California is once again trying to pass an Internet tax. Yet, at the California State Assembly oversight hearing for AB 153 and 155, the Board of Equalization (BOE) raised concerns regarding the potential outcomes and consequences of the legislation. The video below features the Board of Equalization staff’s attempt to explain their recent bill analysis.
When asked how much revenue AB 153 and AB 155 will generate, the Board of Equalization struggled to provide a valid answer. Unable to come up with a credible figure, they describe the methodology behind determining the Board’s figures and the revenue estimates as “subject to considerable uncertainty.”
The BOE’s roundabout explanation confirms what we and others have been arguing all along. The likelihood that the government will actually take in any revenue is dependent upon the willingness of online retailers to continue affiliate advertising programs after the likely unconstitutional law is passed. These are the programs that would give online retailers a presence in California, which the state thinks could allow them to force out-of-state retailers to collect tax. Additionally, it depends on whether retailers using eBay prior to the proposal’s enactment continue to use the company in the same way. However, many retailers have already come forward and given the BOE confirmation that they will terminate affiliate ad programs if the legislation is enacted.
Therefore, the $317 million in revenue which the BOE estimated is not only uncertain, but highly unlikely. The BOE concludes that if companies terminate an affiliate program, which is very likely given the outcomes in other states that have passed the Internet tax, employment will decrease and therefore negatively impact income tax revenue. Consequently, the overall revenue for the state will decrease.
The Board of Equalization confirms opponents’ views that the legislation will kill jobs, drive business out of the state, and will not generate nearly as much revenue as proponents claim.