By a vote of 21-14, the California State Senate has approved a bill that would force Internet retailers with a “substantial” nexus to companies doing business in the state to collect sales taxes.
The measure, which was previously approved by the General Assembly, now goes to Governor Gray Davis for signature.
Opponents, including the Direct Marketing Association, say the state is prohibited by the Supreme Court’s 1992 decision from taxing Internet sales unless the seller does have a significant physical presence in the state.
They also say that because of the federally mandated moratorium the state cannot impose new taxes on Internet transactions. Davis, who is opposed to Internet taxes, is expected to veto the measure because of its apparent conflict with a federally mandated moratorium on new Internet taxes and recent U.S. Supreme Court decision relating to mail-order sales taxes.
If passed, the bill could raise an estimated $14 million in revenue.
Four years after the nation’s top court ruled states could not collect sales taxes on mail-order sales unless the seller had a substantial physical presence within its borders, President Clinton signed a bill into law prohibiting states from imposing new taxes on Internet transactions until Oct. 21 of next year. A bill to extend that moratorium until October 2006 is currently pending in Congress.
Assemblywomen Carole Migden and Dion Aroner, who sponsored the bill, contend that the legislation only clarifies existing state laws dealing with sales taxes and nexus.
Specifically, it’s aimed at companies physically located in the state that seek to avoid collecting taxes on their sales by creating an independent Internet site to sell goods and services.
“According to current law, there are gross violators and we are gong to require them to collect” taxes on their sales over the Internet,” just like they do if they sell by mail, said Migden.
Some of the opponents also contend that the measure is nothing more than a “hidden” tax increase that will drive businesses out of the state.
Network
