Internet Giants Mull Calif. Pullout to Avoid Taxes

Wednesday, 01 Jun 2011 10:45 AM

By Martin Gould

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Internet companies such as Amazon and Overstock are threatening to pull out of California rather than collect state sales tax on tens of millions of dollars worth of business, the Los Angeles Times reports.

The move comes after the Golden State’s Assembly passed a law expanding the tax to Internet sales for companies that have a physical presence or sister companies with offices there.

The move passed the Democrat-controlled lower house on Tuesday on a 47-16 vote. It now goes to the Senate.

internet tax california"We're not imposing a new tax," the bill’s sponsor, Assemblyman Charles Calderon, said. "What we are suggesting is a way to collect a tax that goes uncollected."

"If you oppose this bill, you support tax evasion and are anti-business and are not listening to your constituents."

One Republican voted with the majority. The rest rejected the move saying it would drive business out of California and invite lawsuits. GOP Assemblyman Shannon Grove called the move “just another tax grab.”

Backers of the bill say it could raise $1.1 billion in new revenue for the cash-strapped state. They also say it would level the playing field, putting Web-based companies on the same footing as bricks-and-mortar stores that already collect the tax.

It would skirt a pre-Internet-age Supreme Court ruling that exempted companies from state sales tax if they do not have a physical presence in the state.

The state sales tax rate is currently 8.25 percent with local taxes adding as much as a further 2.5 percent.

Businesses with no physical presence in the state would still be exempt from collecting taxes, but Amazon would be caught up because an affiliated company makes its Kindle e-book reader in the state. Amazon said it would move production if the bill becomes law.

Amazon, Overstock, and other e-tailers have Californian affiliates that earn commission by referring business to the sites via web links. A second bill says any business generated through those links would be subject to tax.

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