California to charge online sales tax

California has passed legislation mandating that out-of-state Internet sales companies charge state sales tax. On Wednesday, California Gov. Jerry Brown signed the new law, which takes effect immediately, adding the state to the list of others that have passed similar regulations, reported WWD.

The new bill changes the definition of who is required to collect and remit sales taxes Instead of simply taxing companies with a physical presence in the state, now the state will tax businesses with subsidiaries in California or those holding business relationships that refer potential customers, even if these relationships come from simply a website link.

As the recession continues, lawmakers are hoping to generate new sources of revenue to close the mounting state budget deficit. Whether or not the move will prove to be positive economically is uncertain. Former Governor Arnold Schwarzenegger had killed similar legislation two years ago, claiming the bill would cause losses in overall revenue and threaten jobs at Internet sales companies such as Amazon.com and Overstock.com.

According to state officials, the state misses out on approximately $1.15 billion in sales taxes each year, failing to collect from consumers and businesses from out-of-state “remote sellers,” including Internet companies.

Overstock.com has declared that the company will be shifting its California advertising affiliate business out-of-state. “We believe the law is unconstitutional and necessitated this decision. There will be no other changes to the way we do business,” Mark Griffin, senior vice president of legal for Overstock.com, said to WWD.

Amazon reportedly sent California affiliates letters saying that it may sever ties with them, a move that could threaten the revenue those affiliate business collect.

Brick-and-mortar retailers maintain that lack of state Internet sales collection places them at a disadvantage and are petitioning U.S. Congress to pass legislation that requires all states to collect taxes from remote sellers.