SACRAMENTO, CA — In an effort to retire some of the state’s $16 billion budget deficit, California legislators are considering a bill that would tax internet commerce. According to the bill’s sponsor, Assemblyman Charles Calderon (D-Whittier), AB 1956 would raise $500 million by expanding sales taxes beyond tangible items, which have been the only taxable commodities in California for the past 75 years. Under AB 1956, that category would expand to encompass “electronic transmission of information,” as well.Opponents have begun calling the bill the “iTax law” because of its applicability to music at Apple’s online iTunes Store. In reality, though, the tax would apply not only to digital property like music, movies, and games, but also potentially to any online communications or transactions. Free speech advocates say the bill could stifle innovation by discouraging moribund older technologies from dragging themselves into the digital age. Why would they, if they’re just going to be taxed when they do?
Ironically, even e-filed taxes would be subject to the tax, although paper submissions would not.
And this is a cutting-edge idea from a state long known for its environmental consciousness?
Of more concern to some opponents is that Calderon’s proposed tax could cut off Californians from the mainstream Web. It’s perfectly conceivable, they argue, that taxing all forms of electronic transactions — including ads on websites — would force free-to-use, ad-supported websites to begin charging Californians for access. Instead of setting up complicated algorithms to filter traffic and commerce by location, some websites might just refuse to grant access at all to users in California.
Again, opponents want to know: Isn’t this akin to biting the hand that feeds California’s income-tax coffers? Much of the Web’s technology innovation has been grown in Silicon Valley. According to trade association AeA, California maintains more than twice as many high-tech-industry jobs as any other state, and high-tech California workers make more than twice the median national income. In addition to paying income taxes on that money, they also contribute sales and property tax dollars to local communities. With a new tax that penalizes digital entities in a way no other state does snapping at their digits, how long might it take California’s high-tech companies to move somewhere else?
“When you charge these taxes, all these e-commerces are going to move outside of California,” Michelle Steel, a Republican legislator from Orange County, predicted to the Mercury News. “California is the high-tech state; why would you want to kick them out?”
