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California Takes Steps to Join the Streamlined Sales Tax Initiative

A state senator introduced a bill that would require California to become one of the states implementing a new sales and use tax agreement.

SACRAMENTO, Calif. --A California legislator introduced a bill Tuesday that would make the state part of the national streamlined sales-tax movement.

State Sen. Debra Bowen introduced, SB 157, which would require California to join the "Streamlined Sales & Use Tax Implementing States," a group of thirty-four states and the District of Columbia that crafted the Streamlined Sales & Use Tax Agreement (SSUTA), which has been endorsed by thirty states and the District of Columbia.

Five states -- Alaska, Delaware, Montana, New Hampshire and Oregon -- don't collect a state sales tax, so they aren't involved with the project.

"Failing to collect sales taxes on online sales has two impacts," Bowen said. "First, it puts California businesses at a significant disadvantage because they have to collect state sales taxes that out-of-state businesses don't have to charge. Second, because California relies on sales taxes to pay for so many public safety and transportation programs, it means people who buy online aren't helping to pay for basic services that everyone in California relies on."

Participation in the SSUTA is voluntary and will take effect when at least 10 states representing 20 percent of the U.S. population have amended their laws to conform to the agreement.

If the bill passes, California would join the group of 34 states and the District of Columbia that crafted the SSUTA and could be involved in further discussions with an eye toward adopting the agreement. If California later endorse the SSUTA, tax law changes will be necessary if the state wants to require out-of-state retailers to begin collecting California sales taxes.

"It may be two or three years away but, eventually, California and other states are going to be able to collect sales tax on Internet and catalog purchases, so it's time for California to get into the ballgame to help make this happen," Bowen said. "The voluntary project is really about using the power of the bully pulpit to prove to Congress and the courts that requiring online retailers to start collecting sales taxes isn't a burden on interstate commerce."

California's basic sales tax rate is 7.25% (5% goes to the state, 2.25% goes to local governments), and local governments are permitted to add additional sales taxes ranging from 0.125% to 2.0%.

SB 157 will be heard in the Senate Revenue & Taxation Committee in March or
April.

Bowen said one goal of introducing the legislation is eliminating the nearly dime-a-dollar price advantage that out-of-state online, catalog, and mail order businesses have over every California "brick-and-mortar" retailer. She said this advantage costs California nearly $2 billion a year in lost sales taxes.