What California's Retroactive Sales Tax Means to Online and Out-of-State AV Retailers and Consumers Alike

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California_state_flag.gifWhile the state of California has basically made marijuana legal but doesn't tax the sale of the sticky-ikky-ikky, those in Sacramento want all of the sales tax revenue they can get on everything else that companies and people buy online and out of state. For this year's tax return, the state is asking for you to pay tax on everything that you bought out of state and/or via the Internet that didn't have sales tax. While a 20 percent luxury tax on all of the mind-numbing weed the residents of the state could smoke/eat/vaporize would generate more revenue - the state is setting a moneymaking trend that could deeply impact the world of specialty audio video nationwide.

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Growing up in Philadelphia - everyone in the area knew that the state of Delaware has no state tax and for big purchases they would go across the border to save a few bucks. The leading high end audio store in the area at that time was SoundEx in Willow Grove, Pennsylvania. Located purposefully close to the Pennsylvania Turnpike, the retailer had a robust clientele from The Big Apple and well-heeled parts of New Jersey and elsewhere on the Eastern Seaboard. These customers knew that the now-defunct audiophile retailer would meet or beat the best prices in New York City but could additionally add an eight percent margin because of sales tax. This closed for SoundEx more than one big audiophile sale that included "free shipping."

The out of state purchase is no new concept for the audiophile customer and is one of the reasons why many of today's high end retailers refuse to "floor" the big ticket AV items. The store owners say that for every one person who buys a product that the retailer paid to put on the floor - there are many more who buy used from Audiogon.com or seek going out of state to save tax. With the astronomical prices of today's best audio gear - the savings can be enough to pay for a private jet, let alone warrant $100 in fuel to drive across state lines.

California has been a political and cultural trendsetter for a long time and as much as the Tea Party wants to solve the nation's problems with spending cuts - generating new streams of revenue accomplishes the same effect from the opposite direction. Every state in the union needs money badly right now. Don't be shocked to see them copying California by next year. And note: California wasn't just asking for corporate and personal sales tax from 2010 - they want 2009 and 2008 as well.

Read more on Page 2.

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Interesting questions now arise around the vibrant, nichy world of private party audio sales. As much as it may anger some audiophile manufacturers - Audiogon.com brokers or facilitates more high end audio sales than all of the specialty retailers combined in any given month. Does someone who buys a pair of used, out-of-state Wilson Audio WATT Puppy 5.1's have to pay sales tax on them? It looks like the state is saying "yes" just as they would if you bought a used Porsche 911 and tried to register in the state. They want their money and they aren't messing around.

With sales tax close to 10 percent in certain parts of California (a state whose economy would make it the seventh largest nation in the world in terms of tax revenue) - will people buy local instead of buying online with that nearly 10 percent price cut seemingly gone? California retailers sure hope so, as does the state. The online retailers known for their low prices and Free Shipping will have to potentially cut even deeper into their margins to make an online sale out of state.

Another option is for companies and consumers alike to play "audit roulette" with the state tax board. As the nickname implies - that is a risky proposition, as getting caught, you will not only owe the taxes but you will also owe steep penalties for trying to get around the system. Consumers and private party resellers could try to fake invoices to show the sales for lower amounts - which is also potentially risky but is not unheard of, as when cars are sold on the used market.

At the end of the day, it's hard to beat City Hall or in this case Sacramento as they want/need to get paid. It's easy to see the potential effects of this fair use tax for both positive and negative results. If home theater and audiophile consumers bought more locally - there would be more business done in the state. There would be more dealers looking to sell a more diverse amount of products and beyond. With nearly 10 percent tax on items ranging from a new plasma to a pair of hot new speakers and everything in between that we might want to own - making a big investment in our home theater system just got about 10 percent more expensive. There is only so much money to spend and if the state is taking a bigger cut, wouldn't that make the sale smaller?


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