back to article California set to impose 'Amazon Tax'

A California bill that would require Amazon and other online retailers to pay taxes to a state reeling in financial crisis took another step towards passage this week when it was approved by the state Assembly. "Each year, California loses over $1.145 billion in revenues as a result of unreported use taxes," wrote California …

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The solution is obvious....

a National Sale taxes, that the goverment then redistribute to states.....

It is thart simple.

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Mushroom

Yeah, but no.

Yes, that is the simple solution; like in Australia make taxation a federal responsibility and ban the states from taxing.

But it won't work; common sense doesn't seem to work in the USA; they'll be tea party freaks singing states rights, and such nonsense.

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Anonymous Coward

the 'obvious' solution is....

... not going to happen as long as there's a Tea Party. On this matter alone they have my vote. What the various States need - especially California - is less spending, not more money.

Anonymous, because I want that cool 'V' avatar on my post.

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Not the solution

Sales tax rates range from 0% to 8.25% and that doesn't include county and city sales taxes. So, if a national sales tax was 6%, CA would complain about the loss of 2.25%, but the residents of Delaware would complain about a new tax that they now must pay. How would the county and city get their sales tax now? How would the fed determine or even the state determine what percentage each county and city would get? The county and city rate can vary across a state.

So Mr. Obvious, what is your "obvious" solution to that issue?

Maybe what states need to do, find a different way to tax.

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Califronia cannot have less spending

California has grown unsustainably for over 50 years. The population and industry has grown ahead (and with disregard to) supporting infrastructure.

The result is in an infrastructure clusterf*ck of epical proportions. The state has to continue propping it either directly or indirectly (by subsidies). As a result it just has to spend. The only way it can spend less if it exports half of its cittizens (along with their workplaces) to Montana or somewhere else like it.

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Holmes

Yes! A wonderful idea,

and I'm sure the Americans will do that right after the EU begins collecting and redistributing all taxes for their member states. What most in Europe don't seem to fully comprehend is that the "states" in the US are granted a degree of sovereignty (even to this day each state keeps it's own armed forces, it's called the "National Guard"), originally being much like the relationship the European member states have with the EU.

Once you realize that, the mindset of the Americans between the states and federals starts to make sense.

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FAIL

But the EU has come to a rather sensible agreement on this issue

Sales tax is here collected by the seller, at the rate of the country where the seller resides. That means it's not like the US, where sales tax is generally not collected at all when seller and buyer are located in different states.

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That is a misrepresentation of the situation in the US.

Assuming the state/commonwealth has a sales tax, it is generally collected by the seller in the US. If you've got a brick and mortar store, you ALWAYS collect the sales tax for the sale and remit it to the state in which the store is located. That covers the majority of sales taxes collected and indeed the majority of stores: Sears, J.C Penny's, et al all have store fronts and all collect sales taxes, even on catalog items. What IS excluded is forcing a catalog seller from collecting sales taxes if he has no storefront in the state to which the merchandise is delivered. Amazon has leveraged this loophole by being locating their sales center in only one state. I don't recall if it is a state that doesn't collect sales taxes or if they collect sales taxes for items shipped to that state.

Even if it passes this one is fatally flawed from a constitutional standpoint because creates an obligation on an entity over which the state has no jurisdiction. The analog isn't a Bristol shop collecting a tax for a sale made to a buyer in Paris (existing treaty agreement), it is California forcing that same Bristol shop to collect a sales tax on top of the import duties it would normally pay to ship something to the US. And believe me, if Bristol shops start having to collect sales taxes for all the different taxing entities in the US, you'll soon have a catalog sales protection law or judicial ruling like ours.

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Big Brother

Calories vs. exercise

California has a massive budget deficit c. $15 billion and they're scrabbling every which way to generate more income.

But the problem isn't taxation. The problem is spending money willy-nilly for every half-baked scheme and dippy cause that comes along. The important basic services -- education, health, law enforcement, and public infrastructure have become tertiary priorities and are suffering by comparison.

Additional income from Amazon and the like will only allow more junk food to be put into the pork barrel. The legislature and bureaucrats need to go on a serious diet.

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Stop

No

The problem is California passing laws that only permit tax hikes by referendum. Since Noone wants to pay tax, Cali can't do small tax rises to stop a small problem snowballing into a massive one.

Democracy: it simply doesn't work.

