California governor: No Net taxes

California Gov. Gray Davis on Monday vetoed legislation that would have

taxed Internet purchases from click-and-mortar companies.

"In order for the Internet to reach its full potential as a marketing medium

and job creator, it must be given time to mature," Davis said, adding that

the state should revisit the issue in three to five years.

Under the bill, businesses with physical operations that also operate online

would have been required to charge taxes to in-state residents for online

transactions. According to legislation, the tax would have brought in $14.1

million annually, $9.1 million in state taxes and $5.3 million in local

taxes.

The legislation sought to close a loophole whereby retailers could avoid

collecting sales tax by separating online activities moving them out of

state, according to the bill's sponsor, Assemblywoman Carole Migden (D-San

Francisco).

Davis also signed a bill calling for a three-year moratorium on Internet

access taxes, and another bill to create a commission to examine sales-tax

issues regarding the Internet. The bill, introduced by state Sen. John Vasconcellos

(D-Santa Clara), creates the California Commission on Tax Policy in the

New Economy, which will develop a long-term strategy for Internet-related

state and local tax structures.