Recently, the California Budget Project (CBP), a group advocating for  various tax increases during this year's budget crisis, has called for enacting a tax on all goods purchased online, known as the "Amazon Tax."  The call comes despite opposition from Gov. Arnold Schwarzenegger, who vetoed the measure earlier this year.

 

Specifically, CBP’s recommendation is:

 

Aggressively collecting sales and use taxes owed on electronic sales. This would help level the playing field for retailers that have a physical presence in California by ensuring that purchases from out-of-state retailers are subject to the same tax as those made from in-state businesses. The state can boost collections by requiring businesses that enter into "affiliate" relationships with in-state entities to collect California sales tax and by imposing the sales tax on digital downloads.

 

Yet, CBP would do well to look at the fiscal note attached to a similar bill from Rhode Island this year, which found that because out-of-state retailers would end their “affiliate relationships” with in-state businesses to avoid charging residents the tax, the state would not raise any additional revenue anyway.

 

In fact, taking ramifications one step further, since the tax would cause businesses in California to loose out-of-state retailers as clients, a more likely scenario is that business income would drop, resulting in less income tax collection overall. As tax revenue in California has dropped by 5.3% in the past three months – mostly due to lower income tax collection – an “affiliate” tax will only worsen the state’s budget crisis.

 

CLICK HERE to write your lawmaker and help quell support in legislatures around the country for taxing the internet.