Battle over online sales tax

FRESNO, Calif.

California has already faced something similar with In 2011 Governor Jerry Brown signed into law a sales tax collection that required the online retailer to collect state tax during a purchase instead of allowing the honor system during tax season. Well that concept is now being discussed on Capitol Hill, and if passed it would require all states to do the same.

Right now, if you bought something online from a business that doesn't have a physical presence in that state, the retailer would not ask you to pay a sales tax at all.

Neal Osten with the National Conference Of State Legislatures says that's costing states $23-billion this year. "Look at California. California has a great deal of problems. This would mean $4.1 billion in revenue for California, that they don't have right now. That could mean more teachers, police, more firemen."

Osten says more and more states are passing laws that would require consumers to pay sales tax on all Internet purchases. But, so far online sales companies have been able to get around that because of 1992 Supreme Court ruling on mail order purchases. That decision said if a retailer doesn't have an actual physical location in the state, the retailer doesn't have to collect sales tax.

Legislation in Congress would change that. So say you are in Washington D.C. and you buy a $20 shirt online from an out of state company who happens to be in California. As of now you pay nothing in taxes. But if this federal bill became law you would have to pay Washington D.C.'s 6 percent sales tax and that shirt would cost you $21.20.

Taxes go to the state the item is being delivered not where it's sold. Bricks and mortar retailers say the new federal proposal is only fair. "All we're asking is for government to close this loophole, level the playing field and let everybody compete on price in a free market," said Jason Brewer with Retail Industry Leaders Association.

But a coalition of Internet companies including Ebay and Overstock are lobbying against the proposed federal legislation, saying this is going to hit mom and pop operations. "Nothing could be less fair to America's small businesses than forcing them to collect and remit sales taxes for nearly 10,000 different jurisdictions across the country," said Steve Delbianco with Netchoice.

A clause in current the Senate bill exempts relatively small retailers with less than $500,000 in annual sales.

Now that bill signed into law by Governor Brown last September was supposed to take effect immediately. But it doesn't require the sales tax to be collected by Californians until September 15th.

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