California May Pass State Internet Sales Tax

The California state Senate Wednesday passed a bill that, if approved by the state Assembly and signed by the governor, will require all California-based companies to add sales tax to online purchases.

The bill is aimed at the ambiguous area of taxation on the Internet and targets companies that are based in California and have an online presence but don't charge taxes on those purchases. While there has been widespread debate about how to apply sales taxes to online purchases, no other state has passed such legislation.

"This bill would clarify that the processing of orders electronically, by fax, telephone, the Internet or other electronic-ordering process, does not relieve a retailer of responsibility for the collection of the tax from the purchaser if the retailer is engaged in business in this state," the bill states.

"I think it's a good idea," said Andrew Bartels, vice president and research leader at Cambridge Mass.-based Giga Information Group Inc. "There's no inherent reason why Internet retailers should be treated any differently than brick-and-mortar companies."

But he noted that there could be a problem in trying to implement sales taxes in a nationwide effort because state sales taxes differ so greatly. "There are literally thousands of different sales tax regimes that vary by state, by county, by product. It's very complex. It would require a complex software program to figure out all the different taxes," he said.

Bartels added that smaller companies might be against the bill because they wouldn't have the resources to implement such a plan. He added that by leading this trend, California might encourage other states to enforce sales taxes on Internet purchases. The bill still must be signed by Gov. Gray Davis.

While a majority of U.S. governors advocate some form of Internet sales tax, Davis is the exception and has said in the past that the Internet is creating wealth for his state without the imposition of an Internet tax.

Patrice Sellick, manager of media relations at the International Council of Shopping Centers, which is a member of the Washington-based e-Fairness Coalition, said the coalition supports a measure that would require an Internet sales tax because it would even the playing field for all consumers and companies.

"Wherever a shopper chooses to make a purchase, we would like to see people taxed fairly," she said.

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