IP: California bill declares Internet a threat to the state

[Dave Farber <farber () central cis upenn edu>]

From: jwarren () well com (Jim Warren)
Subject: Re: (fwd fyi) bill to create Calif Internet Review Commission


> ...  A few cities
> and counties are getting worried that they won't be able to charge
> sales tax on Internet commerce because it'll all be non-local
> transactions over which they have no taxing power.  They have
> complained to the state about this.  Just imagine if Fry's could sell
> you the same software across a state line from Phoenix or Venezuela
> and save you 8-1/2% on the purchase price (the state and city's cut),
> and offer added convenience to boot.


You betcha! -- but it's more than "a few" jurisdictions.  Here's part of
the billtext that someone retyped.  I'm gonna fetch the text from leginfo
and upload it hither and yon as soon as I get a chance.


--jim




15920. (a) The Legislature declares that the growth of commerce on the
Internet threatens California job retention, job growth, and the
stability of state and local government sales tax revenues.


(b) The Legislature finds and declares as follows:


(1) The Internet is a collection of computer networks that enables the
user to communicate electronically with other users around the world. The
most authoritative survey conducted on Internet usage, released October
30, 1995, by CommerceNet and Nielson Media Research, found that 37
million people in the United States and Canada have access to the
Internet and that 2.5 million people have purchased products or services
on the Internet.


(2) The number of sites on the Internet featuring businesses and products
is growing rapidly, at about 12 percent per month, with many of these
businesses located outside of California. Intuit, Inc. and MasterCard
International, among other companies, are supporting new protocols to
promote secure credit card, debit card, and charge card transactions on
the Internet, thus making shopping on the system more attractive to the
consumer.


(3) California job retention and job growth is threatened by the
out-of-state firms selling goods and services on the Internet. Five
states with no sales tax are already poised to benefit from jobs that
likely would result from growth in Internet sales. Businesses may find it
more competative] to move to these states to sell goods to the huge
California market because the cost of goods is reduced 7.25-8.5 percent
due to the absence of a sales tax. There are many other states with a
lower sales tax than California that would also have a competative
advantage.


(4) In addition, growth in Internet sales from out-of-state firms could
disrupt the fiscal stability of state and local governments. Federal
courts have ruled that California cannot collect sales tax from business
located outside of California. California lost an estimated $482 million
from out-of-state mail order sales in 1994. Mail order sales have
increased 100 fold since 1967. The Internet has the potential to exceed
mail order sales, due to the low cost of presenting consumer information
online.


(5) A steady decline in sales tax revenue would cause hardship for state
and local governments, given their heavy reliance on this revenue. It is
estimated that sales tax revenue will comprise 30.4 percent of total
state government revenue ($17.25 billion) in fiscal year 1995-96
according to the Governor's office.


(6) Cities depend heavily on sales tax revenue. In 1993, sales tax
revenue comprised 98 percent of total revenue in Colma, 92 percent in
Bellflower, 81 percent in Cupertino, 78 percent in Mammoth Lakes, 73
percent in Capitola, 72 percent in El Cajon, 72 percent in Carmel by the
Sea, 71 percent in Ukiah, 70 percent in Lakewood, and 70 percent in
Hesperia. In the same year, sales tax revenue amounted to $778.3 million
in Los Angeles, $235.7 million in San Francisco, $193.4 million in San
Diego, $148.6 million in San Jose, $92.8 million in Sacramento, $78.6
million in Long Beach, $63.8 million in Oakland, $61.0 million in
Anaheim, $51.9 million in Fresno, and $50.2 million in Torrance.


(7) Counties are also dependent on sales tax revenue. In 1993, sales tax
revenue comprised 56 percent of total revenue in Mariposa County, 25
percent in Plumas County, 23 percent in Medocino County, 23 percent in
Trinity County, 21 percent in Nevada County, 21 percent in Tuolumne
County, and 20 percent in Alpine County. In the same year, sales tax
revenue provided $95.5 million to Sacramento County, $75.3 million to Los
Angeles County, $22.9 million to Kern County, $21.2 million to Riverside
County, $19.2 million to San Bernardino County, $17.3 million to San
Diego County, $16.4 million to Orange County, $12.1 million to Alameda
County, and $11.7 million to Monterey County.


(8) The exponential growth of Internet business opportunities demands
that California immediately examine the potential impacts on the state's
competative position and fiscal stability.


15920.1 There is created in state government the California Internet
Review Commission.