The Breakdown

Explaining Southern California's economy

Proposed online sales tax not new to Californians

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Congress is considering a bill that would allow states to require retailers to collect sales tax when people make online purchases. 

Californians are already familiar with the idea. A state law mandates online retailers like to collect sales taxes from California customers.  The law took effect last September and applies to online retailers based in other states that sell more than $1 million  a year in goods to California customers.

The law was intended to help Calfornia-based retailers like Leigh Smyth, who have been always been required to collect tax on their California sales.  Smyth sells toys through eBay and Amazon out of storage unit she rents in Pasadena. 

"Even as an Internet retailer, I'm responsible to pay that sales tax," Smyth said.  "So whether I collect it or pay it out of my pocket, I am responsible to do it."

In the first few years of her business, she paid the tax herself for her California customers.  Now, with more people in-state buying her toys, the customers pay it, and not all of them have been happy about it. 

"A few years ago on eBay, it was not uncommon for people to read me the riot act: 'Why do I have to pay sales tax? I shouldn't have to pay sales tax. It's online,'" Smyth recalls.  "But I have to pay it, so I have I have to charge it. And it's as simple as that." 

Smyth now gets some relief  from knowing that more of her out-of-state competitors must collect the tax as well. 

"I think it's the beginning of leveling the playing field for California businesses," said Jerome Horton, Chairman of the California Board of Equalization, the agency overseeing the state's tax collections.

 "It certainly establishes a level of fairness and shifts the burden from California consumers to its rightful place to require the retailers to be responsible for it," Horton said. 

Californians have always owed a use tax on goods they buy online from other states.  With California’s September 2012 law, more online retailers are collecting tax at the point of sale, rather than leaving shoppers to calculate the use tax and pay it on their own. 

The Board of Equalization projected the new law would generate $292 million in state and local tax revenue in its first fiscal year. Board documents show that from when it took effect in mid-September 2012 to December 31, 2012, the state collected $112 million.

Brian Bieron, senior director of global policy for eBay says smaller out-of-state retailers - with less than $1  million a year in California sales - aren't burdened under the law.

"The small business threshold that's in the California law works pretty well, and so we haven't had from our perspective significant negative impact on small businesses around the country doing business over the Internet into California," Bieron said. 

A proposed national online sales tax in Congress puts the collection threshold at $1 million too. But Bieron said that's too low for smaller companies that sell goods in all 50 states, and eBay is lobbying to get that changed to $10 million or 50 employees.

“The idea that million dollar retailers are big businesses is honestly, in the world of retail, ridiculous," Bieron said.  "A million dollar retailer might be making $10,000 dollars in profit, if they have a one percent profit margin.”

eBay wants sellers like Leigh Smyth in Pasadena to write Congress in support of a higher threshold for collecting the tax. Smyth has ignored the calls to action, but she agrees.  She said many businesses with $1 million in annual sales might only have a few employees, and sending sales tax to 50 states would be too much work.

"If we're looking at some sort of federal clearinghouse, I'm more than willing to go along with collecting tax in all states," Smyth said. "But if we have to, as small business people, figure that out on our own, it's probably going to do some damage to those small businesses." 

With contributions from Ed Joyce

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