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deeageaux

OT: Report: 98.6% of tax for Internet sales not paid

deeageaux
12 years ago

May 10th, 2011 by Jan Norman, small-business columnist.

Californians who buy products online from out-of-state merchants pay virtually none of the tax, according to a new analysis by the staff of the State Board of Equalization.

Source: California State Board of Equalization

California consumers are paying an average of 1.4% of the total use tax on purchases made from out-of-state retailers that do not collect the taxes for the state, according to the analysis published in the board's May Economic Perspective newsletter.

(While the use tax applies to any purchase made from an out-of-state company, about 60% of these purchases are made online, so that is the focus of the staff analysis.)

The analysis reports that consumers with annual household incomes of $60,000 to $100,000 are the least likely to pay the tax with 99.6% not paying. Consumers with incomes over $100,000 are the most likely to pay it, but still, 96% don't pay.

The U.S. Supreme Court has ruled that states cannot compel companies that have no physical presence inside their borders to collect such taxes.

So the board has been on a campaign to get consumers to pay the tax on their out-of-state purchases voluntarily. It regularly issues notices that consumers owe the tax, and there is a line on the state income tax return where consumers are supposed to declare their out-of-state purchases and pay the use tax with their state income tax.

The analysis indicates how pervasive avoidance of this tax is. Jeffrey L. McGuire, deputy director of the board's sales and use tax department estimated that California consumers owe $795 million in use tax but in 2010 they reported and paid only $10.2 million through their state income tax returns.

Politicians in several states, including California, have also been trying to figure out a way to force online retailers to collect the tax.

The cash is huge: The board's analysis says U.S. consumers spent more than $126 billion online in 2009, $660 per household. The report doesn't break out California's share.

This year alone, California legislators have introduced four measures on the issue: AB 153, AB 155, SB 234 and SB 655.

Amazon.com and Overstock.com have both said they would end their relationship with California small businesses that are online advertising affiliates if any of the measures pass.

The board's analysis emphasizes that online sales are dominated by big companies. The report says that 48% of online sales are at the 10 biggest online retailers as ranked by Internet Retailer.

"This report points to data that proves how important it is that California move forward with requiring online retailers to collect the taxes owed when Californians make purchases," said Board Chairman Jerome Horton. "We also need to increase our efforts to encourage Californians to comply with the use tax laws that have been on the books since 1935. I am sensitive to human error and conflicting interpretations of the law. However, many out-of-state retailers have embraced not collecting California taxes as a business model."

Other findings in the staff analysis:

The average sale is $210 per transaction.

Households with incomes between $60,000 and $100,000 account for about one third of the Top 500 e-commerce retailers' sales.

Households with greater than $100,000 incomes account for 27% of purchases.

Households with less than $30,000 annual income make 17% of the online purchases.

That breakdown by household income illustrates how any move to collect taxes for online purchases will affect every income group in the state.

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I know this is off topic but it comes up every once in a while in this forum.Thought it was interesting information.

Here is a link that might be useful: Article

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