This article on PublicCEO.com offers support for California Assembly Bills 153 and 155, which would require online retailers with California affiliates to collect sales tax.
The article focuses on the sales tax revenue California is missing out because online retailers are not required to collect sales tax:
The League of Cities also has come out in support of both bills. According to their letters of support, the additional revenues are sorely needed by California’s cities, and these bills increase revenues by equitably revising out-of-date tax law.
A recent analysis of the bills estimated that California has lost more than $1 billion in tax revenues due to Internet sales not charging or collecting taxes. Furthermore, the analysis conducted by the Board of Equalization estimates, “That the proposed change would lead to a state and local revenue increase of $152 million in 2011-12 (a half-year effect) and $317 million in 2012-13.”
As more consumers turn to the Internet, the amount of forfeited tax revenues will grow.
What the article doesn’t mention is that the two bills it advocates would actually get at only a small portion of the lost sales tax revenue—online sales through retailers with California affiliates are only a portion of all online sales. And if the bills pass, online retailers are likely to drop their California affiliates—as they have in most states with similar legislation—which means that even fewer online sales will be affected by the legislation, and even less lost sales tax revenue will be collected.
A better solution—one that, curiously, the article doesn’t mention at all—is the Main Street Fairness Act. It would allow states to require all online retailers, not just those with in-state affiliates, to collect sales tax. It would therefore recover all, or nearly all, lost sales tax revenue, and it wouldn’t hurt small businesses that rely on their affiliate relationships for income.