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A new law will require online retailers to charge sales tax in California

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With engaging displays, familiar faces, and sometimes locally made goods, brick and mortar businesses lend a lot of character to a community, but such establishments have been struggling in the last decade to compete with an online shopping experience that’s much more convenient and usually comes with huge discounts, due in part to a loophole that let online shoppers sidestep sales taxes.

That changed on Sept. 15, when a new state law (AB 155) went into effect, requiring more than 200 larger retailers to start collecting sales tax on online purchases by consumers in the state.

Stefanie Hilstein, who co-owns a music school/instrument store called Music Motive in San Luis Obispo, told New Times that the change will make things more fair for everyone.

“It’s pretty hard to beat the online prices already, but this was one more thing we had to tack on that they didn’t,” Hilstein said.

She noted that skirting sales taxes might be nice for consumers, but doing so siphons funds from government coffers and degrades services like road repair, education, and public safety.

Stemming from an agreement made between lawmakers and online retailer Amazon, AB 155 repealed a previous law Gov. Jerry Brown signed in 2011. It postponed the state’s plans to collect sales tax on online purchases an extra year, provided Amazon constructs distribution centers within the state.

Amazon spokesman Scott Stanzel said his company has plans to build such fulfillment centers in San Bernardino and Patterson, and supports AB 155 as a “win-win law,” allowing the nation’s largest online merchant to expand in California. Ultimately, Stanzel said, Amazon believes the tax issue will be settled at the federal level.

“For more than a decade we’ve supported a fair national approach to sales tax collection and we strongly support the Marketplace Fairness Act [a bill currently in the U.S. Senate],” Stanzel said. “We’ve been pleased to work with Gov. Brown and other governors around the country to enact that bipartisan legislation.”

Amazon stands to contribute a sizable portion of the estimated $317 million in annual tax revenue the state anticipates adding to local and state coffers. Stanzel wouldn’t disclose how much Amazon expects to send to Sacramento in the next year, but did say the company already collects sales tax in more than half the areas in which it does business.

“We’re pleased to say that business is thriving in those geographies because of low prices, vast selection, and fast delivery,” he said.

Though California consumers have always been required to report and pay sales tax on items from out-of-state retailers, the rules were rarely enforced. In 1992, the U.S. Supreme Court ruled sellers couldn’t be forced to charge a sales tax unless they had a physical presence in the state. AB 155 essentially circumvents the decision.

According to the California Board of Equalization, which administers state tax, AB 155 only expands the types of out-of-state retailers required to collect sales tax. The law extends to merchants with a “substantial nexus” in the state—specifically those retailers with more than $1 million in sales to Californians in the past year, and affiliates operating within state lines exceeding $10,000 in annual sales.

The board is sending letters to more than 200 retailers, notifying them of the new law as well as details on how to register online with the agency. AB 155, board officials say, will help close a loophole in the tax code that gave online retailers a price advantage over the state’s small businesses and will allow the agency to collect millions of dollars to fund public safety, schools, and health care.

“This is an important step forward for fairness in the market place and for consumers to begin to see tax collected in the same way on all of their transactions, regardless of whether they occur online or in the store,” First District Board Member Betty T. Yee said in a statement. “It is in every Californian’s interest for online and storefront businesses to play by the same rules.”

Target spokeswoman Jill Hornbacher echoed the board’s comments, saying after 50 years in a “highly competitive” retail business, the retail giant is adapting to changes in the marketplace.

“The rapid growth in online retail has uncovered an unfair pricing advantage in existing sales tax laws that benefits online-only retailers,” Hornbacher said in an e-mail. “Target strongly supports state legislative efforts to close this anti-competitive loophole and level the playing field for all retailers.”

For local shoppers, the law means paying close to eight percent more for online purchases, but some people are skeptical about how much it will impact local businesses. Sure, it will level the playing field, so to speak, but will it change the way people shop?

Jeff Hornaday, owner of Bambu Batu in downtown SLO, said that shopping locally offers a richer experience, but some people will always prefer the ease of ordering items from their computers.

“I don’t see [sales tax] having a significant impact,” he said.

Contact Sun Staff Writer Jeremy Thomas at jthomas@santamariasun.com, Sun Managing Editor Amy Asman at aasman@santamariasun.com, or Staff Writer Nick Powell at npowell@newtimesslo.com.

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