If the retailer doesn't have a physical presence in California, it doesn't have to charge a sales tax.
Budget-conscious online shopper Valerie Hoff really likes that.
"I shop at Amazon.com and Overstock.com all the time. I don't ever go out Christmas shopping anymore," said Hoff.
But since 1935, state law says if you're consuming the product in California, then you should pay a 'use tax,' which is equivalent to the sales tax.
"Whether it's over the phone, through a catalog or via the internet, you owe the use tax if the retailer doesn't collect the sales tax," said Anita Gore of the CA Board of Equalization.
Unbelievably, there's even a line for it on the state income tax form. Millions of Californians don't even know about this law.
The state estimates California consumers pay less than one percent of what is owed in use tax, resulting in more than a billion dollars of lost revenue each year.
"These taxes that are collected go to state purposes and affect Californians. [Things like] roads, public health, public safety, all of those things," said Gore.
With the state so broke, the Legislature is debating a bill that would go after online retailers but has to act by the end of January.
For now, the average California household owes about $47 dollars a year in unpaid use tax. You could be penalized 10 percent, plus interest, if you get caught.
