Big Government has previously covered efforts led by California liberals, including Assemblywoman Nancy Skinner, to force out-of-state, online-only retailers with no physical presence in California to collect and remit California sales tax where they sell into the state, based purely on them advertising with or enabling their store to be accessed via an independent website based in California. Such efforts are likely unconstitutional. The most prominent example of such a website would be eBay, the Internet auction giant.
Unsurprisingly, eBay has not been enamored with such efforts which would hit eBay sellers, and has been seeking to work into legislation a threshold designed to ensure that at least some of its out-of-state sellers will not be subject to California sales/use tax collection and remittance obligations where they sell to customers in the Golden State (California-based sellers who sell to Californians are already on the hook).
A possible threshold of $10,000 a year or less in sales to Californians has been reported, but sources say that eBay and/or some of its sellers want that limit raised higher– potentially up to $2 million per year.
EBay has its California sellers engaged in a grassroots lobbying effort aimed at forcing amendments to the legislation, which would defang it. No doubt eBay sellers located outside of California, who are currently not obliged to collect and remit sales tax on purchases made by Californians, are ecstatic about this. California-based sellers would not benefit from building in a sales threshold, though, especially a high one that could tilt the eBay marketplace distinctly to the advantage of out-of-state sellers. However, their legislators are being urged to make amendments that, if put through, could seriously reduce the already rather pitiful revenues that backers of the legislation claim they would obtain by ramming it through.
The very best case scenario, according to a Board of Equalization staff analysis produced earlier this year, was that this “revenue enhancement” measure would bring in a measly $200-or-so million maximum in 2012-13. But that is assuming that no out-of-state online retailers terminate their relationships with California websites, which the big online retailers– primary targets of the legislation– have threatened to do, and which would reduce that number. The number also likely fails to take account of the effect that reduced affiliate income if terminations occur would have on overall tax revenue, so some observers believe the net “benefit” of the legislation in terms of revenue could be closer to zero.
If out-of-state eBay sellers get a high threshold up to which they are exempted from collecting and remitting tax, it could make the legislation completely pointless from a revenue raising perspective– as well as pitting California-based eBay-marketed businesses against their out-of-state competitors, with a significant advantage going to the out-of-staters.
This, plus the fact that what the legislation aims to do would likely prove unconstitutional, may explain why some Sacramento insiders see no immediate pathway forward for the legislation and are reportedly looking to shift focus back to other matters, including California’s budget. The state faces a budget gap of $26 billion; its unemployment rate currently sits at 12.3 percent.
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