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July 29, 2011 > Amazon may not have to collect district use taxes

Amazon may not have to collect district use taxes

Submitted By Francis Taylor

"The new law requiring certain out-of-state retailers (e.g. internet companies) that make sales to California consumers to register with the Board of Equalization and collect use tax, does not require retailers to collect district use taxes, unless they engage in business in the taxing districts," Board of Equalization Chairman Jerome E. Horton announced on July 25, 2011.

Thus Amazon, who has refused to comply with the new law, could still have a competitive tax advantage over California-based companies.

"Although the new law applies to certain out-of-state internet companies selling to California consumers, the law does not automatically require every internet company 'engaged in business in California' to collect district use taxes," said Horton. "Amazon could still avoid collecting and paying the district use taxes on California consumers' purchases."

For example, internet company X makes an internet sale to Mr. Smith and ships the merchandise from outside California to his residence in the City of Inglewood via common carrier. As long as internet company X is not "engaged in business" in the districts where Mr. Smith's residence is located (the City of Inglewood and the County of Los Angeles), then internet company X is not required to collect district tax from Mr. Smith and only has to collect the cumulative state and local use tax rate of 7.25 percent, for the merchandise it ships to Mr. Smith in Inglewood.

However, if Mr. Smith made that same purchase from a brick-and-mortar store in the City of Inglewood, then the applicable cumulative state, local and district tax rate would be 9.25 percent, including cumulative district taxes of 2 percent.

In the City of Inglewood, that is a 2 percent (cumulative district taxes) advantage. Furthermore, that 2 percent may be Mr. Smith's liability.

In this example, internet company X is not obligated to collect the district taxes since it is not engaged in business either in the City of Inglewood or the County of Los Angeles. This gives the out-of-state retailer a 2 percent tax advantage and allows it to appear to sell their products for 2 percent less than the Inglewood store.

For more information about taxes and fees in California, visit www.boe.ca.gov and www.taxes.ca.gov.

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