> While Democrats and Gov. Jerry Brown fretted that they would lose $200 million a year in sales taxes
California residents are supposed to pay use tax on internet purchases regardless of the physical presence of the retailer, right?
Running the math: the $200 million/year loss that they claim is an estimate on tax fraud on just Amazon purchases? At a 7.25% tax rate, that's a tax on $2.7 billion in sales, and Amazon's US sales last year were 18.7 billion [1]. They're estimating that unreported purchases in California comprise 14% of Amazon's revenue in the US.
California comprises about 12% of the US population. The assumption is invalid, because 14% is greater than 12% - but, assuming it's reasonably close, we can still say that either (1) the politicians are ignoring the use tax or (2) there is a massive amount of fraud going on in use tax reporting.
The rate of buying products online isn't going to be the same in every state, and it's reasonable that it would be slightly higher in CA than in other states.
And on use-tax: have anyone ever met someone who paid use-tax on goods purchased from Amazon? Most consumers don't even know they're supposed to, and audit enforcement is expensive and therefore uncommon.
I did. I think it's reasonably clear in the state tax forms that you're supposed to pay use tax, and the clean conscience was worth the $13 or whatever it was.
Obviously, though, as you say you can pay nothing without suffering any consequences.
$13 isn't a lot to pay. However, if it takes an hour to save and itemize out of state invoices, in order to pay taxes on them, I'm going to guess that's less than you make per hour, so the entire exercise represents a net loss (other than the benefit to your conscience).
Many people spend way more on out-of-state purchases, so their sales tax bill would be in the hundreds or thousands of dollars. There's real incentive not to pay, unless you're itemizing those purchases as deductions on your income tax or unless you're making the purchases as an incorporated entity.
People get audited on their income taxes all the time. Businesses get audited. I have never heard of an individual getting audited for failure to pay state use tax on out-of-state purchases when they didn't declare those purchases on any official forms.
A few states don't even have income tax; in those states there are no state tax forms that the average citizen ever encounters.
Even with 100% honest taxpayers, the use tax still puts local business at a disadvantage, due to the time value of money. I'd much rather pay later, with "worth less" dollars, than pay now.
I paid tax on my online purchases (though I don't live in California). There's a line on your form where you're supposed to declare this stuff, I paid some $60 and have a clean conscience and clear legal record.
It's startling to me that you assume that people who pay use-tax for goods purchased online would be hard to find.
1) California's GDP is $1.9 trillion, 13% of the $15 trillion US GDP (this is more accurate in comparing consumption than population). Factoring in California's likely higher rates of online retail purchases, 14% is quite plausible.
2) There is massive fraud with use tax reporting.
http://lakeconews.com/content/view/21075/928/
$10.4 million in use tax payments were made in 2009, which would work out to be about $100 million in revenues taxed. With Amazon alone is selling $2.7 billion in CA, of which the vast majority is for out-of-state purchases that don't have sales tax. It's entirely plausible that over 95% of out of state sales are not being taxed. I'd even hypothesize that most of the use tax payments actually made are for trackable items (cars).
2a) The whole reason politicians want out of state companies to collect tax is because of the massive fraud.
The $2.7 billion number which I used was extrapolated from the $200 million in lost taxes.
You're right, I should have used GDP, rather than population. I would have guessed that use tax fraud was common, but not "less than 1 percent of Californians currently report use tax" common. From your linked article:
> Board Member Betty T. Yee said ... "the low rate of consumer compliance overall points to the need to pursue multiple efforts to promote use tax compliance so that all retail purchases – from both online and store front retailers – are treated on an equal basis."
Right. Promoting citizen compliance, possibly through audits, penalties, and emphasis on income tax forms is what needs to happen here. Instead of trying to persuade their citizens to obey the law, California is trying to force Amazon to do it for them.
The assumption doesn't have to be invalid. California citizens may be wealthier than those other states and spend more money on Amazon goods. California may also have more computer users with decent internet access than, say, Wyoming.
California punches well above its weight when it comes to consumption expenditures. I wouldn't be surprised if a quarter of Amazon's purchases originated here. We Californians are a spendy bunch.
> California comprises about 12% of the US population. The assumption is invalid, because 14% is greater than 12%
I'm not sure that it's that far fetched that a tech oriented culture like California would buy on average more goods from Amazon then other areas of the US.
Just because the percent of Amazon's revenue from California is greater than the proportional population of California relative to the US doesn't make it invalid. You need a purchase distribution function to make that claim.
The law doesn't single out Amazon, the $200 million is from all internet retailers that have any sort of presence in California. The core of the new law was defining residents participating in affiliate programs as a physical presence. Assuming nearly all retailers have some sort of affiliate program with a CA resident, the $200 million figure is how much uncollected tax revenue is available across all online retailers.
Whoops: The post was way too long initially, and "The assumption" referenced a statement that I subsequently deleted when I tried to trim it down. It went something like "assuming that online purchases are evenly distributed across the population", and wasn't intended to be correct - Just a first-order approximation.
California residents are supposed to pay use tax on internet purchases regardless of the physical presence of the retailer, right?
Running the math: the $200 million/year loss that they claim is an estimate on tax fraud on just Amazon purchases? At a 7.25% tax rate, that's a tax on $2.7 billion in sales, and Amazon's US sales last year were 18.7 billion [1]. They're estimating that unreported purchases in California comprise 14% of Amazon's revenue in the US.
California comprises about 12% of the US population. The assumption is invalid, because 14% is greater than 12% - but, assuming it's reasonably close, we can still say that either (1) the politicians are ignoring the use tax or (2) there is a massive amount of fraud going on in use tax reporting.
[1] http://www.internetretailer.com/2011/01/27/amazon-sales-and-...