Viewpoint - September 1, 2010

Time to bring fairness to state sales tax

by Clark Kepler

As consumers and retailers, we expect that economic competition will be based on opportunity and fairness, but in California that's not the case.

Common sense would dictate that when you buy something online you would pay sales tax, just as if you had made that same purchase in my store in Menlo Park. Unfortunately, for both me and the state, out-of-state online retailers have practiced sales tax avoidance for years. As a result, hundreds of millions of dollars in sales tax go uncollected. That's money that current law says is due and that could help bridge our massive budget gap and help protect us against further tax increases.

The good news is that a proposed state budget plan includes a provision that makes clear that online retailers with affiliates in California have a legal presence in our state and, therefore, must collect sales tax, just as I and every other in-state retailer does.

Not surprisingly, giant out-of-state retailers are lobbying hard to keep the status quo. By not collecting sales tax, they maintain a crucial price advantage over in-state retailers. But a sale, is a sale, is a sale, and the current, unfair situation undermines locally owned stores such as mine, businesses that studies have shown contribute far more economic benefit to our communities. On a level playing field, I and thousands of other local retailers create new jobs that are crucial in an economic recovery.

According to estimates from the University of Tennessee, California's loss of total state and local sales tax revenue for 2011-12 is more than $3.5 billion. Enacting the proposed budget plan would fix our antiquated system and would help recoup monies that would go toward keeping police protecting our neighborhoods, teachers in neighborhood classrooms, and first responders in nearby firehouses.

Importantly, these changes are both fair and doable. Currently, most retailers that also sell online — including Wal-Mart, Barnes & Noble, and Sears — already collect and remit sales tax for online purchases. Technological advances have greatly simplified and automated this task, and the proposed sales tax equity provision contains an exemption for small retailers in California whose businesses are not focused on extensive out-of-state online sales.

Adopting a state budget that includes sales tax equity will make sure that all businesses play by the same rules, that our state fosters job growth and opportunity, and that we take important steps toward lasting economic growth and fiscal responsibility.

Clark Kepler operates Kepler's Books in Menlo Park and is president of Hometown Peninsula, an independent business alliance.


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