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California’s Internet Taxation Will Kill Internet Advertising

California has a penchant for trying to chase businesses out of the state and it appears they are at it once again. The state of California which is now in debt some $40 Billion dollars because of the ineptness of the legislature to cut anything out of their budget, now wants to punish anyone who has a web page and that advertisers for out of state companies. In essence the proposed legislation known as the ‘Amazon Tax’, would require a web site based in California that advertises an Amazon ad to pay sales tax to the state of California.

The unfortunate part of this legislation is that it will be the web sites that will suffer since they could lose advertising dollars if they decide to pull theirs ads from California based web sites. According to a VentureBeat article it also states that:

Here’s how it would work: If you have a web-based business in California and collect revenue by showing out-of-state companies’ ads on your site, Bill AB178 will claim that both you and the businesses you advertise on your site have residence in California, and are therefore required to pay California sales tax. For example, say your Santa Monica-based web site shows banner ads for Amazon.com. With Bill AB178 in place, Amazon.com would be classified as a California-based business based on the fact that your business draws affiliate advertising sales revenue. Amazon would then be required to collect sales tax on all sales into California. The idea behind the bill is that California could force out-of-state retailers to collect and pay California sales taxes.

Sounds pretty reasonable on paper, but the reality is that a large number of those advertisers will simply refuse to work with California’s small online businesses, resulting in lost business income, lost business tax and a large number of lost jobs — which will add to California’s rising unemployment. This is exactly what happened in New York when they passed a similar bill, nicknamed the “Amazon tax”, last year: roughly 200 advertisers stopped advertising on New York-based web sites that were impacted by the legislation.

But what is unclear is how the legislation would impact us here at Lockergnome. Since Google and Kontera are both California based companies, would their ads appearing on our sites constitute companies that would need to collect taxes? Or is it only those who write here at Lockergnome that have ads appear for companies such as Amazon, and who live in California,  make it applicable to collect sales tax?
What are your thoughts about this proposed legislation?
Comments welcome.

12 Comments

All goods bought out of state are subject to use tax. No one pays it but it is still a law. This is just a way to put the burden on companies like Amazon to collect for the state since their own population refuse to.

I’m not sure how this will play out, but the May 19th special election is bound to change everything. Measures 1A through 1 F are meant to close the budget gaps, but I’m sure that at least half of these measures will fail. If Prop 1A fails, we are left with the same problems, and more time for the Governor and the Democrats to work to try to get the intransigent Republicans to compromise…again.

Funny thing is, I’m with the republicans on this one - we all want services, but not new taxes. The legislature doesn’t seem to see that the budget woes are something caused by the same problems that put Arnold in the governor’s office. Once those things are paid for, the problems shouldn’t happen again.

Also, the Prop 1A analysis, part of the voter’s information guide, states that the effects of passage are not completely understandable - great! Just what I want, legislation passed where no one seems to know the outcome. If Californians read the guide, they’ll vote it down - but I think i’m being too optimistic.

Anyway, not to bounce the ball elsewhere, but the originator of this was the AG of NY, Cuomo, trying to make a name for himself. He is the same one that, by trying to rid the Internet of kiddie porn (something everyone should be for) managed to get newsgroup removal from all the big ISPs. The thing no one seemed to notice was that the method of operation the NY AG chose had no hopes of doing what was ostensibly the purpose.

So Cuomo is two for two, bad decisions both, and ones that bring misery to many others, not located in New York state.

‘Also, the Prop 1A analysis, part of the voter’s information guide, states that the effects of passage are not completely understandable - great! ‘

LOL It should be interesting!

[...] small online businesses, resulting in lost business income, lost business tax and a large number [...] Budget 2009 The Fallout (from Sunday Herald) Swinney was outraged by the Budget and [...]

[...] small online businesses, resulting in lost business income, lost business tax and a large number [...]Letters to the editor: retiree medical costs,corporate … Retired folks are much safer targets, [...]

Hey all lets punish the entrepreneurs and the small businesses and lets make foreign companies pay tax to us.

The internet is a global entity and thus should not be taxed by any one single country of state. Yes tax google but don’t tax those using googles add services.

I am getting the right end of the stick here aren’t I?

@Prydie

Why. Tax the internet?

Israel had a law proposal for internet tax, but decided to deny it,

the internet started as the true free communication between countries, that had no boundaries, it started (beside the US army ARPANET that used as the internet core) with universities connecting themselves to each other (for free) and companies that connected to each other and eventually we got the ISPs…

if governments will start territories the NET then probably an alternatively internet will arise based on companies and privates donating their computers and lines, kind of a private net,

it happened to the old BBS computers and lines (for other reasons) it will happen to the internet if it will be: censored, taxed, limited, monitored and commercialized more than it is.

way back when (aprox 1994) when my friend talled me about the internet and converted me from BBS, he did not allow me on the net until i read the document called “Netiquette” which stated the do’s and don’ts of the internet (like no cursing, no advertising, no spamming…) where is it now? the government and companies have taken over the net, it is not the free communication of people any more, and it hasn’t been such for a long long time.

[...] small online businesses, resulting in lost business income, lost business tax and a large number [...]Budget 2009 The Fallout (from Sunday Herald) Swinney was outraged by the Budget and Darling's [...]

[...] small online businesses, resulting in lost business income, lost business tax and a large number [...]Business girds for battle on sales tax By Matt Viser Business groups have started mobilizing to [...]

[...] small online businesses, resulting in lost business income, lost business tax and a large number [...]Business girds for battle on sales tax By Matt Viser Business groups have started mobilizing to [...]

[...] Internet Taxation Will Kill Internet Advertising [...]

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