State of Taxation

by Robert J Wagman

Who says government is inefficient? While the Federal Government is taking a break from the decision, some states are moving forward. The California Assembly, the state’s lower chamber of the legislature, recently passed a bill that eventually would require retailers who have brick-and-mortar retail locations or warehouses in the state to begin collecting sales taxes on intrastate transactions completed over the Internet.

The bill, which has not yet become law, simply states that Internet sales shall be treated no differently from face-to-face transactions or catalog sales. According to the sponsor of the California bill, State Assemblywoman Carol Migden, “the purpose of the law is to clarify that the processing of orders electronically, by fax, by telephone, or by the Internet does not relieve the retailer of the responsibility for the collection of taxes if the purchaser is in this state and if the retailer is engaged in business in this state.”

The California bill takes its cue from the Quill Rule, the 1992 U.S. Supreme Court decision that states that a company with a physical presence in a state must charge sales tax on everything it sells, including phone sales and catalog sales, and presumably now, sales made via the Internet.

If similar bills were to pass nationally, one-off e-commerce shops would have the advantage over national chains. In this scenario, a California business would have to charge state sales tax on intra-California sales, but not on Internet sales to anywhere else in the United States. A national chain, with brick-and-mortar retail shops or warehouse locations in several, would have to charge sales tax to each one.

But the small business community isn’t jumping for joy over the prospect. According to Damon Dozier, director of government and public affairs of the Washington, D.C.-based National Small Business Union is concerned, the only good Internet tax is no Internet tax.

Small Business Computing Staff
Small Business Computing Staff
Small Business Computing addresses the technology needs of small businesses, which are defined as businesses with fewer than 500 employees and/or less than $7 million in annual sales.

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