California Sales Tax Rebates: Who Is the Taxpayer?

With the growth in internet commerce, one of the big tax issues is that on-line buyers are not paying sales taxes on their purchases.  One proposed solution is a multi-state compact that would be enforced by the federal government, in which sellers in participating states collect sales taxes and remit the revenues to the purchasers’ states.  Called the Streamlined Sales Tax, the premise behind this is that the purchaser is the taxpayer, and the seller merely collects sales taxes that purchasers pay.

Another way one might look at sales taxes is that the sellers are the taxpayers, but if this were the case, the problem of non-payment would be solved simply by charging sellers sales tax on their sales, regardless of the state of residence of buyers.  This makes sense to me.  If I, as a Floridian, travel to California and buy something in a California store, I pay California sales tax on the purchase, not Florida sales tax, even though Florida is my state of residence.  So, if I buy from an on-line retailer selling from California, why shouldn’t the same principle apply, and the California retailer pay the sales tax on my purchase, just as if I had physically gone to the state to make the purchase?  But, that is not the solution states want.  They claim the tax is on the buyer, not the seller, and that the tax should be remitted to the buyer’s state for on-line sales.

(Note that if California did place the tax on the seller, California has a relatively high sales tax rate that starts at 7.25%, which would put the state at a disadvantage compared to other states.  That’s one reason for the state to argue the taxpayer is the purchaser, not the seller.)

Now, two California cities, Patterson and San Bernardino, are working on a plan to rebate most of the local portion of the California sales tax to Amazon in exchange for their locating warehouses in their cities.  Of course, governments give tax incentives to businesses all the time.  But wait a minute.  Following the logic of the internet sales tax debate, Amazon is not the taxpayer in this case; those who buy from Amazon are.

That means that these cities are proposing to tax people who shop at Amazon and transfer some of the taxes they pay directly to Amazon in exchange for Amazon’s locating their warehouses there.  Tax one party (Amazon shoppers) and pay tax revenues directly to another (Amazon).

Amazon is the organization that would collect the tax revenue from the buyer.  I don’t think redistribution this direct has ever been proposed before.  This proposal would give Amazon the right to directly tax its purchasers and keep the tax revenue for its benefit.

If my logic is faulty here, and Amazon is really the taxpayer, and this really is a rebate, that calls into question the idea that sales taxes on internet sales should be remitted to the state in which the purchaser resides.  Who is the taxpayer, the buyer or the seller?  Can California have this both ways?

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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