Saturday, September 15, 2012

The end of the sales tax-free Internet begins as, Web retailers start collecting sales tax in California

The era of a sales tax-free Internet is coming to an end. On Sept. 15, 2012, - and other Internet retailers - began collecting sales tax on sales to California residents.

While California is not the first previously sales tax-free state that has forced to accede to its demands and begin collecting sales tax. New York, for one, is a key prior example. However, with California, a state with an extremely high sales tax-rate states falling out of the tax-free category, the end is nigh. and other Internet retailers have claimed they are not required to collect sales tax in many states because of the 1992 Quill vs. North Dakota Supreme Court decision, which said that a retailer would not be required to collect sales tax in a state unless it had a "physical presence" in that state. In many cases, that does not apply to an e-tailer.

Quill vs. North Dakota didn't mean that sales tax did not need to be collected. Instead, it meant that because of the complexity of state and local sales taxes, the retailers were not required to collect them. Instead, the buyers were required to pay them on their state income tax return, as "use tax."

Of course, human nature being what it is, the number of people actually paying this sort of tax has been reported to be around 1 percent.

To get around this, many states, including California, began rewriting their laws so that a "physical presence" did not necessarily require a brick-and-mortar location in the state. Instead, having an advertising nexus, such as websites based in California advertising, was said to constitute that sort of presence, and thus require sales tax collection.

That's what California did in 2011. In response, "fired" all its California-based Amazon Associates and vowed to fight. Eventually, however, came to a deal with the state: The company promised to open two 1-million-square-foot distribution centers in Northern and Southern California and to start charging sales tax as of Saturday.

What will happen to these Associates this year?  So far, nothing.  That said, California-based Associates posting on the discussion boards on the Associates site are crossing their fingers. has not explicitly told them anything.  

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