California’s controversial online sales tax has reaped more than $260 million dollars in just one year of collection, according to newly released data from the California Board of Equalization. While brick-and-mortar businesses collect sales tax, online retailers with offices in California were exempt for years until 2011, costing the state billions in lost revenue. Capital Public Radio reports that 40 percent of the new revenue has gone to the state’s general fund, which is spent on education, Medicaid, prisons, and transportation, among other public programs.
These numbers are in line with forecasts by state budget experts. Still, the BOE estimates that about $1 billion in sales taxes were lost in the last fiscal year, perhaps because Californians are under-reporting their online purchases on their tax forms.
Conservatives fighting similar measures in other states argue that the tax will drive businesses away. Indeed, after Gov. Jerry Brown (D-CA) signed the online tax into law in 2011, online retail behemoth Amazon threw a minor tantrum, abruptly severing ties with thousands of websites in the state. But two years later, Amazon is opening four new California distribution centers and adding 10,000 jobs in low-income regions hit hard by the recession — part of a deal that delayed the company’s tax collection requirement until September 2012. The retail giant is also expanding offices for research and development in San Francisco and Silicon Valley.
Closing the “Amazon loophole” has become an attractive option for cash-strapped states. Amazon will start collecting sales tax on Friday in Wisconsin, Connecticut, and Massachusetts. Besides these, Amazon collects taxes from 13 other states.
The company also now supports the Marketplace Fairness Act, a federal online sales tax initiative that has stalled in Congress. The bill, which would give states the option to require online companies to collect taxes, could generate $23 billion a year — a windfall for struggling state economies. It would also make the tax code slightly more progressive, as poorer families who lack Internet access are currently shouldering more of the sales tax than wealthier people who shop online.