Lawmakers propose online sales tax, e-tailers protest


For boutique owner, Felicia Strati, it's been frustrating to see her customers walk out the door, only to buy the same exact thing through the Internet, often tax free.

"Customers, they come in. They look at the merchandise and they go ahead and say, 'Well, I'll buy it online and avoid taxes.' So it affects our well-being," said Strati. in the San Fernando Valley offers resources and products for vegetarians. As an affiliate, VegSource gets a cut from some sales when customers click on a product link that takes them to Amazon to buy it. Often, there is no sales tax because Amazon is based in Washington state.

"Amazon has helped us because they've been a very large source of stability through the years," said Sabrina Nelson from

A proposal is gaining momentum in Sacramento that would force California-based websites facilitating purchases as an affiliate to charge sales tax.

"I believe it will bring more fairness and it will support small business," said Strati.

Most Californians don't know they're supposed to pay the equivalent of a sales tax on their state income tax filings under "use" tax. The state estimates it loses out on more than $1 billion every year. E-tailers like Amazon and Overstock recently sent letters to the state of California threatening to sever ties to all of its affiliates, if they're forced to charge a sales tax.

"That business decision will be to terminate their business relationship with the affiliates that are based in California. That's a loss of jobs," said Sean Wallentine from the California Board of Equalization.

VegSource points out it'll lose income; therefore, it will pay less income tax.

"It'll be harmful to us and won't be helpful to the state of California," said Nelson. cut off its affiliates in Illinois, Rhode Island, North Carolina, and Colorado after those states passed laws forcing it to start collecting sales tax. It is still doing business in New York, collecting the sales tax, but it is suing to be able to stop.

There are 25,000 affiliates in California -- 10,000 of that with Amazon alone.

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