Internet retailers with a “substantial” nexus to companies doing business in California would be required to collect state sales taxes on products and services they sell under a bill pending before the State Senate.
The measure, which the Senate Appropriations Committee last week approved 9-3 and sent to the full Senate for consideration, appears to conflict with a federally mandated moratorium on new Internet taxes and the U.S. Supreme Court’s 1992 Quill decision, said Direct Marketing Association senior vice president Roscoe P. Starek.
Declaring the DMA’s opposition to the legislation, co-sponsored by Assemblywomen Carole Migden of San Francisco and Dion Aroner of Berkeley, Starek said “just because a company markets in a state doesn’t mean it has nexus with it.”
“Considering the companies they seem to be after don’t have any substantial nexus to the state, I don’t think this legislation meets the Quill test and other court decisions,” he added. “If California were to simplify its tax system so that it overcame the burdens articulated in the Quill decision, it might be a different story.”
Four years after the U.S. Supreme Court ruled that North Dakota could not collect sales taxes from Lincolnshire, IL-based office supplies cataloger, Quill Corp., Congress passed and President Clinton signed a bill into law prohibiting states from imposing new taxes on Internet transactions for three years, or until October 21. 2001. Legislation is now pending in Congress to extend that moratorium until October 2006.
Migden said the purpose of her legislation “is to clarify the law so that if a retailer has nexus, its dot-com subsidiary also has nexus” and should collect taxes on its sales.
Assemblyman Jim Cunneen, however, thinks the bill is “a backdoor way” to Internet taxation. He said a national solution was needed because states could cause significant harm to the nation’s economy. Internet companies, he notes, have helped beef up both the state’s economy and tax coffers.
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