Internet Sales Tax

The topic of sales tax on internet commerce, in the state of California, has been highly debated over that past couple years. Some favor the idea of internet sales tax and other are opposed; both sides have pros and cons. The main benefit of the sales tax would be the revenue produced to help fight the large deficit in California. This topic leads to one question. Will the benefits of this new tax outweigh the consequences that it will indefinitely create? In part one of the paper, the benefits of a sales tax on internet commerce will be discussed.

The state of California is having a budget crisis; a new sales tax on internet commerce may provide substantial funding for our deficit. California is on track for a $35 billion dollar deficit in 2003(Krebs). In 2000, Governor Gray Davis vetoed a bill passed by the California Legislature to require online merchants to collect sales taxes (California Considers").

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Now the current deficit has Governor Gray Davis standing farther away from his anti-internet sales tax views (California Considers"). In 2002, Internet sales were at an all-time high of $79 billion ("California Considers"). If the states charged a 7.75% tax on this amount it would come out to revenue totaling approximately $6.1 billion.

2002$72.1 billion

2001$51.3 billion

2000$42.4 billion

1999$25.5 billion

The tax revenue would not be a substantial part of completely eliminating the deficit at this time, it would most likely rise over the next few years with the increasing popularity of the internet. This assumption can be backed up by the San Francisco Chronicle and the statistics on overall consumer online retail sales (see chart left). The online retail sales have risen steadily over the past four years; almost tripling from 1999 to 2002. At this pace, there is a good...