From the SFGate.com:
Back in the dial-up days of the Internet, the remarkable new technology seemed certain to change our lives - if only it could grasp a fragile hold on the marketplace. Convinced that they were working for the greater good, politicians of all stripes agreed to maintain the Internet as a "tax-free" space, enabling consumers to grow accustomed to communicating, researching and shopping online.
As an editorial board, we championed this approach for many years. "The current moratorium on Internet taxes is justified," we wrote in 1999. "It gives the fledgling e-commerce industry a chance to develop and encourage innovation on the Internet."
Times have changed.
Ten years later, it's no longer possible for us to argue that anything about the Internet is fledgling. The technology has changed the way we learn, make friends - even find spouses. E-commerce, once a tiny segment of the American retail landscape, has done so well that it's ravaged long-standing brick-and-mortar business models.
It's also ravaged government tax coffers. In 2007, California alone lost about $1.2 billion in state and local taxes to customers using the Internet to make purchases from out-of-state retailers. Though taxpayers are legally bound to pay sales tax on these purchases, the reality is that no one reports it, and the state has no way to collect.
The economic downturn, combined with a genuine concern for struggling local retailers, has politicians all over the country taking a new look at taxing Internet purchases. We agree that the time has come.
There's no more rationale for out-of-state retailers to get a tax subsidy that our own local retailers aren't getting.
The ideal solution would be for Congress to institute a federal law allowing states to force out-of-state retailers to collect sales tax. Unfortunately, the efforts seem to be stalled at the federal level - that's where Internet industry and anti-tax advocates have been able to most effectively block legislation.
Their arguments are thin. They claim it would be too complicated. Sure, it wouldn't be easy. There are 50 states, and each of them has different laws about which items can be taxed and for how much. But so far, 36 states have signed on to the Streamlined Sales Tax Project, which would unify tax rules and definitions across state lines. Once all 50 states sign on, it would be fairly easy for some enterprising software designer to create a program for e-commerce retailers. And all 50 states are likely to sign on quickly if they know that federal legislation is pending.
Increasingly, though, penniless state legislatures are seeking to force Congress' hand. New York was the first state to require out-of-state online companies to collect sales tax on purchases sent to New York addresses - provided that the companies had at least one in-state agent or affiliate. The results of that law have been mixed: Many out-of-state online companies simply dumped their affiliate programs and continued avoiding taxes. But New York has collected more than $70 million in less than two years. And so far, the federal courts have upheld the statute.
Emboldened by New York's semi-success, Assemblywoman Nancy Skinner, D-Berkeley, has authored AB178, which would do the same thing in California. AB178 wouldn't be the full answer to California's sales tax collection problems. Like New York, we'd see some businesses simply dumping their affiliate programs, and they might choose to take the state to court. Both plans are inelegant solutions to a problem that must be dealt with at the federal level. But state legislators should still pass AB178, if for no other reason than it would push Congress to tackle the problem head-on.
"I do think, frankly, that if (AB178) were to pass, Congress would have to take some action on this," said Lenny Goldberg, executive director of the California Tax Reform Association. "Between California and New York, you'd see the discussion taking hold. AB178 would speed up the process."
AB178 is sitting in the Assembly Revenue and Taxation Committee. Recognizing that she has an uphill battle on her hands, Skinner designed it to be a two-year bill. But given California's fiscal disaster, legislators should recognize the urgency of passing a bill that would level the playing field for local retailers and force consumers to pay a tax they should be paying anyway.
