Governor Schwarzenegger’s May budget seeks to remedy California’s $19.1 billion overspending problem with necessary cuts and no tax increases. The Governor believes that more taxes would “punish the people” and are “the worst thing you could do.”

On August 3rd, Democrats in California’s legislature unveiled a budget plan that includes a number of tax increases.

Among the budget’s provisions is the disconcerting proposal of implementing an affiliate nexus tax, Assembly Bill 2078, on internet purchases. This would require out-of-state retailers to collect tax on California consumers and remit it to the state. This is not the first time in California that this business-killing tax has been proposed; it has been rejected in the past and was already vetoed by Governor Schwarzenegger in 2009. 

The plan is called the “Jobs Budget,” a misnomer in that the enactment of the affiliate nexus tax would put California web-based businesses and advertisers out of work, as California legislators could learn from other states that have passed such legislation. Though the online tax proposal claims to raise $100 million on paper, in truth it won’t raise a dime for the state. The bill forces out-of-state online retailers to sever contracts with in-state advertisers to avoid collecting what is an unconstitutional tax. This means no money for the state, and significanly less revenue for California businesses.