Home » Banking and Financial Articles » Small Businesses Object to Proposed California Tax Law Under Assembly Bill 153
Small Businesses Object to Proposed California Tax Law Under Assembly Bill 153
California is considering H.B. 153, a bill that would impose responsibility for collecting a sales and use tax on out-of-state businesses if they make internet sales to California residents.
July 16, 2011 /Banking and Financial PR News/ -- Legislators in California are currently considering Assembly Bill 153, a proposal that would alter the state's Sales and Use Tax Law so that out-of-state businesses selling items to residents in California would be responsible for collecting state use tax at the time of the sale.
Currently, California levies a use tax on the "storage, use, or other consumption in this state of tangible personal property purchased from any retailer." Out-of-state businesses that engage in business in California may be responsible for collecting the tax on sales made to California residents, if they have a "sufficient business presence" in the state. The law, as currently written, excludes any Internet activity that a business engages in when determining whether a business has a sufficient presence in the state to require the business to collect the use tax.
Details of California Assembly Bill 153
A.B. 153 proposes to amend the Sales and Use Tax Law to expand the definition of a "retailer engaged in business in this state" to include a company that enters into an agreement with a California resident who "directly or indirectly refers potential customers of tangible personal property, whether by a link or an Internet Web site or otherwise, to the retailer." The provision only applies to retailers who collect over $10,000 a year in sales resulting from the agreement.
In other words, the proposal would change the current law's exclusion of Internet activity in determining whether a company has a "sufficient presence" in the state so the company is responsible for collecting the use tax. Laws that consider Internet sales sufficient to require a business to collect sales and use taxes is known as a "click through nexus."
Objections to the Proposal
Many in the small business community have vocalized in their objections to the new proposal. They argue that A.B. 153 would impose a crushing burden on small Internet-based businesses in the state. Critics of the legislation argue small businesses will just flee the state rather than stay and deal with the tax collection. They claim such a law would have a devastating effect on California's economy, as small businesses are the backbone of California's economy and more small businesses will leave the state or fail because of the proposed change in the tax law.
Opponents point out that with the state's unemployment rate at 12 percent, California cannot risk any impediment to the success of small businesses and entrepreneurs because it will result in the loss of potential jobs and millions of dollars in tax revenue.
Additionally, California has about 25,000 businesses who act as affiliates for out-of-state retailers. Small businesses that act as affiliates with larger corporations such as Amazon.com and Overstock.com are in jeopardy of losing their contracts if the bill passes.
Both Amazon.com and Overstock.com have canceled contracts with affiliates in New York, Colorado, Rhode Island and North Carolina after those states passed some form of click-through nexus legislation rather than be responsible for the taxes.
Article provided by Campbell, Lauter & Murphy
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