Web Sales Tax Plan Pushed in California

With California facing a gnawing budget gap of at least $26 billion, momentum is building in Sacramento for the state to join efforts around the country to impose sales taxes on a wider range of online purchases.

A bill introduced Tuesday by state Sen. Debra Bowen (D-Marina del Rey) would endorse taxation guidelines hammered out by 34 states that were designed to overcome objections by retailers that say online levies are too complicated to collect.

A second bill introduced last week by state Sen. Dede Alpert (D-Coronado) would strengthen existing state laws to force companies -- such as Dell Computer Corp. and Barnesandnoble.com Inc. -- that have not previously collected taxes on California purchases to begin doing so.

California stands to gain substantially by collecting taxes on Internet sales. A study by the University of Tennessee found that the state could have added an estimated $1.75 billion to its coffers in 2001 if it had been able to collect on all online sales.

California led the nation in Internet sales tax losses, followed by Texas and New York, according to the study.

Bowen’s bill would capture some of that lost revenue by signing the state onto the Streamlined Sales and Use Tax Agreement. Known as SSUTA, it attempts to form common standards for taxation across the country.

“If everyone has a different idea of what clothing is, then it’s a nightmare for retailers who might get an exemption in some states for those kind of goods,” Bowen said. “Getting the standards is an important step toward making Internet sales taxes viable.”

The California Legislature agreed to join the states formulating the SSUTA standards in 2000. But Gov. Gray Davis vetoed the measure because he said it would be at odds with other similar national efforts.

Bowen said the need to join SSUTA has grown more important with the rise in electronic commerce -- and the state’s worsening budget situation.

“People are buying more and more online, but we still have to provide fire service, police service, improve the roads,” she said.

Davis addressed the issue last week. “He thinks the issue is not so much a question of if but when there will be a sales tax on Internet purchases,” said Russ Lopez, a Davis spokesman. “But he said it’s very important that what we do in California be in lock step with what the federal government does.”

Bill Curry, a spokesman for the largest online retailer, Amazon.com Inc., said the company does not believe SSUTA standards do enough to simplify tax collection. “We’re happy to collect taxes remotely under a truly simplified sales tax system,” he said.

Alpert’s bill would greatly expand the range of out-of-state businesses that would have to collect sales tax on purchases made in California.

The U.S. Supreme Court has said states can’t collect sales taxes unless the retailer has a physical presence -- such as a store or distribution center -- within the state. Alpert’s bill would broaden the definition to include companies such as Dell that merely contract with service technicians in the state.

It also could affect online retailers such as BarnesandNoble.com that are partially owned by a company that does have a physical presence in the state.

Times staff writer Jon Healey contributed to this report.