The California Senate passed a measure Thursday that would force some out-of-state businesses, such as the No. 1 personal computer maker Dell Inc. , to collect tax on sales made on the Internet to residents of the nation's most populous state.

The amendment to the state's tax code, which passed on a 23-4 vote, would require out-of-state companies that hire local firms to install or service products such as computers to collect sales tax.

Passage of the bill, which now heads to the Assembly, comes as state lawmakers attempt to plug a $35 billion budget gap over the next 15 months.

The new tax rules could increase costs for firms such as Texas-based Dell, the top direct seller of computers, which until now has not had to collect taxes for sales to California.

By contrast, Dell's top competitor, Hewlett-Packard Co. , which is based in Palo Alto, California, does have to collect state sales tax. The tax levy can add more than $100 to the price of a more advanced computer, a provision of the current tax code critics say penalizes California companies.

Combined state and local sales taxes in California are among the highest in the nation and range from 7.25 percent to 8.5 percent. State officials are now considering a possible 0.5 percent hike in the state sales tax to help cover a growing budget deficit.

The bill also toughens standards against firms which have Internet subsidiaries that are linked to stores in California. It defines such retailers as those with "a substantial ownership interest, directly or through a subsidiary, in a retailer maintaining sales locations in California."

Full Article:
CNN News