Online Sales Tax Hits California Shoppers

The state will begin collecting sales taxes on purchases from out-of-state online retail giants such as Amazon

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    NEWSLETTERS

    The state will begin collecting sales taxes on purchases from out-of-state online retail giants such as Amazon on Saturday. Many consumers say they're scrambling to make their last-minute tax-free internet purchases. Stephanie Elam reports from Pasadena for the NBC4 News at 5 p.m. on Sept.13, 2012.

    Don't you love finding stuff online and having it delivered to your doorstep for cheaper than you can buy it in a bricks-and-mortar shop?

    Well, that now-entrenched 21st century shopping practice is about to become a more expensive prospect for Californians.

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    Starting today, the state's so-called "Amazon tax" will begin collecting a levy on sales made by Internet-only out-of-state businesses such as the Seattle-based web giant.

    State officials stress that this is not a new tax -- it's just a new way of collecting it.

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    Californians have been required to pay "use taxes" since 1935 on purchases made from out-of-state retailers via mail or, since the advent of the Internet, online. 

    But few tax filers list their purchases on their tax forms -- in fact, just an estimated 0.53 percent of state personal income tax filers reported "use tax" payments in 2010, according to the Franchise Tax Board.

    Now, the tax will be levied at purchase time.

    The change comes after years of bitter back and forth between Amazon and the California Legislature over whether Internet retailers should have to impose sales taxes on customers.
    The two sides reached a deal in 2011 that included a one-year grace period set to end Saturday.

    The tax affects sales from websites that sell more than $1 million annually in California but don't have a physical presence in the state. That's more than 200 businesses, with Amazon the largest.

    Anecdotally, shoppers report revving up their online buying to get big purchases made before the tax goes into effect.

    "Even the mailroom is laughing at me," said Derek Daniels, 37, who has had Amazon packages delivered to his Los Angeles office every day this week. He's loading up on household supplies like trash bags, and holiday presents for his Superman-loving 2 year-old.

    "We are hoping he won't fall in love with Batman by the time November rolls around," Daniels said.

    The 2011 law, Assembly Bill 155, expanded the definition of out-of-state retailers that are "engaged in business in this state," requiring them to register with and collect and remit tax payments to the California Board of Equalization. More information is on the board's FAQ page.

    Sales tax rates vary in California by location, with a base rate of 7.25 percent plus additional local taxes.

    In most cities in Los Angeles County, the rate is 8.75 percent, while most Orange, Riverside and San Bernardino county cities are at 7.75 percent. Most Ventura County cities are at 7.25 percent.

    The new requirement to collect the tax is meant in part to even out competition for shops with physical locations that are often subject to "showrooming." That happens when potential buyers come into a store to inspect an item – and take up sales staffers' time – only to make the purchase online.

    Local governments, which have seen declining sales tax and property tax revenues in an economy that continues to be sluggish, are eager to benefit from tax revenue too.

    The Board of Equalization won't estimate how much new income is expected, but esimates have ranged from $200 million to $300 million annually.

    Legislators' battle with Amazon – which has also been played out in other states – has led to an unexpected benefit for jobseekers in Southern California.

    Now unable to claim its sales should be exempt from state sales taxes, the company is building a warehouse in San Bernardino.

    It's expected to create more than 1,000 jobs in the economically depressed and fiscally distressed city.

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