Hooray for Bill Leonard!!

Dear Ms. Edgett:
 
Thank you for writing me about the Book Passages article about the state’s policy regarding Amazon’s tax liability.  One commendable aspect of the article is in pointing out that the sales tax is a regressive tax, and in my opinion, it is a tax that no longer works in today’s economy.
 
First, I am sorry to disagree with the Book Passages conclusion regarding current law.  Our legal staff has determined that having affiliate advertisers does not create a nexus for the purpose of sales tax liability.  Moreover, it is widely understood that the Quill Supreme Court decision cited in the article forbids states to tax out of state retailers that do not have nexus because such activity is interstate commerce that the United States Constitution explicitly leaves to Congress to regulate.  The size and scope of the business is not a relevant legal factor.  
 
The Board of Equalization has authority to tax only to the extent that statute allows.  When we depart from our statutory obligations and tax entities based on criteria other than what the law is, we often get sued, and we lose.  We lost a similar case involving Barnes and Noble.com in December.  I agreed with the majority of my colleagues on the Board that Barnes and Noble.com had established California nexus because Barnes and Noble stores in California honored coupons that customers had downloaded from Barnes and Noble.com.  The court did not agree.  We voted at the December meeting to appeal the case.  The facts surrounding Amazon’s situation are a far less compelling for nexus than that in the Barnes and Noble.com case.
 
The Book Passages article did identify one area where we could improve collections.  That is with those California booksellers that ship to California addresses but Amazon directly charges the customer and then remits the money back to the retailer.   I queried the Board’s chief of sales tax collection and he reported back that the Board is and has been doing outreach to these booksellers to make sure they understand that they must have valid seller permits, and that if they are shipping to California residents it is their obligation to remit sales tax to the state, not Amazon’s.  Amazon has informed these retailers of their obligation and suggested to them that they simply include the tax in the listed price of the product.  While compliance can be strengthened, to suggest that all these transactions are currently not being taxed is simply not true.   
 
One form of relief for retailers, and one that I am actively talking to legislators about, is to reduce the state sales tax rate.   We have long known that the Internet would change how products are delivered to consumers and the obvious challenge traditional retailer would face.  The state sales tax once reflected the state’s desire to tax consumption.  We have since evolved into more of a service-oriented economy but only retailers now bear the brunt of our policy to tax consumption.  The number of retailers operating in California has remained stagnant for decades even while the population has swelled enormously.  One factor in this failure to provide an amenable business climate for retailers is our unfair, regressive sales tax policy. 
 
When I was in the legislature, I proposed a gradual sales tax phase-out in Assembly Bill 2367 (2000) that would have led to the elimination of the state sales tax rate over time, leaving only the local component of the sales tax – about 2%.   This would have the effect of eliminating the competitive advantage Internet sellers have while maintaining a revenue stream for local public safety funds.  It would also make clear on the local level the connection between taxes that are paid and the services that are provided so that voters have a better idea how their taxes are connected to the services provided to them.
 
In short, the article is not correct that the BoE can, via fiat, make a change in tax policy as suggested.  I am sympathetic to the plight of retailers and I am working to create a better environment in California so they can flourish and spread the benefits of their success to the broader community.
 
Thank you again for writing me and please continue contacting me on matters of State.
 
Sincerely,
Bill Leonard