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Oppose Tax Hikes on Online Shopping!
An Open Letter to the California Board of Equalization:

November 15, 2010

Dear Board Members:

     On behalf of the National Taxpayers Union’s (NTU’s) 52,000-plus members in California, I urge you to reject any proposal that would tax out-of-state online retailers through their in-state affiliates.

     States that have attempted to prey upon online retailers beyond their borders through the creation of “affiliate nexus” schemes have not raised the desired revenues. In fact, North Carolina officials report that they are not keeping track of revenues collected from the tax scheme. Additionally, Rhode Island’s tax administrators say that their treasury has actually lost revenue following enactment of the tax. What these policies have done is impose high costs on the states through litigation and lost business activity. Both North Carolina and New York have been sued over this issue and the litigation continues to this day. Several major online retailers have also terminated their affiliates programs in Colorado and Rhode Island due to those states’ sales and use tax-reporting requirements for online transactions. A loss of business activity that shrinks the tax base is the last thing any state needs during this time of economic uncertainty.

      Instead of looking for creative ways to levy new taxes, the Board of Equalization (BOE) could pursue efforts to better educate consumers about current tax rules. For example, the BOE has estimated that a letter campaign reminding California taxpayers they may owe use taxes for Internet purchases will help revenue from these activities to grow to $183 million in 2011, $367 million in 2012, and $600 million annually by 2013. Alabama has tested a similar letter campaign with stunning success, including taxpayers’ voluntarily sending the state checks for several thousand dollars.

     California faces serious fiscal problems and needs to undertake equally serious reforms, especially reforms to its burdensome tax code. It does not need to add to the complicated tax burden by imposing a new tax on online shopping. Therefore, our members hope you will reject any proposal to do so.


John Stephenson
State Government Affairs Manager