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Alien

Ummm noooo

Its actually the entitlements program... like requirements that something like 50% of the budget has to be spent on education (its not 50% but I cant be arsed to look it up). Ergo if you want to increase the overall budget to spend something like say $4bln on a new bridge with the state kicking in $2Bln, and the state therefore goes to raise the budget... it has to do so with $2Bln to cover the bridge and then another $2Bln towards education so that education is still getting the correct % of the overall budget.

Either way though, if you have an income of say $85,000 and you routinely spend $105,000 year, how long before someone come after you? You have to live on your $85,000 give or take investments and other year to year **minor** fluctuations. However California (and other states) have routinely been outspending incoming with little or no regard to what will happen when it all catches up with them. At some point you have to cut spending (across the board or targeted, but in California's case it will have to be across the board because of entitlement % targets) to match what is outgoing and all the other debts you now have to pay off.

Incidentally, there is a similar issue at the Federal level, something like 75% of the budget cant be touched because there are federal guarentees on the money being spent through other laws. So that leaves very little discressionary income to mess with.

And I'm decidedly to the left side of the tea party (to quote spitting image - neither to the left, nor the right, but somewhere inbetween - and yes, I like Peas too).

[cant be bothered to spell check this, so all spelling mistakes are my lazyness]

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Happy

... but you could be bothered!

[cant be bothered to spell check this, so all spelling mistakes are my lazyness]

... but you could be bothered to type that instead ;o

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@ Anon

Or you increase your revenue. Get a second job, get a new job that pays more, or in the state example, increase taxes, levies and duties.

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They'll manage

California! Don't let Amazon say they can't do this. They manage VAT perfectly well in Europe.

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@Hardcastle the ancient:

VAT is not the same thing. It's a much more complex beast and is based on the notion that each business involved in producing and selling a good to the end customer is "adding value" to the product at each step, by creating individual components, assembling them into the final product, packaging it, distributing it, selling it, etc.

Each business in the chain passes on its VAT cost to the next. The end of the tax chain is the customer, who gets to pay whatever the VAT rate is at retail.

However, each of these businesses can *claim back* VAT *they* have paid to their own suppliers, as long as the business is VAT Registered. Thus the tax revenues aren't as much as many people think they are. Even individuals can be VAT Registered if their annual income is high enough, so it's possible even for some of those customers to claim back the VAT they've paid on certain products.

VAT is not a form of Sales Tax, although the two are related.

*

"Use Tax"—which is what California has—is an extremely basic model: If you buy something for storage or use in California, you have to pay a "use tax" on it.

Again, this is NOT the same thing as a Sales Tax, or VAT. A "Use Tax" places the full burden of paying the tax on the purchaser; there is no obligation on the business itself to pay this tax on the customer's behalf.

Use Tax, Sales Tax and Value Added Tax were all invented in the analogue era. The Internet has highlighted a number of flaws in all three, so none are perfect. Nevertheless, a VAT or Sales Tax system may be a better fit than a Use Tax.

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b

its all VAT/tax if you call it we had VAT go up 5% now (was 17.5 went down to 15% no retailers lowered prices due to the cost it cost them to adjust all there systems they did up the prices when it went back to 17.5 and they did again when it went to 20% and now Fuel prices more like 30% now)

i just be happy it was 5% my self, the Flaw in the way the USA do it is that they are reliant on the customer to report what they have pay'ed for and pay the TAX on it that most do not

do understand cross state is an issue in the USA but TBO it should only pertain to that state where the item was payed for any way, they get the money so if home state A costs more then B state, state A needs to be more competitive so more buy stuff from there own state

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Stop

VAT

Don't wish a federal VAT on us, you sadistic bastard. We've seen how that diabolical French idea worked in Britain and Ireland, with a giant portion creamed off to the Eurocrat expense account in Brussels. If the Federal government administered one here, they would keep most (if not all) of it and the States would be even worse off.

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No they do not

1. Europe has tens of billions of Eu per annum in lost tax due to VAT carousel fraud.

2. VAT is managed well in Europe because the whole collection is at business level and companies pay that to do business. In USA companies refuse to pay out-of-state tax so the EU VAT example does not apply.

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Boffin

Re: They'll manage

"California! Don't let Amazon say they can't do this. They manage VAT perfectly well in Europe."

