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The Associated Press June 1, 2011, 11:18AM ET

Calif. Assembly OKs bill to tax online retailers

Online retailers such as Inc. would be required to collect California sales and use taxes under a bill approved Tuesday by the state Assembly.

Assemblyman Charles Calderon, D-Whittier, says his legislation evens the playing field for physical stores that operate in California and have been paying the sales tax already.

"We're not imposing a new tax," he said. "What we are suggesting is a way to collect a tax that goes uncollected."

AB155 extends the statewide sales tax to purchases made from online retailers that have a presence in the state, including those that work with sister companies with offices in California. Physical stores also must charge local sales taxes.

The base state and local sales tax rate is 8.25 percent, although cities, counties and special districts can add to that.

The measure could generate $83 million alone from Amazon, which made $34 billion in 2010. The state Board of Equalization estimates that unreported sales and use taxes total more than $1 billion annually, but it's unclear how much of that is online sales and how much is from physical purchases made by California residents in other states.

Calderon's bill passed 47-16 with the support of one GOP lawmaker and now heads to the Senate.

The lone Republican supporting the bill said online companies had been exempted from sales tax law to fuel the growth of the then-fledgling Internet. That assistance is no longer needed, said Assemblyman Bill Berryhill of Ceres.

Other Republicans rejected the bill because they said it would invite lawsuits, drive business out of California and get the state entangled in the messy task of regulating the Internet.

"This is just another tax grab," said Assemblywoman Shannon Grove, R-Bakersfield.

Assemblyman Tim Donnelly, R-Twin Peaks, called the legislation "complete insanity," arguing that it further discourages companies that already choose not to operate out of California directly.

But supporters said current law is unfair to businesses with storefronts, where shoppers will try out products before buying the online versions that are cheaper because they lack sales taxes.

Scores of businesses back AB155, including Wal-Mart, Best Buy and Home Depot.

"If you oppose this bill, you support tax evasion, and you're anti-business," Calderon said.

He said he was confident the bill, if signed into law, would withstand a legal challenge and cited a 1994 state appeals court ruling in favor of a Colorado mail-order company. That case prevented the state Board of Equalization from collecting taxes from the company, despite its ties to a California company.

Calderon said his proposal would strengthen tax law by linking it to in-state companies that help retailers such as Amazon with research, sales and other services.

Several other states have tried to force online sellers to collect sales taxes. In 2008, New York approved a measure to require retailers to collect tax if they had "affiliates" in the state. Similar laws passed soon after in North Carolina and Rhode Island, where Amazon responded by cutting off its affiliate relationships.

Then-Gov. Arnold Schwarzenegger vetoed an affiliate law in California in 2009.

By some estimates, uncollected taxes from all online sales could total more than $10 billion a year nationwide.

The Assembly will take up a similar bill this week, by Assemblywoman Nancy Skinner, D-Berkeley. Her bill, AB153, would specify that Internet companies have a taxable presence if affiliates who refer shoppers to their sites are in California.

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