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Taxing Web Purchases: Now Might Be the Time

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    NEWSLETTERS

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    Consumers shop online during a shop and lunch event in the boardroom of the National Retail Federation.

    It's the holiday season and that means we are all spending lots of money on gifts for our loved ones. Shopping malls are raking in not only money that is sure to pump up our economy, they also bring in tax dollars with every purchase.

    Buying on the web is a different story when it come to taxes.

    One of the best things about buying something online is the immediate discount that comes with the purchase. And while that may feel terrific to shoppers, states are losing a bundle by not collecting sales taxes like those collected at brick and mortar stores.

    Almost everywhere, online purchases are sales tax-free. In California, experts estimate that the state is losing more than one billion dollars annually.

    Traditional stores have had to deal with this inequality for years.  So much so that many have gone out of business because of the requirement for them to collect sales taxes at the same time that online companies get a free pass. The only occasion that sales taxes can be added is when the seller has some kind of a physical presence in the state, say a storage facility, where the customer makes a purchase.

    The advantage for online stores also has become a major disadvantage (and financial headache) to the states. As traditional stores go out of business, federal law has kept states from collecting taxes from online merchants.

    Until now.

    Recently, New York enacted a sales tax on internet-run companies based on the contention that their online presence equaled a physical existence in the state.

    Not surprisingly, Amazon sued, but a court found in New York's favor. The case is under appeal, but the issue of internet taxation remains on the states' front burners, especially in hard economic times.

    Just what happens down the line remains to be seen, but with at least one billion dollars of potential revenue in sight, don't be surprised if the California legislature attempts to begin collection in the coming months. 

    The search for revenue in California isn't about to go away. The only question is, where will the state find it?