No they don't. They cock it up some of the time. In fact they keep on charging VAT at the UK rate when delivering to territories for which they should not charge any VAT. An email generates a refund with no problem, but they haven't yet managed to fix the system to charge the right tax automatically (and the problem's been there quite some time).

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Anonymous Coward

Where others have failed?

Amazon, as well as other big names with no local presence, have been collecting taxes for several years now for buyers from NY.

Maybe Amazon is appealing. But so far NY has won.

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Silver badge

Feeling psychic here

Amazon or Dell or whoever announce that if this is the case it can't have links with any TV company in California and so is pulling it's advertising from any show made in LA

TV execs have a word with governer

Law gets changed

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But which rate of sales tax should Amazon collect?

The sales tax charged by the shops a couple of blocks from me is at a different rate to some of those in the middle of town - yes, it does get a localized as that.

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Facepalm

There's an app for that...

One of the companies I used to work at - which shipped from Hayward, CA - used a 3rd party app for that. Basically in the case where you have to collect tax for a tangible asset shipped to an address, you tax at the address it was shipped to.

They were embroiled in all this, because, shipping a "custom" manufactured item from CA, they had to pay tax, whereas if it was a pre-made item, they didnt. I gets a silly as that too sometimes.,

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WTF?

Read Much?

This isn't sales tax, it is 'use' tax.

Reading can be fun, give it a try.

Reading with comprehension is even better if you get that far.

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Silver badge

One rate for the whole state

Each state should set a single sales tax rate which applies to the whole state. Then you only have about 51[*] different rates to deal with.

[*] The extra one I have in mind is Washington DC. You might add the likes of Puerto Rico to that list as well.

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Mushroom

Its the same thing... in California...

You see, CA gets around the whole "its a sales tax" by calling it a "use tax". If you dont live in the state, it gets confusing. And yes technically on the state can do a use tax, whereas the counties and the cities, and the districts, can't do that, but at the end of the day, as far as California is concerned use tax == sale tax for some value of the word "use" and "sales".

But then again, if you dont live in the state you wouldnt know that.

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Re: But which rate of sales tax should Amazon collect?

Exactly the issue. I can actually walk 1000 feet down the block and be in a lower sales tax area where I live. Hell gas is 15 cents cheaper a gallon literally down the block. You can actually see the gas stations from each other due to the tax areas.

So people from other countries please understand the US's taxation laws (like many other that have been spewed out by politicians in the past 15 years) make absolutely no sense what so ever. Its not even a clear cut area that gets taxed its these jagged areas on the map that if it was a puzzle it would make a jigsaw enthusiast cringe.

The problem that will start to arise if states can get sales tax than what about the counties, and cities they will jump on the bandwagon cause we all know they are greedy bastards as well. Then try and keep track of all that BS seeing they love to change the tax rate quite a bit.

All I know is this pic is more truthful than any politician http://lib.store.yahoo.net/lib/demotivators/governmentdemotivationalposter.jpg

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@Read much

Do tell, what is the big difference between "use tax" and "sales tax" that make his comment to be invalid? You may think it is obvious, but most people probably believe the distinction to be purely semantic.

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Why don't they call it?

"Import Duty" and be done with it.

The end-user is having goods brought into California, and I hear California's economy is the size of many countries.

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Import duty would breach several constitutional restrictions

Current appearances aside, the united states is still a federation of nation-states, not a unitary state with administrative divisions. The US constitution was designed with this in mind, requiring that the states give up control of their internal borders in exchange for a federal government that would handle the external borders, common defence and a few other issues that affected the entire union.

The constitution guarantees freedom of movement without restriction by the states and also prevents one state from imposing duties, fines and tariffs on another. An "import duty" imposed by california would be a very unconstitutional thing. In effect the "use tax" is already very close to such a breach, but it avoids that by expressing as a tax on individuals within the state rather than on the economic activity of another state.

A federal sales tax would likewise breach constitutional guarantees regarding the states ability to legislate and raise their own finances. Strictly speaking even the federal income tax breaches such guarantees. Most activities by the federal government over the last 150 or so years have been unconstitutional to some degree and the issue has become less one of preventing such activity, and more of finding how far people are willing to let unconstitutional activity go.

