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Big Part of a Big Bucket

December 14, 1987

Twenty years ago the mail-order business was a drop in the giant bucket of national retail sales, about $2.4 billion a year nationwide. With the advances of computer technology, toll-free telephone numbers, express package shipments and the proliferation of catalogue merchandising, mail-order sales have zoomed to an estimated $100 billion a year or more. In the process, 45 states are losing an estimated $2 billion a year in sales and use taxes on out-of-state mail-order business. California's loss is put at about $120 million.

States cannot require out-of-state mail-order houses to collect the tax for them because of a 1967 decision of the U.S. Supreme Court involving the National Bellas Hess firm. The court said that to make the mail-order houses collect taxes for the various states would unconstitutionally interfere with interstate commerce, absent a greater nexus between the houses and their business in the states. But states, cities and counties argue now that the situation has drastically changed, and they are supporting legislation in Congress to require the tax collections. They are correct, and the law should be changed.

The legislation is sponsored by North Dakota lawmakers, but the bills are the outgrowth of the work of a national task force headed by Ernest J. Dronenburg Jr., a member of the California Board of Equalization.

The collections would be limited to larger firms, and thus would not put an undue paperwork burden on little companies. A single tax rate would be levied in each state--6% in California--so that the firms would not have to adjust for variations in cities, counties and special districts. The state of California would turn over 1 cent on the dollar to cities and counties, and a quarter-cent to county transportation districts.

Some firms that do a large mail-order business--Sears or Wards, for example--already pay the tax because they have retail outlets in the states. So, too, for instance, does REI, the Seattle-based outdoor clothing and equipment supplier, because REI has stores in California. But L. L. Bean does not, so none of its mail-order sales to California are taxed.

The California receipts would be subject to the Gann limitation on state and local government revenue, but that would not affect many of the local jurisdictions that would benefit--nor would it negate the need for this legislation as a matter of equity.

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