

How Internet sales taxes in CA could drive VigLink & others out of the state - waderoush
http://www.xconomy.com/san-francisco/2011/06/07/viglink-aims-to-turn-links-into-gold-but-will-the-golden-state-force-the-company-out/

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jbooth
Uh, the tax is on items purchased by Cali residents from the internet, right?

As in, the vast majority of the effect will be to tax (mostly) out-of-state
businesses while creating a level playing field for local retail businesses
that have to pay sales tax?

Why would that drive anyone out of state? They'd have to pay the tax anyways
if they're out of state and selling to California residents.

As expected, the article provided no reasoning. Ctrl-F found the word "tax"
once and it was a non-sequitor about how great the company is and they're
gonna leave because of this tax.

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oroup
I'm Oliver Roup, the CEO of VigLink and the guy interviewed in the article.

The interstate commerce clause of the constitution and subsequent case law
establishes that one state may not tax the businesses of another unless it has
a physical presence ("a nexus") in it's state.

California and a number of other states are attempting to redefine nexus more
broadly in an attempt to be able to force eg Amazon to collect sales tax from
it's residents. Amazon has established that they would rather stop doing
business with CA affiliates than (effectively) raise prices.

This should matter to you because affiliates are just the tip of the iceberg.
One of the California proposals already contemplates that having subsidiaries,
servers or _vendors_ in CA would establish a nexus. So let's say you're the
entrepreneurs behind CloudKick (to use an already exited example from Y
Combinator.) If these proposals had been law when they were looking for
customers, they would have found many customers concerned that using CloudKick
would obligate them to collect sales tax from their customers in California.
Collecting the taxes would of course only be part of the issue - computing
when and how much to collect in accordance with the latest version of the law
in every state would be a significant burden.

The states of course are perfectly entitled to seek new revenue, especially in
times of economic distress. However we believe lawmakers should stick to
strategies that work. Historically these laws have resulted in _reduced_ tax
revenue and job flight. (the merchants cut ties with affiliates in those
states and the affiliates either move or cease operation.) They also make
investment in these kinds of business models more challenging. For a state as
dependent as California on innovation, we think this is just bad public
policy. (Also the Performance Marketing Association has filed suit against the
state of Illinois arguing that it's affiliate tax law is unconstitutional.)
The correct place for this to be taken up is at the federal level since the
federal government actually does have the right to impose taxes on interstate
commerce. Senator Durbin of Illinois has announced he intends to introduce
legislation to address this federally in the fall.

If you're still reading and you're motivated to do something, check out
<http://25000businessesatrisk.com/> for California or
<http://performancemarketingassociation.com/nexus-tax> for the rest of the
country.

Oliver Roup Founder / CEO, VigLink

~~~
jbooth
Thanks for commenting, I clicked through to the third page eventually and saw
that reasoning.

Sucks that you guys are the ones getting punished, here, the "nexus" mechanics
are stupid. I'm not a California resident but I do think that if they have a
sales tax, it should be across the board and include things purchased on the
internet by CA residents.

~~~
lawtguy
California sales tax does apply to all purchases of goods by California
residents. If you live in CA and purchase something which sales tax apply to,
you need to pay those taxes. Since remembering to pay sales tax to the state
is a pain in the ass (not to mention an easy way to cheat on your taxes), CA
law requires that merchants collect the sales tax on your purchases and send
it to the state.

Even pre-Internet, there was a problem with this: California law can't force
businesses outside of CA to collect sales tax for CA residents. So if you
bought something in another state, or from a catalog, you were suppose to
report that on your income taxes and pay the appropriate CA sales tax. Of
course, no one did, but it wasn't a big deal because there wasn't a lot of
money in these sorts of sales.

With the Internet, more and more purchases are going to businesses that are
out of state (e.g. Amazon). Since most people are habituated to having the
sales tax included in purchases, they probably don't even realize they owe
sales tax at all. Or if they do, they probably don't report it since no one
likes to pay more taxes.

So now we come to this "nexus" problem. Currently neither Amazon nor its
subsidiaries are in California, so CA laws don't apply to them and they don't
have to collect sales tax for CA residents. This represents lost revenue for
the state, but by changing the nexus rule to include affiliates, the state can
get its sales tax laws to apply to Amazon and thus get more revenue. Amazon is
resisting this because it will effectively raise their prices to CA residents
(of course, CA residents were suppose to be paying that anyways).

What actually happens if the law is passed should be interesting. Amazon has
said they will drop all of the CA affiliates if the law passes, just as they
did in Illinois. However, New York passed a similar law and Amazon started
collecting NY sales tax instead of cutting off its affiliates, presumably
because the hit from having to collect sales tax was less than the money that
would be lost from not having it's NY affiliates.

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MediaBehavior
I wonder how such taxation policies might even loosen the appeal of Silicon
Valley as _the_ center for startups.

Granted, a lot of other relatively business-unfriendly California tax
structures have not (so far as one can tell - without a control group).

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rexreed
This link keeps bouncing me to their general mobile page.

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MediaBehavior
From what browser? I had no problem with either Mac-FF or Safari.