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Anonymous Coward

@ratfox

Exactly - the quick - laymans terms are:

Sales Tax - paid by the merchant, on the customers behalf, to the State Board of Equalization when the sale occurs physically in CA or by a merchant with a tax collecting presence in CA

Use Tax - paid by the customer, to the State Board of Equalization, in CA when they buy something on which Sales Tax wasnt collected, and which is a taxible item under Sales Tax laws in CA.

Its a wordsmith endaround to avoid Federal laws. The rates are, nearly always, the same, as the other tax agencies also get involved. Technically it may be that some things like Prop B in Santa Clara county, dont have a use tax clause, but most, if not all, do.

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Silver badge

California's multiple problems

First it isn't a sales tax or a use tax, it's a sales and use tax. If you buy the stuff in state it's a sales tax but if you buy it out of state it's a use tax. Let's not forget that CA double dips since if you buy an item for $100 you get to pay sales tax on $100 and after a few years you sell it for $50 the new owner is expected to pay tax on the $50 so the state expects to collect tax on $150 for an item that had an original value of $100. My 4th hand refrigerator alone has probably collected Cali more taxes than the original value of the thing.

Oh yeah, did you buy a car before you moved into cali? You get to pay tax twice, once in the state you bought it and again in cali. Sure, it's prorated depending on how long you've owned it before moving in but that isn't the point now is it?

Finally, let's not forget the root of the problem. Voter referendums are too easy to put on the ballot, have no requirement for cost estimates or funding plans and the voters are too clueless to figure that everything costs money so they almost always pick, "let's do it because the ad on tv made it sound like a good idea and hey, it comes out of the general budget so it's free right?"

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Boffin

The UK could apply the same principle to Google...

... before GOOG syphon of the revenue through Ireland.

But then Cameron & Osborne are in Google's pocket (rather like the David Steel/David Owen sketch in Spitting Image) ... so perhaps not.

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Silver badge

Re: Google

Google aren't in Ireland for the 21% VAT rate, which is one of the highest in the EU, they are there for the 12.5% Corporation Tax rate which is considerably lower than most.

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What is 1.145

What is $1.145 billion when they spend over $10 billion on illegal immigrants. Fix the illegal immigration issue first.

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Well

If you manage to find a solution to "Illegal Immigration" I think you'll find every government in the world knocking on your door to use it.

We're still waiting.

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Big Brother

Sales taxes in 'merica

Something folks in other countries may not realize is that there are several levels of "sales tax" involved. In addition to a flat rate charged by the state (for demonstrative purposes we'll say 5%), you then have additional sales taxes imposed at the County Level (for Los Angeles County the total rate is 9.75% including the state tax), and then the City can charge a tax on top of that as well (In LA County for instance, the city of South Gate tacks on an additional 1%).

On top of this, you have various federal laws (and even our constitution) that explicitly prevents one state from taxing activity that occurs in another state. I suspect that the only legal recourse the Kommifornia has is to subpoena sales records from the internet retailers in federal court and then attempt to collect taxes from the receiver. However, with Kommifornia being as socialist as it is, the politicians are loathe to actually go after their own residents for these taxes (else they will not get re-elected).

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Facepalm

Deep in the heart of Taxes

Gee guys, how complicated can you make it?

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Big Brother

State needs more money for living high on the hog, invents perverse bullshit

"This tax, established in 1935, is levied on the purchaser when purchases are made out of state"

Oh, it's a "New Deal" measure meant to "promote jobs" by taking money off the people who need it to fuel random make-work schemes and do some state-level protectionism on the side.

Economic illiteracy, greed, the belief in the Socialistic State and trough-feeding for connected actors all come together.

Yup, surely this tax needs to be enforced.

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hey .. where'd they go?

If they press on with this California will shortly learn the truth of the adage "cutting of one's nose to spite your face".

Amazon (like many other large corporate bodies) will quite easily pickup and move, or disassociate itself from local agents/affilliates/resellers rather than pay what it perceives as unjust taxes.

Its happened in the UK with organisations moving to Ireland or Switzerland and then shunting revenue abroad under various tax exemption methods.

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Anonymous Coward

Maybe for small states...

"Amazon (like many other large corporate bodies) will quite easily pickup and move, or disassociate itself from local agents/affilliates/resellers rather than pay what it perceives as unjust taxes."

