Later, a live discussion on chinas incoming government and that nations growing international role. Well, the issue of an Internet Sales tax has reared up again and, in fact, the u. S. Congress and many states are looking at this issue, and thats our topic this week on the communicators. Now, we want to start off by talking with the chairman of the california state board of equalization, Jerome Horton. Mr. Horton, california has recently changed how it manages or its taxation policies when it comes to the internet, hasnt it . Guest yes, peter, it has. It broadened the definition of whats taxable in california to include online retailers who meet certain criteria. Host now, you said youve broadened. How was it before, and now who is included . Guest prior to the law, the sales tax didnt apply to companies that had affiliates and worked through various different groups here in the state of california. The law broadened the definition of who actually qualifies to include those individuals. So now online retailers who have affiliates in the state of california who also have some form of brick and mortar either directly or indirectly working through other groups and partnerships and so forth have nexus in california by the definition of California Law and, therefore, are required to collect and report the use tax to the state of california. Companies that are now included would include amazon, best buy and walmart that are making sales online. There are other criteria that you have to make a Million Dollars, i believe, in total revenue and 10,000 a year to california consumers or something along those lines. Host now, mr. Horton, how much in revenue does the state of california expect to generate through this new taxation policy, and whats the rate of taxation . Guest peter, the rate varies depending on the destination where the product is delivered, but its somewhere around 9. 75 . The total revenue that the state of california anticipated that it was losing was 1. 4 billion. We believe that this new law will allow us to collect, generate an additional 317 million a year of which approximately 83 million is attributed to amazon alone. Host now, 9. 75 , is that the same as the state sales tax . Guest the tax rate is exactly the same as the state sales tax. It varies the total rate varies because we have in california a destination tax, so it depends on where the product is actually delivered, and there are other, other transit taxes and Bradley Burns taxes that are included in the overall rates. Host Jerome Horton is chairman of the california state board of equalization. Thank you for giving us an update on whats happening in california. Now, we want to introduce you to a couple more folks. First, Steve Delbianco of a group called net choice, and joe crosby with the retail leaders association. Mr. Delbianco, what is your group, and whats its position when it comes to this Internet Sales tax. Guest net choice is a coalition of Ecommerce Companies and online platforms. If you had the authors of our constitution in here today, theyd have said they were really worried 225 years ago about the colonies erecting tariffs and trade barriers to protect their own businesses, so article i in the u. S. Constitution says that the states cant regulate interstate commerce, only congress can. So our position, california has decided to get aggressive at determining who has presence in california, but thats in keeping with this constitutional provision. California is simply saying that if you have presence here through some interesting definitions, youve got to collect for california. So it really doesnt interfere with interstate commerce because theyre considering any who has an affiliate this to already be a california company. Host so two things. Name a group thats name a corporation thats a member of netchoice, and are you, so are you sportive of what california has done . Guest oh, our members are folks like ebay, paypal, overstock, facebook host amazon . Guest amazons not. Host okay. Guest companies that have platforms for ecommerce that enable a lot of other businesses to get online as well, and our position is that california has probably taken too aggressive a step at asserting you have presence in california simply because you paid for an advertisement there. But im gratified to see that california set a very, very reasonably high, smallseller exception. And they have to do a million a year in california and 10,000 a year through these partnerships and affiliates, and at that level of smallseller exception, i think thats a pretty appropriate one of insulating the small firms from burlds they could never afford to bear. Host joe crosby is with the retail leaders association, whats your groups position on an Internet Sales tax . Guest thank you, peter. We represent retailers across the board including some of the larger retailers of the country and in the world, and theyre interested in seeing after 20 years of discussion and debate a level Playing Field created, as steve says, through the congress. The congress ultimately has the authority to regulate interstate commerce, and we think its appropriate with some of the simplification included in those legislations to make it so that all retailers above a certain threshold can collect taxes in all the states where taxes are legally due. Host so, mr. Crosby, what california did, is that simplification in your view and do you support it . Guest well, we support the activities california has undertaken, and i think the important thing to understand is california, as steve said, is doing everything it can under the limitations that the Supreme Court has placed upon the states. Ultimately, congressional interaction is necessary, intervention is necessary to insure that retail is treated similarly across the board so that anyone who is selling is collecting tax where the tax is owed