Go online today and buy a book or DVD from an independent California-based seller on Barnesandnoble.com and you will pay a bit of sales tax. Buy the same book from Amazon.com and you won’t.
Similarly, buy a jacket from Landsend.com and you’ll pay sales tax. Go to eBay and buy the identical item and chances are you won’t.
This inequity not only hurts companies that dutifully collect and pay sales taxes because it’s the law and they want to be responsible citizens, but also hits hard at schools, parks, in-home services for the elderly and infirm and everything else California government does.
No, these are not tax loopholes granted by politicians to companies that donate campaign dollars. We’ll get to those later. The sales tax problems stem purely from cheating by individual sellers and the corporations that protect them in the interest of boosting themselves a bit above their law-abiding competition, both on the ‘Net and in real-life stores.
This became a minor campaign issue last fall, when this column revealed that most California-based eBay sellers pay no sales tax and the company, under both Meg Whitman, the failed Republican candidate for governor, and her successors, has refused to provide the state Board of Equalization (CBOE) with a list of its California sellers to be compared with lists of tax-paying merchants. The company said it refuses in the interests of privacy. Translation: eBay gets a cut of every sale on its site, so even the slight reduction in sales caused by collecting and paying sales tax would cost the company more than it wants to pay.
One BOE estimate was that this cost the state about $1 billion over the past 10 years. Now the BOE has provided a figure for the overall cost of such tax evasion, including eBay and every other miscreant. It comes to about $1.45 billion per year, just under one-twelfth of the current state deficit.
So if your child’s classroom becomes more crowded next fall or if teachers at public schools disappear, and if roads become more potholed or your favorite state park closes or you can’t sign up for a course at a university or community college, you’ll know who some of the culprits are.
The state can’t force companies like eBay to cough up lists of their independent sellers, so any move to help the state collect its due – any merchant with a physical presence in California must pay sales taxes – would be voluntary. This would change if several bills now in the Sacramento hopper aiming to allow direct assessments of Internet sales to Californians should become law. When other states have tried to make this compulsory, it hasn’t worked: New York attempted in the last decade to force Amazon to turn over lists of its sellers in New York state; Amazon not only refused but moved warehouses out of that state. The same thing is happening now in cash-strapped Texas. This is one reason California has not gone hard after eBay’s sellers.
At the insistence of then-Gov. Arnold Schwarzenegger, this state in 2009 also gave tax breaks amounting to slightly more than its missing sales tax revenue to many out-of-state corporations with significant operations in California.
These include companies like Comcast, Time Warner, Roche pharmaceuticals and similar behemoths. When an initiative to rescind those breaks appeared on the ballot last year as Proposition 24, the companies spent heavily on the “no” campaign and defeated it. So California is deprived each year of $1.5 billion it previously took in. Did defeating Proposition 24 save jobs, as the big companies claimed it would?
No sooner had the votes been counted than Roche announced a layoff of 840 persons from its Genentech subsidiary in South San Francisco. Comcast, another donor, quickly announced plans to move at least 150 jobs from California to Utah, while laying off 212 California workers. Meanwhile, there is so far not a single job known to have been created or saved by those tax breaks.
But the tax reductions amount to about another twelfth of the deficit. Together, the recently created and ratified loopholes and the sales tax evasions amount to about one out of every six deficit dollars.
Maybe when voters see the final budget proposals and the new taxes needed to keep popular current programs going, they’ll rethink their sympathy for tax scofflaws like eBay and their approval of new tax breaks for big corporations.