California strikes Internet tax compromise

Sept. 10, 2011 at 1:28 PM
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SACRAMENTO, Sept. 10 (UPI) -- A compromise in California could spark greater interest in states pursuing sales tax on Internet purchases, a tax attorney said.

"Other states needing money will look and say, 'It wasn't a smooth process, but California is going to come out ahead," said California attorney Robert Wood, The New York Times reported Saturday.

California lawmakers this week struck a deal with Amazon, which agreed to begin collecting state sales tax a year from now unless the deal is pre-empted by a new federal statute.

There is one such effort under way in Washington. Sen. Richard Durbin, D-Ill., has proposed a federal law mandating Internet companies collect state sales tax. The measure, however, looks unlikely to go anywhere, the Times said.

The U.S. Supreme Court has ruled Internet companies need to pay state sales tax only if they have a physical presence in that particular state. California recently tried to turn that ruling in its favor by declaring companies with affiliated Web sites in the state met the Supreme Court's definition.

Companies in California defined as affiliates earn income by setting up links to e-retailers on their own Web sites, earning money if consumers re-routed from their Web sites purchase merchandise from the e-retailer. But several of these so-called affiliates declared they would leave the state when Amazon threatened to cut them off to avoid California's effort to collect a tax.

It has been estimated California could pull in $200 million per year from Internet sales taxes. Amazon, meanwhile, had spent $5 million to secure the half-million signatures needed to force the issue to a state-wide referendum in June.

State Sen. Loni Hancock, D-Berkeley, said, "We would have liked them to begin collecting the tax already, but this is a positive step forward."

With large sums to spend on the issue, Hancock noted the state could have lost a referendum had it been left to the voters to decide.

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