What if California had $1 billion sitting around, unused, that it could put to work closing its budget gap, keeping schools open and preserving human services?
It does. The state loses more than $1 billion each year in uncollected sales taxes because most of the people who owe them have no idea they're being tax deadbeats. Most would pay up if the companies they buy from would simply calculate the tax, add it to the bill, collect it and remit it to the state. That's the way most purchases here work. Buy a La-Z-Boy recliner or an Ed Hardy hoodie at the store, and the retailer adds sales tax.
But some sellers don't bother to do the calculation, leaving it instead to you, the buyer, to add up the 9.75% (in most of Los Angeles County; the state remits amounts over 8.25% to the counties) and send a check to the state Board of Equalization or, at the end of the year, to the Franchise Tax Board. You know those sellers -- they're Internet giants such as Amazon.com and Overstock.com. They have revolutionized shopping, mostly for the good. But they exploit their position as out-of-state sellers by insisting that it's up to their California customers to know about, calculate and separately mail in their sales taxes. (Technically, when the customer pays it directly to the state instead of through the retailer, it's called a use tax. But it's the same 9.75%.)
New York was in a similar position and did something about it. Lawmakers there said large Internet sellers without any actual stores in New York were ripping off the state and local businesses. After all, use taxes on goods purchased by online shoppers in New York were owed but being ignored, just like in California. New York stores that sold identical goods to walk-in shoppers were at a competitive disadvantage because they did have to calculate and charge sales tax. Lawmakers wanted to compel Amazon, Overstock and others like them to add the use tax on purchases by New York buyers.
There was a roadblock. In 1992, just months before the coming of the World Wide Web and the first commercial Internet sales, the U.S. Supreme Court ruled that Delaware-based Quill Corp. could sell its wares in North Dakota through mail-order catalogs without adding state sales taxes. Sending a catalog into Fargo wasn't enough of a presence to make Quill a North Dakota seller.
