents of the bill said that this was nothing but another “tax grab” by tax-and-spend liberals and that it would hurt internet businesses. But supporters said that it is a matter of fairness and that people opposing the bill actually are anti-business.

Meanwhile, in Texas, the Houston Business Journal reports that Gov. Rick Perry has vetoed a bill “that would have taxed online retailers doing business in Texas, saying it would have prompted ‘unintended consequences’.” Supporters of the legislation had claimed that the state was missing out on as much as $600 million a year in tax revenue on online sales.

“My strong preference is to conduct a thorough policy discussion with Texas lawmakers, consumers, retailers and technology experts – and with other states and even the federal government – about interstate commerce and the structure of state sales taxes in the 21st century," Perry said in a statement regarding the veto.
KC's View:
It is sort of interesting to watch all this play out, especially because it has as much to do with politics as sound public and fiscal policy.

It seems to me that the traditional battle lines in this case don’t work as well as they usually do. Democrats, for example, can claim to be pro-business and that they are trying to hold the line on existing taxes by collecting taxes that should have been collected all along. And Republicans can say that their positions are consistent with an anti-tax philosophy, and that they are trying to nurture 21st century businesses by voting down online sales tax collections. And both have a point.

I also find it a little ironic that Gov. Perry - who on numerous occasions has expressed frustrations with the federal government’s policies - thinks that a national solution is needed to this issue. And I agree with him.

For a long time, I thought that online businesses ought to be exempt from sales tax collection. But let’s be honest here - is hardly a small businesses in need of government nurturing. And I’m not sure that allowing it not to pay sales taxes - which amounts to a kind of federal subsidy - is necessary at this point in its development. And the same goes for a lot of other online retailers. There comes a time when they have to be able to walk on their own...

(I also continue to maintain that my Amazon shopping has very little to do with lack of taxation. It has to do with price and convenience.)

I understand the aversion to taxation in some quarters, but I would in general define myself as being in the camp of people who think that in order to really address state and federal fiscal issues, you have to find a way to both reduce expenses and raise revenues, and hopefully do both in an intelligent, measured way that is reality-based and not ideologically driven.

This could be a good place to start - a sophisticated and national approach to online sales taxes that could help state and federal governments meet reduced and re-calibrated obligations in a tangible and thoughtful way.

Yeah, right.