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Buying Online to Avoid Tax Costs Everyone in the End

Original post made by Clark Kepler, another community, on Feb 19, 2010

While economists nationwide argue over whether we have begun to recover from the Great Recession, one financial reality is beyond dispute. Our state is facing the biggest budget challenge in decades. Even in a slowly rebounding economy, California is faced with a projected mid-year budget shortfall of $6.3 billion, which means that local governments -- even if they raise school and property taxes -- are going to be cutting support for such essential services as policing, fire fighting, and schools.

The enormous irony in this troubling story is that California is allowing hundreds of millions of dollars in sales tax to go uncollected by allowing remote online retailers with a significant business presence in our state to ignore their obligation to collect sales tax.

Given the sums involved, you would think there would be many in the state calling for this situation to be remedied. There are not. Perhaps it's because opponents of sales tax equity have, so far, managed to obfuscate the issue through a combination of misinformation and scapegoating.

Under current sales tax law, any out-of-state retailer is required to collect and remit sales tax for purchases made by residents in California if the retailer has a physical presence in our state. Current sales tax laws dictate that an out-of-state retailer has a physical presence in a state if they have a store, warehouse, office, or sales agent in the state. and other online giants have thousands of affiliates in California, and they are actively promoting products sold by these out-of-state businesses. When this promotion results in a sale of said product, they earn a commission. That, by any definition, is a sales agent, and that means that these online mega-retailers have the legal presence in our state that requires them to collect sales tax.

The Amazons of the world and online affiliates are naturally opposed to any steps that states might take to enforce sales tax laws. Strategically, their stance makes a lot of sense because it gives them a significant competitive advantage over our in-state businesses that must add additional cost of sales tax.

Furthermore, there is no doubt that consumers enjoy this so-called advantage. I hear it often: They will shop at out-of-state e-tailers just to avoid paying sales tax.

That sounds fine, but we need to ask ourselves, in the long run, who really is footing the bill for these duty-free purchases?

Well, I can tell you who is not paying the bill: Neither online affiliates nor remote retailers.

We are not talking about just a few dollars here and there flowing out-of-state. The reality is that hundreds of millions of dollars are lost each year, and the figure is growing. This is money that should be going to first responders, to local communities, and to lessen our tax burden. Instead, this money is flying out-of-state to remote retailers and the affiliates that pocket the cash while taxpayers subsidize their use of our in-state services, our roads, and their very business.

Taking advantage of our state's unwillingness to enforce sales tax laws during the best of times is egregious enough. However, during a recession that has hit our state so hard, it's an affront to every business and citizen in the state.

And what's worse, on an economic level, it makes no sense.

Legislators who oppose sales tax equity tout their belief in fiscal responsibility. But, in truth, how fiscally responsible is it to maintain a public policy that subsidizes out-of-state retailers while punishing in-state, tax-paying businesses and residents? Does fiscal responsibility demand that our state government burden residents and businesses with higher taxes and fewer services to placate out-of-state retailers that only take from our state and provide nothing in return?

Yet that's the stance our state legislators and Governor are currently taking. And so I ask one more question: How's that working out for us exactly? The current budget shortfall tells me the answer is not so good.

Opponents also love to argue that e-fairness proponents are calling for a new tax. The idea that any struggling retailer in our state would demand a new tax on consumers just doesn't pass the giggle test. In truth, if an out-of-state retailer does not have nexus in the state, shoppers are already required by law to submit the sales tax to the state. The real question is over who should collect this tax – you as a consumer or the out-of-state retailer. Now, granted, our state has not really done much to enforce the collection of use tax from residents, but trust me, as the budget situation worsens, it will. So either you're going to pay it or someone is going to collect it from you.

Finally, as for those who worry that sales tax equity would somehow harm online business in the state, let me stress that most online retailers, including Wal-Mart, Barnes & Noble, and Sears, already collect and remit sales tax for online purchases. Technological advances have greatly simplified and automated this task. Huge corporate retailers like and are the few remaining holdouts. That said, the money they siphon from our local community and residents is significant and growing exponentially each year.

So please, when you go to the Internet for some tax-free shopping, I would only urge you to remember that your purchase isn't really free at all. In fact, that tax-free purchase costs all of us and our communities a lot more than you might think.

