Collecting online sales taxes

California loses more than $1 billion annually because owed taxes aren’t paid

Do you shop online? If so, chances are you’re a tax deadbeat. Did you send the Franchise Tax Board $8.25 to pay the sales tax on that $100 coffee table you bought from We didn’t think so.

You probably didn’t even know you were supposed to pay the tax. That’s because online retailers make no effort to inform you that, by law, purchases are subject to sales tax. The retailers aren’t required to collect the tax, and they reckon keeping mum on the matter gives them a sales advantage over brick-and-mortar retailers that are required to collect it at point of sale.

The state of California, which needs every penny it can find, loses more than $1 billion a year in uncollected sales taxes from online purchases. Legislative efforts here and elsewhere to correct the situation and require online retailers like and to add tax to their sales predictably have run into resistance. The companies’ response, typically, is to sever ties with their affiliates—that is, product suppliers—in those states. The suppliers in turn complain that their businesses are being injured, and the bills go nowhere.

That’s what happened with AB 178, by Assemblywoman Nancy Skinner (D-Berkeley), which would have required online retailers to calculate, collect and remit the sales taxes that buyers are supposed to pay but never do. Bowing to pressure, Gov. Schwarzenegger said he wouldn’t sign the bill, thereby killing it. He took credit for Overstock’s changing its mind about blackballing California suppliers and for saving consumers from new taxes—completely ignoring that the taxes were already owed.

California—and California retailers—can’t afford to let Internet sales taxes go uncollected. It’s time for reform.