Garry Harrington Sr., co-owner of Furniture Depot in Santa Maria, is looking forward to the day web-based retail businesses will have to begin charging sales tax for items purchased online.
He won’t have to wait long. Starting Sept. 15, a new state law (AB 155) takes effect in California, requiring more than 200 larger retailers to start collecting sales tax on online purchases by consumers in the state.
In a recent interview with the Sun, Harrington said the change wouldn’t impact his business significantly because, in the furniture world, “people usually like to come in and look at what they’re buying.”
But he still thinks making all businesses charge sales tax is important to the local economy.
“My wife bought a couple hundred dollars in shoes online the other day. She didn’t have to pay sales tax and the delivery was free. I think you could even return it for free if you wanted to,”
he said. “She liked what she saw and what she was getting so she bought it.”
For Harrington and most other people, online retail is a cheaper, more convenient way to shop.
“They sell everything on the Internet now,” he said, “but it’s the Internet that hurts brick and mortar businesses.”
Requiring online retailers to charge sales tax, he said, “is a great idea” because “it’s leveling the playing field a little bit and helping the local economy.”
Stemming from an agreement made between lawmakers and online retailer Amazon, AB 155 repealed a previous law Gov. Jerry Brown signed in 2011. It postponed the state’s plans to collect sales tax on online purchases an extra year, provided Amazon construct distribution centers within the state.
Amazon spokesman Scott Stanzel said his company has plans to build such fulfillment centers in San Bernardino and Patterson, and supports AB 155 as a “win-win law,” allowing the nation’s largest online merchant to expand in California. Ultimately, Stanzel said, Amazon believes the tax issue will be settled at the federal level.
“For more than a decade we’ve supported a fair national approach to sales tax collection and we strongly support the Marketplace Fairness Act [a bill currently in the U.S. Senate],” Stanzel said. “We’ve been pleased to work with Gov. Brown and other governors around the country to enact that bipartisan legislation.”
Amazon stands to contribute a sizable portion of the estimated $317 million in annual tax revenue the state anticipates adding to local and state coffers. Stanzel wouldn’t disclose how much Amazon expects to send to Sacramento in the next year, but did say the company already collects sales tax in more than half the areas it does business in.
“We’re pleased to say that business is thriving in those geographies because of low prices, vast selection, and fast delivery,” he said.
Though California consumers have always been required to report and pay sales tax on items from out-of-state retailers, the rules were rarely enforced in the past. In 1992, the U.S. Supreme Court ruled sellers couldn’t be forced to charge a sales tax unless they had a physical presence in the state. AB 155 essentially circumvents the decision.
According to the California Board of Equalization, which administers state tax, AB 155 only expands the types of out-of-state retailers required to collect sales tax. The law extends to merchants with a “substantial nexus” in the state—specifically those retailers with more than $1 million in sales to Californians in the past year, and affiliates operating within state lines exceeding $10,000 in annual sales.
The board is sending letters to more than 200 retailers notifying them of the new law, as well as details on how to register online with the agency. AB 155, board officials say, will help close a loophole in the tax code that gave online retailers a price advantage over the state’s small businesses, and allow the agency to collect millions of dollars to fund public safety, schools, and health care.
“This is an important step forward for fairness in the market place and for consumers to begin to see tax collected in the same way on all of their transactions, regardless of whether they occur online or in the store,” First District Board Member Betty T. Yee said in a statement. “It is in every Californian’s interest for online and store front businesses to play by the same rules.”
Target spokeswoman Jill Hornbacher echoed the board’s comments, saying after 50 years in a “highly competitive” retail business, the retail giant is adapting to changes in the marketplace.
“The rapid growth in online retail has uncovered an unfair pricing advantage in existing sales tax laws that benefits online-only retailers,” Hornbacher said in an e-mail to the Sun. “Target strongly supports state legislative efforts to close this anti-competitive loophole and level the playing field for all retailers.”
For local shoppers, the law means paying close to 8 percent more for online purchases, but some people are skeptical about how much it will impact local businesses. Sure, it will level the playing field, so to speak, but will it change the way people shop?
“If people like to come in and shop, they’re going to come in and shop. If people like to shop online, they’re going to shop online. Some people do both,” said Terri Deasee, owner of Deasee’s Designs, a clothing store in Orcutt.
Deasee thinks shopping online takes away from the shopping experience, and weakens business connections in the community.
“Shopping local and supporting local merchants helps the community,” she said. “Almost every day someone comes in asking for a donation to help their cause and I rarely say no. If someone asked Amazon for a donation, I doubt they’d say yes.”
Contact Staff Writer Jeremy Thomas at jthomas@santamariasun.com or Managing Editor Amy Asman at aasman@santamariasun.com.
This article appears in Sep 13-20, 2012.