Clark Kepler
Kepler’s Books
Menlo Park

Comments (9)

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Posted by the299crew
a resident of Old Mountain View
on Feb 19, 2010 at 3:23 pm

I have no problem with people avoiding California sales tax via an online purchase.

I guess I see it as equivalent to a homeless person begging on the street for money to buy a sandwich. Sure, you give the guy or gal a few bucks to buy a sandwich and eat. However, when you know the person will be buying cigaretts instead, you avoid giving the handout.

California politicians should spend our tax money more wisely, then maybe the residents will be more willing to send a few bucks to Sacramento.

Like this comment
Posted by Book Worm
a resident of Cuesta Park
on Feb 19, 2010 at 8:12 pm

Great way to put it the299crew. I couldn't agree with you more.

I go to Kepler's to see which books I want to buy, and then buy them cheaper and tax free on Amazon.

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Posted by SomewhereBetweenClarkAndWorm
a resident of Blossom Valley
on Feb 19, 2010 at 11:07 pm

I'm on the same page as 299 in regards to our 'patriotic duty' to pay taxes... however, I also see a valuable benefit to having local retailers. I would much rather try on a pair of shoes before buying and pay a bit more than go through the hassle of buying multiple pairs online and returning them until I find the right shoe (even if the return shipping is free). I WILL however, ask the local retailer to price match online retailers (incl shipping charges and excluding sales tax). If they cannot come close to matching an online price when the 'match' has shipping and sales tax added, I'll look elsewhere. Very often I'll find a local match that meets those terms... some retailers will not budge from inflated prices, and I will not give them my business. Local retailers can certainly be competitive in pricing, as I sometimes purchase items from Fry's or Microcenter for out of state siblings because the price I can get locally with sales tax and shipping is less than is available anywhere online. If the price is competitive, I place value in local retailers, otherwise I do not... MANY local retailers are just plain not competitive on the pre-sales tax price. Is Keplers willing to match Amazon's price before adding on the sales tax? I'm guessing no.

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Posted by Andrew
a resident of Old Mountain View
on Feb 21, 2010 at 3:18 pm

Couldn't help but notice that when I plugged in my California address for a book purchase on your website, I was charged sales tax. However, if I put my parents' address in a state back east, I was charged no sales tax. Hmm...

Like this comment
Posted by Pundit
a resident of Cuesta Park
on Feb 21, 2010 at 5:49 pm

Who read's books these days? If anything, buy a kindle. Kepler's needs to get with the times that are a'changin' or disappear like Cody's. Or maybe try some stimulus or bailout money, since it's obliviously a place that's too big to fail.

Like this comment
Posted by eric
a resident of another community
on Feb 22, 2010 at 9:21 am

Has anyone bothered to think about WHY online sales arent taxed when comparable brick-and-mortar transactions arent?

If the free market kills a retailer like Keplers, well, thats unfortunate but the reality of a changing world. If special interest lobbying gives one business segment an unfair advantage over another, thats just wrong. The online world is established enough to have to compete for customers on a level playing field.

Pundit, the irony is that its Amazon and friends that is getting the government handout! Maybe you should read a book or two and get up to speed...

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Posted by James
a resident of Whisman Station
on Feb 22, 2010 at 3:00 pm

You're supposed to pay use tax on these purchases when you file your california tax return, but it's really difficult to keep track of unless you record everything in Quicken or you can generate a report from online purchases. I think Amazon should at least provide some easy way to calculate how much use tax one owes.

Like this comment
Posted by dave
a resident of Shoreline West
on Feb 23, 2010 at 12:09 am

surprise. the guy saved by handouts expects us to spend more than we need to.

I won't see any of that tax money...not on the level that folks driving 1 year old SUVs with 22" rims do--while they collect payouts and subsidies from the feds, state and local counties.

Like this comment
Posted by Seth
a resident of Willowgate
on Feb 23, 2010 at 7:54 am


Funny comment. Would you really expect taxpayers to go out of their way to pay taxes on their own for on-line purchases. Meanwhile corporations are hiring pools of lawyers to find ways out of paying taxes?

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