This article from the Press Enterprise (CA) examines California’s affiliate nexus bill ABX1 28 and ultimately recommends federal legislation on online sales tax collection instead.
According to the article, the bill “expands the definition of “physical presence” to include, for example, local businesses that earn commissions by directing their customers to Amazon, Overstock.com and other online stores.” There are good reasons for the bill, the article states:
Online vendors outside California do not collect sales tax on purchases, unlike stores within the state. That gives the Internet retailers a price advantage over California sellers. A study last year by a San Diego State University professor found the imbalance costs California businesses $4.1 billion a year in sales. The state also loses: The Board of Equalization estimates that online commerce cost the state more than $1.1 billion in uncollected sales taxes in 2010.
But ultimately, affiliate nexus plans usually fail:
In states such as Colorado, North Carolina and Rhode Island , online retailers responded by severing all ties with local businesses. New York’s law is in the middle of a court challenge. So California’s online sales tax bill could easily stall in court, or deprive an estimated 25,000 California businesses of income from ties to online companies.
The article ends by explaining why federal legislation is the better solution and calling for Congress to enact such legislation:
The Legislature would be better off pressing Congress for a national solution, as the state’s legislative analyst suggests. The federal government oversees interstate commerce, and has more authority than states to enforce compliance with sales tax laws. Congress would not be enacting a tax hike, but merely ensuring better collection of an existing obligation. That step would also end the unfair competitive edge online retailers now enjoy.
California businesses and state government should not lose out simply because virtual commerce allows sellers to evade the sales taxes everyone else must pay. Individual states cannot end that injustice, however; Congress has to intervene.
We couldn’t agree more.