California’s tax system was pummeled by the recent recession. Forecasters project that the state will collect a whopping $41 billion less in the upcoming budget year than was assumed in projections made just before the bottom dropped out of the state’s economy – an amount that exceeds annual state spending on California’s public schools. Clearly, California could use every dollar it can get to help prevent deeper cuts to critical public structures, like education, so why not start by boosting the collection of taxes already owed?
California loses more than $1 billion each year in unpaid taxes on Internet and mail-order sales because most out-of-state retailers refuse to collect the taxes due on these purchases. While consumers are still legally obligated to pay these taxes, few do, largely because few are aware that they owe any tax.
California should follow the lead of other states, such as New York, and enact legislation aimed at boosting tax collections from out-of-state retailers. Compelling more businesses to collect taxes that are legally owed is the most practical means of reducing the significant gap attributable to untaxed Internet and mail-order sales.
Several bills working their way through California’s Capitol would adopt measures similar to those implemented in other states and could boost sales tax revenues by as much as hundreds of millions of dollars each year. These much-needed dollars could help restore recent cuts made to state preschool and child care programs, which are more important than ever as parents struggle to find and retain jobs in the aftermath of the recession.
These measures would also help level the playing field for California businesses. Since most Internet and mail-order companies fail to collect sales tax, they can sell products for as much as 10 percent less than the identical goods sold in California’s “brick and mortar” stores, which do charge tax. This perceived price advantage draws customers away from traditional stores, to the detriment of local communities.
With California businesses still reeling from the recession, the case has never been stronger for policymakers to stop giving preferential treatment to out-of-state companies that don’t employ a single Californian or invest in the state at the expense of local businesses that create jobs for the state’s workers and boost local economies.
— Alissa Anderson