Federal Internet Sales Tax Law Coming Soon?

The Washington Times reports that the era of sales-tax-free shopping on the Internet for residents of relatively high sales tax states like California may be coming to a close, as brick-and-mortar retailers pressure Congress to close the "loophole":

[Federal Internet sales tax] bills have come and gone for years [in the U.S. Congress], but the political winds took a turn this year, thanks largely to the efforts of lawmakers in California. The state waged a high-stakes duel with Amazon.com and won after the online giant agreed in September for the first time to comply with a state sales tax instead of fighting it in the courts or at the polls.

Amazon.com had vowed to spend tens of millions of dollars on a ballot referendum to overturn the law, which the state countered with a threat to pass the bill as an “urgency measure” that voters could not repeal. Amazon.com ultimately blinked and signed off on a deal in which remote sellers agree to pay the California sales tax after a one-year grace period unless Congress approves national rules.

The California move injected fresh enthusiasm into federal efforts to level the sales-tax playing field. Within weeks, the House and Senate had introduced bipartisan legislation giving states the option of collecting sales taxes from online sellers.

California law already requires businesses and individuals to report and pay use tax at the same rate as sales tax for goods purchased online or out of state and brought in and used in California. Enforcement and compliance on the personal side has been minimal, but the Board of Equalization, the state agency charged with administering the state's sales tax law, has required businesses grossing more than $100,000 per year to register and report and pay use tax on any such purchases since 2009.

See also California Governor signs sales tax law compromise

Los Angeles Business Tax Break Proposed

Los Angeles' mayor today proposed an expansion of the City of Los Angeles' new business tax exemption, from two to three years, assuming gross revenues of less than $500,000:

Tax Break for New Businesses Proposed, Los Angeles Business Journal, June 15, 2010

California Annual Minimum Franchise Tax Repeal Proposed

A bipartisan commission appointed by Governor Schwarzenegger has recently proposed sweeping overhauls of California's tax laws, including reduction of personal income tax rates, the elimination of the corporate tax, and the elimination of the $800 per yaer minimum annual franchise tax levied on corporations, LLCs, and LLPs doing business in the state. The committee did, however, propose a 4% business net profits tax, exempting small businesses with less than $500,000 in revenues.

The recommendations are only that, and must be acted upon by the legislature and governor in order to become law.

For more information see:

Commission on the 21st Centuray Economy Press Release dated September 29, 2009

California FTB LLC Fee Refunds and Case Updates

Claims are due this summer for certain claims for refunds of LLC fees (above the $800 per year minimum franchise tax) paid to the California Franchise Tax Board (FTB) for tax years prior to January 1, 2007, for LLCs that had operations in multiple states. This is related to several lawsuits contending the LLC fee is unconstutional, two of which have been resolved, in favor of the limited liability company-taxpayers (Ventas Finance I, LLC v. Franchise Tax Board and Northwest Energetic Services, LLC v. Franchise Tax Board). In Ventas, the court found that Revenue & Taxation Code Section 17942 was unconstitutional as applied to an LLC which derived revenues from inside and outside of California, without apportioning the fee to account for in-state versus out-of-state source revenues. In Northwest, the court of appeals found unconstitutional California's LLC fee as applied to an LLC that registered with the state but never did any business in California (preumably, it had intended to, but circumstances changes, or it hadn't yet got around to doing business here).

The third case, Bakersfield Mall, LLC v. Franchise Tax Board, challenges the right of the FTB to levy the LLC fee on LLC's that do business entirely in California. Those with potential claims should review this notice and speak with their accountant about filing an appropriate and timely claim, or filing a protective claim:

FTB Notice 2009-04 dated 5/22/2009

California Scheming: What One-Party Rule Is Doing To Once-Golden State

California Scheming: What One-Party Rule Is Doing To Once-Golden State, Investor's Business Daily editorial, December 22, 2008:

.... As the financial crisis in California gets worse, it's pretty clear the real problem isn't the budget at all, but a political system that has resulted in a dysfunctional one-party state. ....

A reasonable response from a mature group of individuals might be to cut spending — especially since polls show that most Californians don't believe their taxes should be raised. Instead, they've chosen to thumb their noses at the people's will. It shows the danger of what is in effect California's one-party rule. .... Frustrated with their inability to raise taxes, Democrats got creative: They decided they could declare outright hikes in taxes to be "fee increases." This would let them pass a massive $9.3 billion in tax hikes without consulting Republicans in the legislature, in direct violation of state law. ....

California is already the most costly place in America to do business, according to the Milken Institute's business cost index. Its business costs in 2006 were 23% higher than the average for the rest of the states, and well above those of its neighboring states.

Worse, energy costs are already 35% higher than the national average. With California's costly new CO2 mandates about to kick in, the economy could well grind to a halt.

Such business mainstays as Intel, Exxel Outdoors, Toyota and Tesla have already left California. Intel is a particularly alarming example: The world leader in chip technology started in Silicon Valley but no longer makes anything in California.

Since 2001, according to the California Manufacturers and Technology Association, the state has lost 440,000 high-wage jobs. Today, the state's jobless rate of 8.4% is third-highest in the nation.

Even Hollywood feels the pinch. In 2003, 66% of Hollywood's feature films were made in-state; today, it's down to 31%. Increasingly, Hollywood is a state of mind — not a place to do business.

Things are so bad that, just last week, 25 business groups wrote an open letter to the state's legislature begging it to think about the role businesses play in the economy.

We wish them luck. Unfortunately, instead of aggressively addressing these competitiveness problems, California's Democrats think they can simply tax their way back to prosperity. They can't.

California's tax base is so narrow — 1% of the population pay 50% of income taxes — that you can't "tax the rich" and get more revenue, a long-held Democratic fantasy. California individuals today bear the sixth-highest tax burden in the nation. Raising taxes won't do anything but drive off productive workers and kill the economy.

It's already happening. Tired with having their voices ignored and faced with soaring taxes, high housing costs and state fiscal chaos, Californians are leaving in droves. They're voting with their feet.

Last year, 135,173 more people left California than moved in, the fourth straight year of net out-migration. As the Los Angeles Times accurately noted, "the trend remains significant because such declines usually occur when working Californians decide better opportunities lie elsewhere."

Members of California's one-party ruling class better start listening to their businesses and productive, overburdened taxpayers, or pretty soon they won't have an economy to fund their government. ....

See also:

Gas Buddy USA Temperature Map

California Legislature Plans To Increase Taxes Amid Recession

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States

California Legislature Plans To Increase Taxes Amid Recession

State Democrats Plan To Increase Taxes, Los Angeles Times, December 17, 2008:

Democratic legislative leaders are planning to use a series of complex legal maneuvers to raise Californians' gas, sales and income taxes over the objection of Republican lawmakers, who have been able to block such proposals in the past.

Under the Democrats' plan, sales taxes would increase by three-fourths of a cent. Gas taxes would go up by 13.5 cents per gallon. And a surcharge of 2.5% would be added to income taxes.

More coverage: California Democrats Devise Plan To Hike Taxes:
By structuring them as fees, they would skirt GOP opponents and raise $9.3 billion; A court fight looms, Los Angeles Times, Decemeber 18, 2008.

See also:

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States

2009 California Employer Payroll Tax Rates