Calif. law ends tax-free shopping for, other online retailers

New bill could impose online sales tax
Online shopping is quick, convenient and usually tax-free, but Congress is considering a bill that could change all that. Chip Reid reports on the new bill, which could place a sales tax on Internet purchases.

(CBS News) Online shoppers in California are rushing to check out before midnight tonight. That's when and other online sellers begin charging sales tax for state residents.

In San Francisco, Chris Cheng has been on a buying binge. He's purchased a laptop sleeve protector, a camera, and is still shopping. He's aiming this week to cash in before online shoppers in California have to start paying sales tax.

Cheng told CBS News, "I said, you know, 'If I'm going to buy things, I should buy them now before the sales tax starts to be collected.'"

A new California law is requiring Amazon and other large internet retailers to start charging sales tax, just as brick and mortar stores do. It could bring the state $80 to $100 million a year. Across the country, states estimate they lose some $11.5 billion a year in uncollected sales tax.

California Congresswoman Jackie Speier, (D), of the 12th Congressional District, told CBS News, "When you're losing that sales tax revenue, that means it's affecting your roads, it's affecting the resources for local government, it's affecting the resources for education."

So Speier is pushing a bipartisan bill to give all states the authority to make online retailers collect sales tax. Tax-free purchases, she says, have given online stores an unfair advantage.

Speier said, "People come in, they look at the product, they kick the tires. They take the knowledge that the retailer has about that product, then they go onto the phone and buy it on Amazon."

Right now, Amazon collects sales taxes in only seven states. It's set to add seven more by 2016.

According to the National Conference of State Legislatures, states that currently collect sales tax are Kansas, Kentucky, New York, North Dakota, Texas, Washington, Pennsylvania. States that will collect in the future: New Jersey, Virginia, Indiana, Nevada, Tennessee, South Carolina, California.

At first, Amazon fought California over the law, but now it has agreed, not only to collect sales taxes, but also to build two huge distribution centers in the state, creating more than 1,000 full-time jobs.

Cheng said, "I thought about, well, you know that means I can't save that money anymore, but most importantly, Amazon's bringing jobs here to California, which for me that's a big win."

Cheng says he'll continue to shop online where he still expects to find bargains, even if they are no longer tax-free.

Watch John Blackstone's full report in the video above.

  • John Blackstone
    John Blackstone

    From his base in San Francisco, CBS News correspondent John Blackstone covers breaking stories throughout the West. That often means he is on the scene of wildfires, earthquakes, floods, hurricanes and rumbling volcanoes. He also reports on the high-tech industry in Silicon Valley and on social and economic trends that frequently begin in the West.