On Thursday the California Senate passed a bill, ABX8 8 that will make internet retailers with affiliates in California collect sales tax on behalf of the state. The bill is now in the Assembly for a vote on concurrence. Many good points were raised in the debate. I completely agree with the Democrats that there is a great inequity between internet retailers who sell without collecting sales tax and California retailers who have to collect the tax. However, this is a fight that cannot be won because of the nature of the internet.
When Jeff Bezos was thinking about establishing Amazon back in the ’90s, his first thought was to set up on an Indian reservation. Bezos is a wonderful, mad genius, and his sophistication has only increased. When New York passed this same mandate on Amazon last year, Amazon immediately fired all of its affiliates in New York and signed up new ones in a neighboring state. You can call it radical, but it is a great business decision that is in the best interest of Amazon shareholders. Some say the answer is a national sales tax program, but that misses the mark as well. Consider that Google is rumored to be designing floating islands for their servers to be positioned offshore so they are not answerable to any government. If Google does not do this, someone else will. Or, a very wise government, say Iceland, will invite these companies to place their servers on their soil, tax-free. Such a decision would reap a huge windfall in property and employment taxes.
There only solution is this: either lower the sales tax rate so that it is about equal to the average cost of shipping from an internet retailer, or do away with the sales tax completely. It is an old, unfair tax that no longer reflects the economy and there is nothing government can do about it.
Some highlights from the debate can be seen here:
http://www.youtube.com/watch?v=blNaJemmREg