Repeat: This Isn’t a New Web Tax

When Gov. Gray Davis vetoed Assembly Bill 2412 last September, he branded it a tax on Internet commerce and said the state should not discriminate against the infant and growing industry. Davis added that the subject should be studied for three to five years before change was considered.

The bill’s author, Assemblywoman Carole Migden (D-San Francisco), is not waiting, however. And she is correct not to. She has introduced AB 81, which is virtually identical to the measure rejected by Davis last year. AB 81 does not--repeat, does not--impose any new tax on the Internet. All it does is clarify that certain merchandise orders placed through merchants’ Internet sites are subject to the state sales tax.

Under California law, mail order sales by firms that have a presence in the state, such as a store or warehouse, are subject to the state sales tax. Examples include Macy’s, Wal-Mart and REI, the outdoor sports retailer. No sales tax collection is required of firms that operate in California by mail order only. Furthermore, Macy’s, REI and others that accept merchandise orders via the Internet also collect the sales tax on those orders, just as they do with orders via mail or fax. But some other firms that operate stores in California do not. Examples cited by Migden are the Borders and Barnes & Noble bookstores, which have created Internet subsidiaries to handle such orders.

AB 81 would make it clear that Internet orders with such firms, despite the formation of a subsidiary, are taxable. It would not affect companies like the giant Amazon.com, which isn’t subject to the state sales tax because it makes sales solely by Internet order and has no California facilities.

Although Davis claimed in vetoing Migden’s bill last year that it discriminated against Internet commerce, in fact the bill would eliminate a current inequity in the tax situation suffered by firms that have investments in California. Current law favors non-California companies that have no stake in the California economy, other than their ability to take money out of the state through Internet sales.

The Legislature is certain to pass the Migden legislation again this year. This time, the governor should recognize that the present situation works against companies that operate facilities in California and should sign the measure into law.