The declining “yield” of the state’s sales tax is one cause of California’s ongoing budget deficits. Since 1960, the revenue raised by each one percent state sales tax rate has fallen by about one-third. The reasons for the decline are two-fold. First, consumers now spend a larger share of their incomes on services, which are largely untaxed, rather than goods, which are subject to the state’s sales tax. The second reason is the rise of internet sales, including purchases from out-of-state retailers, that don’t collect the tax on sales made to California consumers. Estimates suggest that California loses $2 billion to $5 billion per year from untaxed internet sales – enough to make a significant and lasting dent in the state’s chronic budget woes.
In light of this fact, one might think that a bill that attempts to narrow a loophole that provides preferential treatment for businesses located entirely outside of California would be a “no brainer.” Unfortunately, this appears not to be the case. Assemblymember Nancy Skinner’s AB 178 is similar to a recently enacted New York law, would require businesses such as Amazon.com that enter into “affiliate” relationships with California-based entities to collect California sales tax.
At a time when California faces significant budget shortfalls and California retailers face declining sales, you’d think a bill that makes it possible for the state to actually collect taxes that are legally owed and that limits an incentive for Californians to buy from businesses that don’t employ a single Californian would be greeted with open arms. Unfortunately, opposition from tech industry lobbyists has left the measure’s future in question.
The Skinner measure, which is scheduled for hearing in the Assembly’s Revenue and Taxation Committee on Monday, April 27, won’t erase the entire $2 billion to $5 billion gap attributable to untaxed internet sales – that would require Congressional action overturning the 1992 US Supreme Court decision in Quill Corporation v. North Dakota – but it would raise about $100 million, that could be used to support state services – enough to restore the suspended cost-of-living increase for CalWORKs families or the recently-enacted reduction to In-Home Supportive Service workers’ wages – and give nearly $50 million to cash-strapped local governments. And that’s better than a poke in the eye, as my mother used to say.