Online retailers can challenge new Calif. sales tax law

Jessica M. Karmasek Jul. 19, 2011, 10:23am


SACRAMENTO, Calif. (Legal Newsline) - California Attorney General Kamala Harris says online retailers, like, can start to gather signatures to challenge a new law that requires more of them to collect sales tax from California customers.

Harris on Monday issued a title and summary to Secretary of State Debra Bowen for a proposed statewide referendum on ABx1 28.

The bill clarified the obligations under existing law for out-of-state retailers to collect and remit use tax on sales of tangible personal property to California residents.

Specifically, it expands the definition of retailers considered "engaged in business" in California to include certain Internet retailers selling to state consumers, so that out-of-state Internet retailers also collect existing sales or use taxes.

The bill was signed by Gov. Jerry Brown, the state's former attorney general, on June 28 and filed with the Secretary of State's Office on June 29.

In California, the Sales and Use Tax Law imposes a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in the state, or on the storage, use or other consumption of tangible personal property purchased from a retailer for storage, use or other consumption, measured by sales price.

That law defines a "retailer engaged in business" in the state to include retailers that engage in specified activities and requires every retailer engaged in business in California and making sales of tangible personal property for storage, use or other consumption in the state to register with the state Board of Equalization and to collect the tax from the purchaser and remit it to the board.

Under the new law, a retailer engaged in business in California is further defined as a retailer that has "substantial nexus" with the state and a retailer upon whom federal law permits the state to impose a use tax collection duty.

More specifically, a retailer engaged in business in the state also is now defined as:

"Any retailer entering into agreements under which a person or persons in the state, for a commission or other consideration, directly or indirectly refer potential purchasers, whether by an Internet-based link or an Internet website or otherwise, to the retailer, provided the total cumulative sales price from all sales by the retailer to purchasers in the state that are referred pursuant to these agreements is in excess of $10,000 within the preceding 12 months, and provided further that the retailer has cumulative sales of tangible personal property to purchasers in the state of more than $500,000, within the preceding 12 months, except as specified," according to the new law's text.

Harris, who prepared the title and summary "in accordance with her ministerial duties," said if signed by the required number of registered voters and filed with the Secretary of State's Office, the petition will place a challenge to the existing law on the statewide ballot.

The retailers have until September to collect the required number of signatures.

The law then must be approved by voters at the next statewide election to remain in effect, the attorney general explained.

The law was expected to raise more than $200 million this fiscal year, state officials have said.

California isn't the only state targeting online retailers such as Amazon.

Last month, Tennessee Attorney General Robert E. Cooper Jr. said a proposed bill requiring out-of-state companies to collect sales tax on purchases made by the state's residents is "constitutionally defensible."

From Legal Newsline: Reach Jessica Karmasek by e-mail at

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