Decision to Drop E-Fairness Provision From State Budget Draws Ire of Retailers

As California lawmakers and Governor Schwarzenegger haggled over a final state budget, one apparent casualty of the negotiation process was sales tax fairness. Despite the need to close a $19.1 billion budget gap, state Republicans insisted that the sales tax provision be removed, arguing that they would only agree on a "no-new-taxes budget," according to the Associated Press. The budget is now more than three months late. A vote on the budget could come as early as Friday, as reported by the Christian Science Monitor.

"The terrible irony here is that the sales tax fairness provision was not a new tax, it simply clarified who is responsible for collecting and remitting the tax – this provision would have brought much-needed revenue to the state," said ABA CEO Oren Teicher. According to estimates from the Universityof Tennessee, California's loss of total state and local sales tax revenue for 2011 - 2012 will be more than $3.5 billion.

The decision to cut e-fairness from the budget was yet another example, Teicher continued, of out-of-state e-tailers getting preferential treatment at the expense of in-state businesses and local communities. "Far from helping California businesses and communities," he said, "by maintaining the status quo, the governor has ensured that the consumer exodus to remote retailers will continue unabated. This means that, at least for the time being, sales tax revenue will flow out of state uncollected rather than stay in local communities, where it could have paid for essential services and helped lighten the tax burden for residents."

Teicher urged California booksellers to call their state legislators to let them know how disappointed they are that sales tax fairness was again cut from the final budget agreement.

Hut Landon, executive director of the Northern California Booksellers Association (NCIBA), posted an open letter on NCIBA's website that takes the state legislature to task for not standing up for California businesses.

"It now appears that the provision has been dumped under the guise of no new taxes," Landon wrote. "In doing so, the legislature is saying clearly and unequivocally that those out-of-state e-tailers mean more than California-based shops and stores. It is saying that online behemoths, whose business plans are based on sales tax avoidance, should continue to get what is, in effect, a 10 percent state subsidy that enables them to sell the same products as thousands of California retailers -- at a cheaper price." Landon submitted the letter to the Sacramento Bee and the San Francisco Chronicle. (To read the full text of Landon's letter, click here.)

Said Teicher, "Though we are extremely disappointed with the results of our campaign in California, this year a number of allies joined us in the fight for e-fairness, and, looking ahead, we remain steadfast in our belief that we will succeed in achieving sales tax fairness in California. Next year, we have great opportunity to start our campaign fresh. There will be a new governor who, we hope, will be concerned with the fiscal health of California businesses and the communities in which they reside."

According to press accounts, the budget deal includes $7.5 billion in spending cuts and suspends a corporate tax break of about $1.4 billion, CSM reported. The budget also assumes $5 billion in federal funds, as well as $10 billion in loans from Wall Street.

However, Jack Pitney, a political scientist at Claremont McKenna College in Claremont, California, told CSM that the budget plan reportedly relies on questionable economic assumptions and unrealistic expectations about federal aid. “They debated, deliberated, and delayed – and then ended up faking it anyway," he told CSM. "Never have so many Californians waited for so long for so little.”

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NCIBA Letter on Sales Tax Fairness

State Legislature Says “Who Cares” To CaliforniaRetailers

Up until a few days ago, the proposed state budget contained a provision that would require large out-of-state online retailers like Amazon and Overstock.com to collect sales tax on their sales in California– the same sales tax that all state retailers currently collect.

It now appears that the provision has been dumped under the guise of no new taxes. In doing so, the Legislature is saying clearly and unequivocally that those out-of-state e-tailers mean more than California-based shops and stores. It is saying that online behemoths, whose business plans are based on sales tax avoidance, should continue to get what is, in effect, a 10% state subsidy that enables them to sell the same products as thousands of Californiaretailers — at a cheaper price.

This inequity impacts retailers of all sizes, from the likes of Wal-Mart and Home Depot on down. But it is the locally owned businesses who take the biggest hit, because they don’t have the resources or the margins of big chains. These are independent merchants whose establishments are the crux of livable neighborhoods and communities throughout the state. They are small businesses who create jobs and (by the way) collect millions of dollars of sales tax for the state. And with the Amazons of the world getting a 10% discount on identical merchandise right out of the gate, these local business people are hard-pressed to compete.

So let’s be clear. Any state legislator who lets this inequity continue has made a choice. They may have their reasons for doing so, but supporting Californiabusinesses isn’t one of them. So when you hear a politician talking about how important small business is to the state, I urge every business owner to take it with a huge grain of salt — which, by the way, you can also buy tax-free online.

Hut Landon
Executive Director, NCIBA