Anne – Amazon doesn’t have to collect sales tax in CA because it doesn’t have “nexus” – a physical presence. However, California buyers owe “use tax” at the same rate and you can report it on your CA income tax form 540.

iTunes doesn’t need to collect sales tax from you and you don’t owe use tax because what you are getting isn’t “tangible” which is what CA sales tax applies to – “tangible personal property.” Some states interpret that term more broadly than does CA and some states have updated their law to include digital goods, such as New Jersey.

As we continue to consume more intangibles and services, and less tangible personal property, California’s sales tax base erodes and is one of a few reasons that CA has budget problems. CA needs to broaden the sales tax base, lower the rate and can even do that in a way that raises revenue if needed. I have more on this topic at a website I call “21st century taxation” which is what we need to do with our 20th century federal and state tax systems – move them into the 21st century ways of living and doing business.

http://www.cob.sjsu.edu/nellen_a/TaxReform/21st_century_taxation.htm