and doing so in a way that they can do easily enough with whatever similarlyifications Congress Might impose. Host and we want to introduce you to one more member of our panel, this is Cara Griffith with state tax notes, she is the legal editor and our guest reporter. Thank you. Thank you so much for having me. Its a pleasure to talk to you guys and get your thoughts on this. As you both mentioned, weve got several bills pending before congress, and it seems as toe we need though we need some sort of federal intervention to get this issue taken care of. Are we going to see any movement on the bills that are pending . Guest thats a great question. It is a foolhardy thing to protect congressional action especially when theyre out now and will be coming back for a relatively short period of time. Were optimistic, were working very hard. Theres a lot of interest, as you know, this year has been unprecedented in terms of the Attention Congress has given to this, so were continuing to work dill gently on it and are hopeful that when congress resumes its work, that therell be an opportunity to move this forward, one of the various bills that is out there. Guest yeah, carrie, there has been movement, and i testified at each of the last two hearings on these bills, and i think that movement is constructive because its focusing on Congress Role on protecting interstate congress and what kind of implications they can require before they allow states to export their burden on businesses that arent even having in those states. So thats a conversation im glad were having, and were having an opportunity to talk about multiple rates per state. The states havent all agreed for a single filing form. So i think were on the right track, but will it happen in 2012 . I doubt it. Now, in terms of the simplification that we need, um, what are your thoughts . Are one of the bills better than another . Are there things that congress should focus on that they havent yet . Guest the legislation differs in the kind of minimum simplifications, the quid pro quo it puts on the states in order to let them export their tax collections. They all include the notion that states have to provide some sort of software. But you see, its not enough to have software that looks up a rate for a given home address. Softwares also got to do Electronic Filing for the states, automatic remittance to every state, and looking beyond software, there has to be compensation for vendors. Software installation is expensive, handling questions from customers in 46 different states and handling audits is going to be expensive for business. Were going to need to streamline the rates and definitions. These bills dont even area require every state to have the same definition for items that are taxable. Now, in terms of providing software, where are the states going to come up with the money to do this . Weve such a difficult period of budget area concerns. Is that going to be a factor . Guest joe and i have both been engaged with the streamline sales project, joe even longer, and streamline has several Software Vendors who have agreed to develop, certify and Deploy Software as long as they get to keep a piece of the sales tax thats collected, and they dont always do all the integration that the vendors and retailers and Small Businesses of america need. And thats where some more congressional leadership is going to be needed. Guest and i think these things can definitely be worked out. For me, its exciting that after almost 15 years of working on this sitting next to steve here that were not talking about whether this should be done, but how it should be done, and i think that shows how the debate has evolved. Its been going on for much longer than that. I think theres a general recognition now that theres no principled reason either legally or economically that sales taxes should not be collected on remote sales. And with regard to the simplifications, the bills do vary somewhat, in fact, they vary from bills that have been out there previously. And i think it reflects congress normal balancing of the needs of interstate commerce versus the sovereignty rights of the states. And the Supreme Court has stepped in here, as you know, and said, well, here is the line. But its up to congress ultimately to determine where the line should be placed, and i think thats what theyre doing now in the discussioning thats being engaged on in capitol hill, what is the right balance to insure that the Playing Field is level for all sellers while not unduly burdening sellers that dont have a physical presence in a state or putting too much of a burden on smaller sellers. So i think all those things are going on right now, and i agree with steve this is moving forward in a productive way and hopeful well get activity soon. Host but, mr. Crosby, if you represent a macys or a walmart, they sell online plus brick and mortar. Guest right. Host so wheres the lost revenue for them . Is there lost revenue for them . Guest the revenue is the states revenue. So the retailers are simply collect it on behalf of the states. Host but one of the arguments that brick and mortar places have said is we lose revenue because its cheaper to buy online. Guest the competitive advantage of a seller thats not required to collect tax has, Jerome Horton was just talking about the rate on average in california, its about 9. 