kunc-header-1440x90.png
NPR for Northern Colorado
Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations

California Online Sales Tax Faces Enforcement Hurdle

An Amazon worker sorts packages at a fulfillment center in Goodyear, Ariz.
Ross D. Franklin
/
AP
An Amazon worker sorts packages at a fulfillment center in Goodyear, Ariz.

It's not hard to find online shoppers these days. Take the hipster cafe in San Francisco's Mission District where Shirin Oskooi opens her laptop and ticks off her latest Amazon purchases.

Next to her is Craig Sumner. He opens an Amazon invoice to see how much sales tax he was charged on his latest pair of Levis: none.

That changes Saturday, when a new law passed by the cash-strapped state goes into effect. Every out-of-state business that sells more than $1 million in merchandise to California customers will be required to collect sales tax and ship it back to state coffers. Before, that was only true of companies with a store in the state, like Target or Wal-Mart.

The Web shopping behemoth Amazon lobbied hard against collecting tax, arguing it wasn't its responsibility because it didn't have a store in California. Local mom-and-pop businesses countered that by not charging the tax, the corporate giant had an unfair advantage.

"I think it's capitalism at its best. I think it's the market just shifting," says Jerome Horton, who chairs the state tax agency.

Horton estimates that California is losing $1.2 billion a year in unreported sales tax. He expects the new collection effort will recoup about a quarter of that.

He's hiring a small army of new collectors and auditors to target companies that don't comply.

"They're going to test our will to enforce the law," Horton says. "We're not talking about folks who make mistakes. We're talking about people who intentionally don't pay their fair share. Not a penny. Zero. Nothing!"

Under the new law, it doesn't matter if an out-of-state retailer has a brick-and-mortar store in California. But — and here's the important caveat — Horton says they must have local contractors who bring in at least $10,000 in sales.

"And so what many of the companies have done is that they chose to shut down their affiliates here in California," he says.

That's exactly what another mega e-tailer, Overstock.com, is doing. President Jonathan Johnson says he's terminating contracts with hundreds of California affiliates to comply with the law.

"Overstock.com will always be a good corporate citizen, and we will collect tax any place where we have a physical presence as long as that's the law of the land. California's attempts to expand that law aren't constitutional," Johnson says.

The main winners, at least for the moment, may be small online retailers who don't sell enough in California to collect the tax, like Silver Gallery in Waynesboro, Va. Last year it sold about $300,000 in silver frames, and flutes and trinkets to California.

Still, owner Stacey Strawn fears it's just a matter of time before she'll have to collect, given that Amazon caved and that similar proposals are popping up in other states, and even in Congress.

"As bills like this begin to pass — and I hope they don't — businesses my size are probably going to give up, and you're going to have a lot less choice for your Internet shopping," says Strawn.

Back at the cafe in San Francisco, another frequent Amazon shopper, Susan Landau, says it's not just about price. She plans to keep shopping online.

"It's still more convenient to shop online than to go to the store, so sales tax isn't something that I worry about all that much," Landau says. "I think it's fine."

Copyright 2020 KQED. To see more, visit KQED.

Aarti Shahani is a correspondent for NPR. Based in Silicon Valley, she covers the biggest companies on earth. She is also an author. Her first book, Here We Are: American Dreams, American Nightmares (out Oct. 1, 2019), is about the extreme ups and downs her family encountered as immigrants in the U.S. Before journalism, Shahani was a community organizer in her native New York City, helping prisoners and families facing deportation. Even if it looks like she keeps changing careers, she's always doing the same thing: telling stories that matter.
Related Content
  • The new Amazon Kindles are faster, less expensive and are aimed squarely at the youngest members of a family. The least expensive model will sell for $69. The Kindle Fire comes with parental controls For instance, you can set a time limit on games or movies but let your kids read as much as they want.
  • The online retail giant has enjoyed a huge competitive advantage by not collecting sales taxes — as brick and mortar stores do. Consumers pay that much less for the same goods. But now a deal has been reached that could hasten the day consumers nationwide pay tax on things they buy online.
  • It's a mobile gadget lover's dream week. Nokia, Microsoft and Google's Motorola introduce new smartphones. Amazon will show off a new Kindle. And all these companies are positioning themselves in advance of Apple's new iPhone 5, which comes out next week.
  • Amazon has made a deal with New Jersey to build two distribution centers in exchange for collecting sales tax on purchases made there starting July 1, 2013. So why would it want to risk irking customers?
  • Amazon.com is trying to find a state that will allow it to build distribution centers without making it collect sales tax from customers in that state. The online giant already pulled out of deals in Texas and South Carolina after lawmakers tried to force sales tax collections. Amazon has several distribution centers in the works for Tennessee. The General Assembly is weighing the creation of thousands of jobs against sales tax revenue.