Internet sales tax bill advances in California Legislature

An all-out drive to boost state revenues by taxing all retail Internet sales picked up steam in the Assembly.

On Tuesday, the lower house of the Legislature passed a bill by Assemblyman Charles Calderon (D-Whittier) aimed at closing a legal loophole that allows Amazon.com Inc. and other Internet retailers to avoid collecting California sales taxes on purchases made via computer.

The bill is one of a trio of proposals that would put companies such as Amazon and Overstock.com Inc. under the same obligation to collect taxes as companies with bricks-and-mortar stores in California, such as Best Buy Co., Wal-Mart Stores Inc. and Barnes & Noble Inc. The big physical retailers say they are losing business and being forced to close stores and fire employees because of unfair competition from Internet businesses.

The state and local governments are losing an estimated $1.1 billion in annual revenues because of untaxed Internet sales, proponents contend.

Calderon's bill, which passed on a 47-16 vote and moves to the state Senate, would address an exemption carved out by a decades-old U.S. Supreme Court ruling that frees retailers from having to collect state sales taxes on purchases as long as they do not have any physical presence in the state.

The bill would reinterpret California law to consider the presence of related companies sufficient to require that sales taxes be collected. In Amazon's case, that presence would be established by counting an Amazon-affiliated company that manufactures Kindle e-book readers.

Amazon, which opposes the Calderon bill and related legislation, has threatened to pull some of its business from California rather than start collecting sales taxes.

But Calderon countered that passage of his bill would save thousands of California jobs. "If you oppose this bill, you support tax evasion and are anti-business and are not listening to your constituents," he said.

A second bill in the Internet-sales tax package would close another loophole by requiring Internet sellers to collect sales taxes on California purchases any time they do business through so-called affiliates based in California. Affiliates earn commissions from Amazon and other e-sellers for referring business through links on their Web pages.

Amazon, Overstock and other companies have threatened to fire their California affiliates if the bill becomes law.

A third related bill would give California tax collection agencies greater powers to broadly interpret laws to collect more sales taxes from out-of-state electronic retailers.

-- Marc Lifsher