As online consumerism expands alongside ever-growing government deficits, legislatures look towards online transactions as a potential source of taxation revenue. Currently, there is no universal taxation on the Internet. Based on Quill Corporation v. North Dakota, a 1992 Supreme Court decision, online merchants that do not have a physical presence in a state are not required to collect sales tax from consumers for online transactions.
However, there is a rising movement towards imposing sales taxes on online transactions. For instance, the House Judiciary Committee is considering the Marketplace Equity Act of 2011, which would serve this exact purpose. Internet sales taxes could raise $20 billion for states. The National Retail Federation supports this law, explaining that the Act will help put an end to “showrooming” where customers review products in physical stores, but complete purchases online in order to save money by avoiding sales taxes.
Jeff Bezos, CEO of Amazon, has commented that although an Internet sales tax may be due, online merchants face an undue hardship because collecting taxes from different states and jurisdictions is highly complicated and involves complex calculations to abide by the various tax rates. The National Retail Federation agrees that taxation on the Internet is largely “a collection issue.”
Jim DeMint, a Republican Senator from South Dakota, argues that taxation on the Internet is essentially “taxation without representation.” Since online merchants will calculate sales taxes based on shipping destinations, which may be entirely different from the purchaser’s location, the purchaser has no option but to submit to tax rates from a state other than the state of citizenship and voting rights.
In California, Internet Taxation regulations are based on the Quill Corporation standard, so online merchants that also maintain a physical presence in the state are required to impose a sales tax on online transactions. California’s Revenue and Taxation Code § 6203 defines physical presence to include the “storage, use, or other consumption” of personal property in California. Furthermore, California Assembly Bill Nos. 28 and 155, enacted in 2011, redefined the requirements for taxation on the Internet. Now, in order to impose a sales tax on Internet transactions, online merchants must (1) enter into an agreement with consumers, (2) compensate entities that direct potential consumers to the merchant’s website, (3) generate total annual directed sales in California in excess of $10,000, and (4) generate total annual sales in California in excess of $1,000,000.
At the Law Offices of Salar Atrizadeh, we guide California consumers and businesses in matters related to the Internet and Cyberspace by using legal knowledge and skills to create solutions for our clients. Please contact us today online or at (310) 694-3034 to set up a confidential consultation.