CCH Tax News Headlines - May 10, 2010

So, the provision noted above reads (from the summary) something like

"...provide that each retailer that is not required to collect use tax but that makes sales of tangible personal property, the storage, use, or other consumption of which is subject to tax, is required to provide readily visible notification on its retail Internet Web site or retail catalogue that tax is imposed on the storage, use, or other consumption in California of the tangible personal property purchased from the retailer that is not exempt and is required to be paid by the purchaser."

Now, I am not a lawyer, but it just seems to me that this legislation can't really be effective. I mean, if the seller doesn't have nexus in California sufficient to trigger the necessity of collecting sales tax, just how does California expect to assert jurisdiction over them to enforce a notice requirement on their web site? Especially if the web host isn't even located in California? I may just be a simple engineer, but this strikes me as a completely useless endeavor.

It may be the case that California could possible enforce this for web hosting located in the state. However, it seems that if they do that it would be ultimately a rather bone-headed way to encourage web hosting providers to establish their businesses elsewhere.

Rather than such futile legislating, I would think it would be a lot more productive to focus on the SST initiative and then seek to have Congress pass the required legislation to compel all retailers to collect the tax for SST members. I seem to recall that was at least an implicit part of the motivation for the streamlined sales tax in the first place, although I don't know if anything like that was ever explicitly promised.

If the vendor's web site is hosted in California, there is a nexus that requires collecting sales tax by the vendor. Existing law already requires such.

I agree with you - this is unenforcable. California lacks jurisdiction to mandate any action outside its borders.

Its purpose is obvious: They're trying to get at mail order companies OUTSIDE of California and to enforce that people pay sales/use tax on items imported. Existing law does impose the tax but no one pays it.

California doesn't care. Remember that in the 1990's, it tried to tax out-of-state pensions (deferred compensation) if any part of it was based on employment in California - and that it took Congress in 1996 to declare that illegal by federal legislation to block it.

In contrast, this is a perfect example of the IDIOTS that my state keeps electing to its legislature.

Apparently California wants retailers with no nexus in California (else they'd be required to collect tax) to have to put a notice on their web sites that says "California has a Use Tax that your have to pay".

The US Constitution doesn't like compelled speech.

(And I suspect people who saw that would "comply" with clever games about font size, foreground/background color, etc.)

Seth

This does not sounds right to me. Do you have a law to back it up? I might have a business that sells entirely in TX and pick a website service that happens to be in CA. Then are you saying that my company has a CA nexus, and when my online company starts selling to people in CA then CA sales tax must be collected?

Common sense tells me that nexus means a physical building, not space on a hard drive.

Besides, now when I pick a web hosting company, I have to ask them where they're located. What if they have employees in CA but the data center is elsewhere?

Actually, those games would likely run afoul of the "readily visible" clause.

But even if the notice were put up, I suspect that it would be as effective as the Proposition 65 warnings that are posted everywhere in California (*).

At best, the point of having the notice would most likely be to try to eliminate an "I didn't know about it" defense. (Not that such a defense would actually work, but still).

(*) Proposition 65 requires notice be given about cancer-causing chemicals. This has led to (just about) every commerical establishment posting rather uninformative signs that say "This area/ product contains chemicals known to the State of California to cause cancer and/or birth defects or other reproductive harm.". The goal of the legislation was that disclosure would lead to a reduction in the use of such chemicals, but the combination of extremely vague descriptions and the ubiquitousness of the signs has rendered them entirely ineffective. They are everywhere, from gas stations to grocery stores and apartment buildings.

as was predicted.

"Nexus" in California includes a presence. Having a web site hosted in state is included. Yes, your TX company would have to collect CA sales tax to CA customers.

You are "Leas[ing], stor[ing], or consum[ing] tangible personal property in the district." That does refer to the hard drive on which your web site is stored on - you are leasing/renting it and/or consuming it. There is also this: "...Has any kind of representative operating in the district for the purpose of making sales." Your hosting company is your representative for this purpose, since your relationship with them is to enable you to sell your product. -

Who said tax law had common sense?

It's where your data is stored, not where else they happen to have operations.

Maybe, or maybe not. What if it's a virtual server?

Or, I'm leasing the use of 500GB of disk space, but not any particular portion of any particular disk, hence not tangible.

No, it isn't: they can't represent me. They don't make agreements with third parties on my behalf.

My relationship with FedEx does the same, but they aren't my representative either.

But only if my data is "tangible personal property" which it isn't.

Seth