California politicians are having a third go at passing an internet sale tax law. Unfortunately, this appears to be the year they will be able to get it passed.

State politicians hate the internet. Why? They can’t control it, particularly when it comes to taxes. As you know by now, you can purchase a book off of Amazon.com and avoid paying any state sales tax to your state. Is this why people do it? Almost never, but it drives state politicians crazy to no end. To fight back, they try to come up with interesting ways to tax companies not in their state. 

California politicians have sought to pass internet sales tax bills three years in a row. The first year, the “Governator” vetoed the bill. The second year, the bill never got very far since it was fairly clear what the governator was going to do. This year, there is a new governor in Sacramento. He’s a tax, tax, tax governor, one who will undoubtedly sign the new internet sales tax bill. 

The key to the bill is the affiliate nexus. States cannot tax companies that are not in their jurisdiction. Most of the internet sites they want to go after, including Amazon.com, are not in California. To get around this, the states argue that they have jurisdiction if Amazon has any affiliates in their state. In the case of California, that is definitely true. 

So, is this going to help California fight its $25 billion budget problem? Not a chance. First, even the politicians think it will only raise a measly $300 million a year. Second, most of the big online companies will simply get around the tax by terminating all their affiliates in the state. This means any extra tax dollars from the sales tax are offset by the lost jobs. 

That seems to refute the point of going after the online companies, no?