By: Stuart Waldman
Most of us have shopped online. In fact, a new study by the California Budget Project shows that more than ever we are making purchases using the Internet. The study found that over the past 10 years, online retail sales have grown by 500 percent.
Unfortunately, our state’s laws have failed to address the realities of e-commerce. We still operate using laws created decades ago dealing with mail-order catalogues. This is why the California Budget Project also found that more than $1 billion in sales tax goes uncollected from online retail sales.
The state’s outdated laws have created major loopholes that out-of-state, online-only retailers have exploited to avoid collecting sales tax that other retailers are forced to collect and remit.
The Valley Industry and Commerce Association (VICA) works tirelessly on behalf of small businesses to help them compete on an equitable playing field. Unfortunately, these local job creators are at a huge disadvantage when it comes to sales tax collection.
Not only does our state government lose out, but so do our employers. Retailers who sell products in a physical store collect the sales taxes at the point of the purchase as required by law. This puts them at a distinct disadvantage to online-only retailers who refuse to collect the tax or even inform their customers it is due.
Amazon.com can sell the same product at a lower price by not collecting sales tax at the point of sale, thereby creating a huge competitive advantage. That hurts sales, undercuts California businesses and ultimately costs the state jobs.
As a business organization, VICA supports the right of Amazon and any other retailer to offer products to customers in California, but we insist that everyone play by the same set of rules. We also maintain that these online-only retailers not be allowed to intimidate or threaten our state lawmakers.
Rather than debate the issue, some online-only retailers threatened to leave the state if the law is changed to require them to collect sales taxes—like everyone else. However, this is a bluff and our leaders must call them on it.
The same online retailers made a similar claim in Texas after the state sent them a bill for uncollected sales taxes. In response, Amazon said they would leave the state rather than collect the sales tax. The State of Texas is still waiting for Amazon to follow through on its threat well after the date they threatened to leave. In response to this incident, Texas is working to pass legislation so that Amazon cannot exploit the law and, instead, play by the rules as other companies.
Since California is an even bigger market than Texas, it seems highly unlikely that Amazon.com or any other online-only retailer would act on their threat to pick up and leave the state.
Beyond Amazon.com, this issue is about fairness. When companies have to adhere to the same rules and regulations, they work harder to compete for customers. This means lower prices, better service, superior products and more jobs. When some companies are allowed to skirt the rules, the rest of us pay the price.
California-based retailers are not asking for special treatment, just that their competitors be held to the same standards. The current tax system allows online-only retailers to gain an unfair advantage over their locally-based counterparts, and it is costing the State of California tax revenue it is rightly owed.
VICA welcomes online-only retailers to California, but we do so with the expectation that they will respect the laws that govern our state and practice fair competition. With a $25 billion state budget deficit we cannot afford the lost tax revenue or the damage this inequity causes to our local businesses.
Stuart Waldman is president of the Valley Industry and Commerce Association (VICA). VICA is a business advocacy organization that represents employers throughout the Los Angeles County region at the local, state and federal levels of government.