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Lawmakers Pass Online Tax Bill

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SACRAMENTO, Calif. (AP) – California lawmakers have passed a bill to force out-of-state Internet retailers such as Amazon.com to collect taxes under two different legal theories, both of which have been criticized by online sellers.

The online tax bill combines elements of other bills introduced this legislative session. Supporters expect it to bring in $200 million or more per year, $83 million from Amazon alone.

The bill, ABX1-28, was approved last week as part of a Democratic package to meet California’s budget deadline. Gov. Jerry Brown promptly vetoed the main budget bills, but others, including the online tax bill, were passed but not sent to the governor.

The intent is to capture some of the estimated $1.1 billion California is owed each year in “use tax” but never collects.

The use tax is charged on purchases from out-of-state sellers for goods to be used in California. It is levied at the same 8.25 percent rate as the base state and local sales tax. California retailers must collect sales tax, but customers are expected to report and pay use tax directly to the state. Many don’t.

Much of the uncollected use taxes are for Internet sales by retailers with no physical store in California that could be used as a “nexus” for tax-collection purposes. Amazon, with billions in annual revenue, only collects taxes on sales to five states. California is not among them.

The tax legislation adds several new ways to define a nexus for tax collection.

One approach requires online sellers to collect tax if they have affiliates in California that refer shoppers to their site. Similar efforts in other states generated opposition because online retailers responded by severing relationships with in-state affiliates, often small businesses. Amazon has said it would do the same in California.

In a more novel approach, the bill requires an online retailer to collect the tax if it has sister companies in California, such as a marketing arm or product developer. Even backers of that approach expect it will be challenged in court if approved.

(Copyright 2011 by The Associated Press. All Rights Reserved.)

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