SACRAMENTO — The days of most tax-free Internet shopping in California are over.
After years of controversy, the world’s largest online retailer, Amazon.com Inc., was set to begin collecting state and local sales taxes on California purchases at 12:01 a.m. Saturday. Depending on where you live, sales taxes in the state range from 7.25% to 9.75%.
New state and local government revenues from Amazon alone are expected to be as high as $100 million during the first year of collection, with the total for all Internet sellers reaching $317 million in the year that began July 1. Much more money is expected to flow into government coffers in coming years as e-shopping expands.
California consumers are divided on the Internet sales tax issue. Many who have avoided taxes in the past were rushing to make last-minute tax-free purchases Friday. “Definitely stocking up … can’t beat 8% or 9% savings,” tweeted Patrick Chen, who identified himself on Twitter as an Internet game developer.
Others see the sales tax as a matter of fairness. “You pay it any time you go to the store,” Newport Beach Internet shopper Sarah Lafare said. “People who bellyache about it, I’m not in sympathy with them.”
Experts say Amazon purchases in California account for about half of all online purchases statewide. But Saturday is also a big day for many other Internet merchants, whose sales operations require them to start collecting the sales tax as spelled out by a 2011 state law.
Both Amazon and state officials, who have been at loggerheads for years over the issue of Internet sales taxes, say they’re prepared for the big change.
“The agency is ready,” said Jerome E. Horton, chairman of the state Board of Equalization, which administers the sales tax. The tax-collecting agency plans to hire as many as 35 new auditors, collectors, lawyers and other personnel over the next three years, and will redirect to the Internet sales tax effort some of its 90 existing investigators on an “as-needed basis,” he said.
The tax agency’s staff should have a good sense of which of the hundreds of out-of-state Internet sellers are responsible for collecting California sales taxes and how much money they should be sending to Sacramento, Horton said.
“We expect some to seek to gain market share by advertising that they’re not collecting, telling the whole world,” he said. “But we’ll be listening as well.”
Horton said he’s pleased that Amazon finally is “playing by the rules.”
After fighting legislative efforts to force it to collect sales taxes, Amazon last year struck a deal with Gov. Jerry Brown. The company promised to open two 1-million-square-foot distribution centers in Northern and Southern California and start charging sales tax as of Saturday.
The deal resulted in “a win-win law that has allowed us to expand our investment and job creation in the state,” Amazon spokesman Scott Stanzel said. Amazon’s experience in states where it collects the sales tax proves that “we offer customers the best prices with or without sales taxes” in addition to having “vast selection and fast delivery,” Stanzel said.
Amazon’s buying power and high volume sales, even without the no-sales-tax advantage, make its prices extremely competitive: as much as 6% less than prices for the same goods in stores or on other websites, according to a 2011 study by the Chicago investment firm of William Blair & Co.
How consumers will react to Amazon being on a more competitive level with brick-and-mortar retailers, such as Best Buy Co. and Barnes & Noble Inc., may soon be apparent, said Miro Copic, a marketing professor at San Diego State University. “Consumers may hold off from making an impulse buy” online, if the price isn’t that much different from what a product costs at the local mall, he said.
Upcoming financial reports are likely to reveal whether the change in the California law has any effect on Amazon. The Seattle company reported sales for the three months that ended June 30 of $12.83 billion, up 29% from the same quarter in 2011.
The fight over Internet sales taxes is not over. The drive for uniform taxation of retail sales nationwide is led by supporters of brick-and-mortar stores whose shoppers have always paid the levy in those states with sales taxes.
Now that Amazon has agreed to collect sales taxes in California, the challenge is to persuade Congress to pass a federal law that would set standards for collecting similar levies in every state that has a sales tax, said Bill Dombrowski, president of the California Retailers Assn.
Retailers have waged a campaign that passed Internet sales tax laws in New York, Illinois and California as well as smaller states, he said. Their strategy was to “get enough critical mass” so that the politicians in Washington, D.C., “could no longer ignore this.”
In the meantime, passage of the California law could mean the difference between survival and bankruptcy for many smaller store owners, who faced unfair competition from Amazon and other online sellers, Dombrowski said.
“That was their No. 1 threat,” he said.