California Gov. Gray Davis vetoed a bill that would have required sales tax on online purchases made by state residents.

California Gov. Gray Davis vetoed a bill that would have required sales tax on online purchases made by state residents. He also signed a bill banning Internet access taxes for three years; however, the bill won't go into effect as it its passage was contingent on the approval of the Net tax bill. The vetoed bill, AB2412, would have required businesses that operate brick-and-mortar stores within the state and also have online operations to charge taxes to California residents who buy products online. "AB2412 singles out companies that are conducting transactions electronically and attempts to impose tax collection obligations on them to which, according to California courts, they are not subject," Davis said in a statement. "In the next 3 to 5 years, however, I believe we should review this matter." But a sponsor of the bill said Davis' message indicates he missed the point of the bill--to close a loophole. "Ninety-five percent of state companies that are conducting business online are collecting sales tax on Internet transactions. But a handful of companies are not--and the Governor has this issue completely reversed," said Lenny Goldberg, a lobbyist for the Northern California Bookseller's Association. Goldberg said that several companies, such as Barnesandnoble.com and Borders.com, have created subsidiaries outside the state of California for their Internet operations and thus are able to circumvent charging sales tax to California residents.