But a decade and a half later, the New York Legislature figured that if a nationwide seller such as Seattle-based Amazon had affiliated New York companies that sold books through the company or advertised for Amazon for a fee, it was more than just a mail-order catalog. It was an actual in-state presence.
So New York began requiring Amazon, Overstock and similar companies to add New York sales taxes to their sales to New York customers. One result was that nationwide Internet sellers began severing their relationships with New York affiliates.
California has considered a law requiring nationwide online retailers to calculate, collect and remit sales taxes that buyers are supposed to pay but rarely do. Assemblywoman Nancy Skinner (D-Berkeley) introduced AB 178, and Democrats included her approach as part of the budget proposal they sent Gov. Arnold Schwarzenegger.
Based on the Legislature's action, Overstock.com severed its relationship with its California affiliates. Now that Schwarzenegger has made clear he won't sign the bill, he's taking credit for Overstock reversing its decision and for protecting Californians from new taxes.
Wait a minute. The governor's action did not protect anyone from having to pay more tax. Californians owe the $1 billion in use taxes anyway. The only question was whether the law should be changed to require online companies to charge the tax at the virtual checkout counter. It should; but there is a fairer way to do it than the New York-like approach in AB 178.
That approach, after all, does penalize the growing sector of California-based online businesses that match buyers with great deals all over the Web. Many of those businesses would be deemed affiliates, and would be dumped by companies that don't want state ties to turn into requirements to add sales taxes.
A better approach would be to make the sales tax requirement broader. Not to require more or higher sales taxes, but to require any online seller that sells to Californians to add the appropriate tax instead of leaving it to the buyer to add it up and pay it separately. Such companies are, after all, pushing their virtual cash registers into the state. Whether some other California business does or doesn't send the buyer to the online seller should make no difference. If a company sells online to a California buyer, whether the buyer got there by clicking on an ad, or going through an online clearinghouse, or going directly to the retail site, it is selling in California.