But they didn't for New York. They're still associated with agents/affiliates/resellers from NY. And even though they collect taxes from us, people still buy from Amazon, because many competitors are also forced to charge tax. If I'm going to buy a book, might as well buy from Amazon and get free shipping if all the other stores are going to charge tax.

To address a point further up:

Use tax? If I have to pay extra based on the amount of my purchase, if that amount is added to the invoice on a little line that says "tax", if that amount gets paid from the retailer to the state, then it's a sales tax. If you're the comptroller or lawyer, yeah, call it "use" tax if you want. For everyone else, it's still a damn sales tax.

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Just the Facts

Fact - Amazon didn't drop the affiliates in New York - because it was the first state to pass this type of legislation and thus is being used as the geographic location for a court case working it's way through the system (currently in the Court of Appeals).

Fact - Amazon dropped all their affiliates in North Carolina, Rhode Island, Colorado, Illinois and Arkansas since this legislation passed there.

Fact - Hundreds of other online merchants dropped affiliates throughout New York and the other states which have passed this tax; this legislation involves thousands of companies besides Amazon, but they are an easy target because of their visibility.

Fact - Colorado anticipated collecting $5MM annually from this tax, but only collected $20,000 last year.

Fact - North Carolina, Rhode Island and Colorado have all introduced legislation to repeal or modify this law because it is such a failure. The supposed modifications in the CA bill will not result is additional success for the state, and in fact may further hurt this industry.

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Boffin

Collect at point of sale

The complexities of VAT vs sales tax are irrelevant. The main point about VAT from a collection point of view is that it is levied in the country where the business is located and paid to that government, no matter where the customer is. We sell EU (and worldwide) through our website, but the VAT is all collected at the UK rate and paid to the UK government on all sales within the EU. That way each state still gets to set it's own rate without making life difficult for the retailer.

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Flame

nobody wants to pay for anything

especially in california. they lead the united snakes in passing stupid laws.

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Mushroom

Taxation without Representation as in 1776

We in the USA are in the same prdicament as we were in 1776. A Totalitarian goverment run by the minions of Corporations who fail to bow to the will of the people and instead have promulgated a self sustaining set of laws, regulations, taxes and gravy jobs for friends, business associates and family.

Each and everyone of these politicians (in every party) have failed in their duties and need to be removed from office. A new form of government must be created that requires that it's representatives swear a blood oath to represent ONLY the best interests of the Taxpayer or face criminal prosecution similar to that provided under Treason statutes.

Here is a clue to all state and federal agencies and employees, if you can't live within the means you have been provided so far, you don't deserve your job or benefits. If you can't cut 20% from everything you do including your salaries and benefits, get out of the way for someone who can.

We taxpaying citizens have nothing more to give you. If you take anything more from us, we will have to excercise the rights given to us in the Declaration and Bill of Rights.

We have not only the right but a duty to overthrow an unjust government. The time is now and we must all go on strike to point out the fallacies of our supposed "Un-Civil Servants".

There really should be no difference between what must happen here and what has happened in Egypt.

Violence is not neccesary if we all hang together and sit down in the middle of the road for a week or two to prove a point. If all citizens withold taxes in protest, the goverment will collapse.

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Wow

Wow, I just mean wow. You're comparing the US's current economic situatuion to the trampling of what you would call fundamental rights in Egypr because you don't want to pay a little more tax.

How utterly sad.

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Anonymous Coward

The best compromise

Is probably a federal law prohibiting states from collecting sales/use/whatever tax on internet purchases in combination with a federal tax of, say, 4% on said internet purchases. Proceeds from the 4% tax go directly into the DOT highways fund, where all states benefit when said funds are allocated to building and maintaining highways/bridges/etc. Big states like CA would get a larger percentage of these funds compared with smaller states.

1) gets states out of consumers pockets, reduces the burden on consumers of tracking purchases and paying use tax, reduces the state's enforcement burden

2) levels the playing field somewhat for brick/mortar stores vs the Amazons of the Internet

3) tax revenues get allocated in a fair-ish way depending on state population/highway needs

4) Amazon doesn't have to think too hard about how much tax to add to the sale.

Amazon et al probably won't like it still, but how do they see it as fair that they don't have to collect any tax when almost everyone else does?

I of course totally agree that governments at all levels need to spend within their means (by which I mean reduce spending to a reasonable amount based on needs, not increasing taxes to 40-50 % so they can spend what they want).

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