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Online Retailers Begin to Collect Use Tax Under Last Year’s AB 155

September 20, 2012

As of Saturday, Sept. 15, Amazon and other online retailers began collecting use tax, including the local transactions and use tax rates (add-on sales tax rates), in compliance with last year’s AB155 (Calderon; 2011).

 

The first return accounting for collections for the Sept. 15 – 30 period will be filed with the Board of Equalization (BOE) on Oct. 31. According to discussions League staff has had with BOE, it anticipates that some retailers may not comply with AB155 but intends to pursue enforcement.

Last year AB 155 expanded the definition of a “retailer engaged in business in this state” to improve the collection of California’s owed, but uncollected, use tax. The measure authorized several additional ways of clarifying “nexus” to support state collection of use tax, including:

  • Any retailer that has substantial nexus for purposes of the U.S. Commerce Clause;
  • The corporate relationship of a parent retailer and subsidiary working together, where in-state services are provided by a subsidiary in California in connection with tangible personal property to be sold by the retailer; and
  • Retailers that have agreements with in-state persons to refer potential purchasers to out-of-state retailers via an Internet-based link or website.

Prior estimates indicated the measure could yield up to $200 million for the state General Fund and more than $100 million in local and special funds. The Department of Finance now estimates that the state’s share of AB 155 could yield $107 million in FY 2012-13 and $150 million in FY 2013-14.

Allocation of Revenues

Under existing law, Local Bradley Burns rates collected by an out-of-state seller are sourced to the location of use, generally the location of delivery of the product, and the revenues are deposited in countywide pools. Those pools are allocated among taxing agencies within each county in proportion to taxable sales. 

Revenues collected from transactions and use tax rates are also sourced to location of use, however, the revenues are allocated to the district in which the user resides (the agency imposing the transactions and use tax rate). 

For example, a purchase made in the city of Visalia would be charged an 8 percent tax consisting of:

  • The state composite base rate of 7.25 percent;
  • 0.50 percent county transportation rate; and
  • 0.25 percent city add-on rate. 

In this example, the local Bradley Burns portion of the rate will be collected and allocated to the county sales and use tax pool in the county of Tulare and then allocated among the cities and the county in proportion to taxable sales. The voter approved county 0.50 percent transportation transactions and use tax rate will be allocated to the county and the city’s voter approved 0.25 percent general purpose add-on transactions and use tax rate will be allocated to the city of Visalia.

However, it’s likely that these allocations will change soon. Amazon is currently constructing a large warehouse operation in Patterson and will soon begin construction on a second in San Bernardino. When these operations are stocked and begin delivery from an in-state location, sales from these locations will likely be sourced to the location of the warehouse. This will alter the sourcing and allocation of some sales tax revenues derived from Amazon purchases among local agencies. 



 
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