| Vol. 17 No. 21 | Final Edition | |
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May 31, 2000
Internet Sales Tax?
California Senate Reviews Bill Passed by the Assembly
By Amy Williams, Assoc. EditorCLOVIS -- The Assembly wants to get more Internet retailers that also have affiliated stores in the state to collect the state sales tax.
The sales tax bill, narrowly approved by an Assembly vote of 41-30, is aimed at companies that sell on the Internet and have regular stores in California. Companies that sell by catalogue or over the Internet are required to collect California's sales tax, which ranges from 7.25 percent to 8.5 percent, if they have actual stores, warehouses or other buildings in the state.
However, some companies that have both have created separate affiliated companies to handle their Internet business and contend they do not have to collect the sales tax.
The bill would require an Internet retailer to collect the sales tax if it holds a substantial interest in subsidiary with stores in the state that sell the same products and promote each other's sales.
Assemblywoman Dion Aroner, D-Berkeley, said small bookstores, such as one in her district that recently closed, are being hurt by large book companies that don't have to collect the sales tax.
Assemblyman Tom McClintock, R-Simi Valley, said consumers would not go back to neighborhood bookstores if the bill was passed, and instead would switch to Internet retailers that have no presence in California and would not have to collect the tax. The Bill was sent to the Senate.
[Editor's Note: The mark-up text version of the proposed tax bill AB 2412 now in the California Senate -- THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 6203 of the Revenue and Taxation Code is amended to read: 6203. (a) Except as provided by Sections 6292 and 6293, every retailer engaged in business in this state and making sales of tangible personal property for storage, use, or other consumption in this state, not exempted under Chapter 3.5 (commencing with Section 6271) or Chapter 4 (commencing with Section 6351), shall, at the time of making the sales or, if the storage, use, or other consumption of the tangible personal property is not then taxable hereunder, at the time the storage, use, or other consumption becomes taxable, collect the tax from the purchaser and give to the purchaser a receipt therefor in the manner and form prescribed by the board.(b) As respects leases constituting sales of tangible personal property, the tax shall be collected from the lessee at the time amounts are paid by the lessee under the lease. (c) "Retailer engaged in business in this state" as used in this section and Section 6202 means and includes any of the following: (1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business. (2) Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property. (3) As respects a lease, any retailer deriving rentals from a lease of tangible personal property situated in this state. (4) (A) Any retailer soliciting orders for tangible personal property by mail if the solicitations are substantial and recurring and if the retailer benefits from any banking, financing, debt collection, telecommunication, or marketing activities occurring in this state or benefits from the location in this state of authorized installation, servicing, or repair facilities. (B) This paragraph shall become operative upon the enactment of any congressional act that authorizes states to compel the collection of state sales and use taxes by out-of-state retailers. (5) Notwithstanding Section 7262, a retailer specified in paragraph (4) above, and not specified in paragraph (1), (2), or (3)above, is a "retailer engaged in business in this state" for the purposes of this part and Part 1.5 (commencing with Section 7200) only. (d) (1) For purposes of this section, "engaged in business in this state" does not include the taking of orders from customers in this state through a computer telecommunications network located in this state which is not directly or indirectly owned by the retailer when the orders result from the electronic display of products on that same network. The exclusion provided by this subdivision shall apply only to a computer telecommunications network that consists substantially of online communications services other than the displaying and taking of orders for products. (2) This subdivision shall become inoperative upon the operative date of provisions of a congressional act that authorize states to compel the collection of state sales and use taxes by out-of-state retailers. (e) Except as provided in this subdivision, a retailer is not a "retailer engaged in business in this state" under paragraph (2) of subdivision (c) if that retailer's sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than seven days, in whole or in part, in this state during any 12-month period and did not derive more than ten thousand dollars ($10,000) of gross income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a "retailer engaged in business in this state," and is liable for collection of the applicable use tax, with respect to any sale of tangible personal property occurring at the convention and trade show activities and with respect to any sale of tangible personal property made pursuant to an order taken at or during those convention and trade show activities. (f) The Legislature finds and declares that the deletion of language by the act adding this subdivision that was contained in paragraphs (5) and (8) of subdivision (c) is intended to codify the holdings of recent court cases. (g) (1) The processing of orders electronically, by fax, telephone, the Internet, or other electronic ordering process, does not relieve a retailer of responsibility for collection of the tax from the purchaser if the retailer is engaged in business in this state pursuant to this section. (2) For purposes of this section, a retailer is presumed to have an agent within the state, as defined in paragraphs (1) and (2) of subdivision (c), if both of the following conditions exist: (A) The retailer holds a substantial ownership interest, directly or through a subsidiary, in a retailer maintaining sales locations in California or is owned in whole or in substantial part by such a retailer, or by a parent or subsidiary thereof. (B) The retailer sells the same or substantially similar line of products as the retailer maintaining sales locations in California under the same or substantially similar business name, or facilities or employees of the related retailer located in this state are used to advertise or promote sales by the retailer to California purchasers. SEC. 2. The Legislature finds and declares all of the following: (a) The amendment to Section 6203 of the Revenue and Taxation Code by this act isdeclaratory of, and is not a change in, existing law. (b) This amendment is necessary in order to clarify that a retailer that is engaged in business in the state cannot be relieved of the nexus created by its location in the state through use of an affiliate, subsidiary, or related company, the purpose of which is to engage in similar transactions through the processing of orders by electronic means. (c) In amending Section 6203 of the Revenue and Taxation Code, it is not the intent of the Legislature to in any way extend or broaden the definition of retailer engaged in business in the state, but solely to clarify the definition for use by all retailers. (d) Pursuant to Section 3.5 of Article III of the California Constitution, the Legislature hereby directs the State Board of Equalization to fully enforce this act.]
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