Thu, Aug

State Provides Free Advertising for Amazon

PERSPECTIVE - The hot debate over requiring out-of-state internet retailers (such as Amazon) to collect and remit sales taxes to California could have one major unintended consequence:  it may drive internet-based commerce sales even higher.

Don Draper and his associates at Sterling Cooper [link] could not have concocted a more effective advertising campaign.

If shoppers had not given much thought to making their purchases through out-of-state internet sites before, they will now.  The California legislature may as well have taken out full-page ads in all of the newspapers proclaiming up to 10% off on all purchases made on Amazon.Com.

Our electeds in Sacramento did what Amazon could not do.  I am unaware of the popular internet retailer ever alluding to the potential tax advantages of  ordering through its website; probably for good reason – it would be encouraging tax evasion.  

If sales taxes are not collected by the retailer, buyers are required to report and pay use tax on all goods purchased for consumption or service in their home states. Most businesses comply with use tax reporting requirements.  They are more easily audited than individuals and at greater risk for penalties for failure to do so.

According to an article in the Los Angeles Times, internet sales are expected to grow from 9% of total sales to 30% over the next few decades. In my view, the recent free publicity concerning the “discount” consumers get from on-line purchases could drive that market share much higher in states with significant sales tax rates.

If Amazon severs its relationships with the California companies feeding its order stream, the state has no authority or leverage to compel the giant retailer – or any similar operation – to collect sales tax.  It would be totally up to the individual consumers to make a complete report of their purchases and remit the use tax to Sacramento.

Yup.  We can count on that and Santa Claus.

But that is essentially what our legislators were assuming when they approved the budget [link]  for next year.

It is time to deal with reality and not rely on dubious assumptions. Internet sales will continue to grow and consumers will always under-report their purchases.

It is time for the state to formulate an agreement with the on-line retailers that ensures we get to at least wet our beaks.  Say, a reduced sales tax rate for internet sales. Any agreement should include traditional brick-and-mortar retailers who offer on-line sales.

(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village.  He blogs at Village to Village and can be reached at:  [email protected] ) –cw

Tags: Amazon, California, budget, sales taxes, Sacramento

Vol 9 Issue 56
Pub: July 15, 2011