75 . So you have that differential. Of course, the consumer has a legal responsibility to remit taxes where theyre not collected from by the retailers, the socalled use tax, but very few folks do that. For most consumers, by now this is your last Taxfree Shopping day. Thats not entirely accurate, it wasnt taxfree, but it wasnt going to be collected from the seller, and then youre up to you and the man in the mere roar to mirror to determine whether thats going to be paid or not. Host fairness is when everyone plays by the same rules. Every business collects and files sales tax for every place that has a physical presence. So every Online Company collects and files where they have stores. This is a move to let states force businesses who dont have a presence in their state to collect. And that really shifts a disproportionate burden on those, we call them remote retailers, folks that are out of state. In california i know that mr. Horton told us part of his wall was to Kaptur Walmart capture walmart and target. Com. Whats new is that amazon began collecting a week ago in california, and amazon, as mr. Horton said, is a big part of their expected revenue. So if, in fact, the fairness argument and the level Playing Field is really so important, well, i guess a week into it wed expect a lot of of stores in california to see growing sales as customers flock into their stores instead of buying online. Well, dont hold your breath. Thats not likely to be the case. People buy online for convenience, for choice and for lower prices without even getting into the sales tax. Host is e bay, mr. Delbianco in your view, an exception since its often many used items . Guest well, i would say that less than half of e pay is used ebay is used items. Ebay is a platform, like a classified ad, a platform for other sellers, and its a fabulous platform for companies who would otherwise never reach that audience. And ebay is a california company. But with ebay was only looking out for the interests of small sellers from the United States who occasionally had california purchasers, right . Should a small pennsylvania business that uses ebay to reach customers suddenly have to collect, remilt, file and face audits from california because it has a handful of customers . Im glad they said the answer to that was no. They had to be doing at least a Million Dollars in california before they had to start looking in the eyes of the challenging of collecting for that state. Host carrie griffith. But if you had an ebay seller who reaches that limit, then they are guest if they are a million in california plus at least 10,000 a year that they spend with a california web site or publisher which would be the nexus to california since that california business would be in the eyes of the boe, theyd be acting as their agent. Okay. Guest id like to just take a moment to get back to the idea of fairness, and fairness is a concept that, ultimately, is interpreted by the individual, and steve posited it as its only fair because of the physical presence that the retailer has there. But certainly theres fairness when you have a marketplace, a country where there are very few limits to very few barriers to commerce that all of the sellers are affected. And certainly although people shop online or in stores for a variety of reasons, if you just looked at all the news articles coming out of california, youd be hard pressed to convince me that not paying tax wasnt one of them because that was deriving all of the reporting on this. I find it hard to believe that the papers would cover it like that if there was, in fact, no interest by consumers. Guest if i could follow up on that, its a great point. But you can also learn a lot about watching what the most affected company is telling its wall street analysts and purr sunt to the securities and Exchange Commission rules, amazon. Com told analysts, they probed them and said youre about to start collecting sales tax, isnt that going to put a dent in your sales . Oneseventh of the u. S. Economy is the largest market for amazon. The answer was an unequivocal no. Theyve begun collecting in many states, and they dont see an appreciable hit to their sales. People arent buying on amazon to avoid the sales tax. They pay the shipping, they have to stand in line at the post be office or ups store if they want to return something. So its really not about the sales tax. And if california businesses are looking for to save them, they have another thing coming. The biggest threat is the walmarts and targets and shopping malls, and its really not the internet. But in terms of fairness, and lets kind of take it to the Small Business, collecting sales tax seems to be a huge burden on and some of your Small Businesses are going to be below some of the thresholds, but still going to be some of those that are relatively small, theyve got a National Presence because theyre online. It seems very buddensome burdensome for them to have to figure out their sales Tax Liability for thousands of jurisdictions. Is it fair then to ask them when they stand to lose money that they nonetheless have to collect and remit sales tax in. Guest you know, i think certainly there is, obviously, an Administrative Burden to collecting sales tax that all sellers that collect sales tax today face, and i think thats one of the important things about the congressional legislation, is making sure that the Small Business exception is set at a level so as not to burden those small retailers and sufficient not through just the simplifications, but also through the provision of software that works, that those smaller and even midsized businesses dont pay any more than necessary to deal with the collection costs. But i think its also important to note there are small sellers across the country who are supporting this legislation, including small ebay sellers. There are folks on both sides even when you get down to the Small Business level. T not as if its monolithic, you have Small Businesses on both sides of this, and you have large businesses. Ebay has not been a fan of this legislation in the past despite the fact it doesnt sell anything, many of its small sellers have come out publicly in favor of this legislation. Guest , you know, fairness is a big position of it is where you sit right now. Amazon, for instance, will be collecting for over half the u. S.