Internet tax budget gimmick will lose the state revenue

Kelly William Cobb
Executive Director of www.StopETaxes.com and Americans for Tax Reform's Digital Liberty project

When
Assemblywoman Nancy Skinner stood on the steps of the Capitol to announce her
online sales tax legislation, it was no surprise to see the usual suspects dead
set against spending reductions backing her up. But the reality is that
California has a $25 billion overspending addition to solve, and contrary to
Skinner’s claims, her Internet tax budget gimmick will actually lose the state
revenue by putting thousands of Californians out of business.

Skinner
claims her Internet tax proposal – which attempts to force out-of-state online
retailers to collect tax on California sales – will bring in $300 million. That
happens to be double the amount a Board of Equalization report concluded, and
its claims are also questionable.

U.S.
Supreme Court law says California can’t force a retailer to collect tax unless
they are located in the state. Skinner’s bill tries to get around this by
assuming a retailer has a presence in California if they merely advertise
through an in-state affiliate. The reality is, it’s a scheme unlikely to pass
legal or practical muster: to avoid collecting Skinner’s unconstitutional tax,
online retailers will end advertising contracts, putting 25,000 individuals and
small businesses in California out-of-business. This is precisely what happened
in Rhode Island and North Carolina when identical laws were passed.

If the
loss of thousands of California jobs amid 12 percent-plus unemployment isn’t
troubling for Skinner or the unions and spending interest groups that support
her measure, one would think they’d lament the loss of tax revenue after these
advertising businesses close up shop. In 2009, affiliate advertisers in
California earned a combined $1.6 billion in income, paying $124 million in
state income tax. This is revenue that will vanish under Skinner’s proposal,
and it doesn’t even count state or local revenue lost from payroll, property,
sales, and other taxes.

So,
why do Skinner and spending interest groups rally around a constitutionally
questionable measure that will decrease tax collection by over a hundred
million dollars, widen the state’s spending-induced deficit, and put
Californians out of work? Because by raising revenue on paper they allow the
state to maintain current spending levels even if the money never materializes.
That may pass muster with the likes of Marty Hittelman, president of the
California Federation of Teachers, who declared of the measure, "We believe
closing this loophole will be extremely beneficial to education in California
and will provide some relief to schools." But it should not with Californians
who are demanding real solutions to the state’s budget woes, not tinkering
around the edges with clever accounting schemes that put off dealing with the
state’s fiscal problems yet again.

Skinner
knows the many negative outcomes of this legislation. In her three years of
continually re-introducing the measure, she has watched Rhode Island and North
Carolina affiliates lose their jobs as those states failed to raise revenue.
Yet, she pushes on, couching her affiliate Internet tax bill in rosy language
about "fairness" and "closing loopholes."

Skinner’s
colleagues, Governor Brown, and California voters shouldn’t believe the hype.
It’s time to dispense with budget gimmicks and attempts to raise taxes that
double-down on a failed approach to "solving" California’s fiscal problems.

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