As part of a stopgap budget solution, the state Senate on Thursday passed a bill requiring Amazon.com and other online retailers to charge sales taxes on purchases in California, generating an additional $107 million annually.
Gov. Arnold Schwarzenegger vowed to veto the measure when Democrats proposed it last year, and it stalled in committee. But Democrats reintroduced it Thursday in a tax enforcement bill that was part of a $5 billion budget package moving through the Legislature.
Schwarzenegger has not indicated a change of heart on the issue. "The governor has never supported this proposal, so it would be a very tough sell," Schwarzenegger spokesman Aaron McLear said Thursday.
The governor's reasoning last year was that Amazon, Overstock and other online retailers provide employment to hundreds of "affiliates" in California who direct sales to the Web sites. Overstock announced last summer that it would eliminate its affiliate program in response to the legislative tax proposal. When Schwarzenegger vowed to veto the bill, Overstock restarted its affiliate program.
Advocates for the online sales tax bill assert that retailers would merely collect a tax that Californians are supposed to pay already. Residents who purchase products from out-of-state retailers that do not collect sales taxes are required to pay those taxes on their income tax returns. But few actually pay that "use tax."
Online retailers who collect sales taxes on California purchases have a "nexus" in the state, often meaning that they operate brick-and-mortar stores here. Amazon and Overstock do not have stores in California, but the bill would require them to collect sales taxes because their affiliates would constitute a nexus.
Lenny Goldberg, executive director of the union-backed California Tax Reform Association, said that California's failure to collect sales taxes on internet purchases has harmed independent and chain retail stores that operate in California.
"They create jobs in California," Goldberg said. "And with the little guys in California, well, they're at a huge price disadvantage. The little guys are getting killed."
New York passed a law similar to the one moving through the California Legislature, prompting legal challenges from Overstock and Amazon in New York Supreme Court. New York prevailed, but the companies have appealed.
Goldberg said he hopes California's passage of an online tax will force the issue nationally by prompting Congress to act to defend states' ability to impose such taxes. But Schwarzenegger would have to sign the bill first.
UPDATE: Added that Amazon and Overstock both filed suit in New York.
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