State lawmakers approve online sales tax

June 16, 2011 6:59:39 PM PDT
In addition to passing a budget Wednesday night, state lawmakers also voted to impose the collection of sales taxes from out-of-state online merchants. The new plan could raise $200 million, but it could also lead to job losses.

Valerie Lewis owns a popular bookshop, Hicklebee's, on San Jose's Lincoln Ave. She's happy that out-of-state online retailers, such as Amazon and Overstock, may have to start collecting sales taxes.

"You've got the businesses that are supporting their communities and that are hiring in their communities and paying taxes," said Lewis. "And then you've got this business that's sort of out there in the atmosphere and not putting anything back into the state of California."

The requirement would impact sites that have an in-state affiliate. An affiliate is a small company such as DealsPlus in San Jose that sells through Overstock and Amazon.

While this appears to be a victory for brick and mortar stores, it does pose a new problem for those retailers that operate online. To get around tax collection, Overstock will cut off relations with an estimated 25,000 small operations like DealsPlus.

"We're going to terminate them unless one of two things happens," said Overstock president Jonathan Johnson. "No. 1, the bill is not put into law, and that would most likely be done through a veto by Gov. Brown, or they have to pick up and move."

DealsPlus say it's not moving, so it will lose money it can't replace.

"We can't," said Aly Pi with DealsPlus business development. "We really don't know where else we can, so basically that's lost profit."

And that means not expanding staff, even though it's about to move to larger space.

Rob Smahl says his company, eBates, is caught in the middle. eBates gives consumers cash back to shop online. He lobbied lawmakers in Sacramento not to support the Internet tax.

"Fourteen other states have considered similar kinds of laws and have rejected them because they saw that no revenue was collected and it had a negative effect on jobs in their state," said Smahl.

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