A California Chamber of Commerce job killer bill that taxes digital advertising revenue awaits action in the Assembly when legislators reconvene from summer recess on August 5.
SB 1327 (Glazer; D-Contra Costa) implements a discriminatory 7.25% tax on the revenue generated from the sale of digital advertising. The bill is likely unconstitutional and will lead to costly litigation for the state.
Businesses of all sizes and consumers rely on the digital economy, including advertisements, and SB 1327 will drive expenses higher for everyone in California, the CalChamber warned in an opposition letter.
SB 1327’s tax will drive costs higher for Californians since the platforms paying the tax will build those costs into the products they offer in order to offset the new expense.
SB 1327 also will result in interminable litigation as the proposal appears to violate the Internet Tax Freedom Act (ITFA). The ITFA was enacted in 2016 and establishes policy regarding federal and state taxation of the internet. The Act states that a discriminatory tax is any tax on electronic commerce that is not generally imposed and legally collectible by such state or political subdivision on transactions involving similar property, goods, services, or information accomplished through other means.
“SB 1327 would only impose a tax on digital ads which is obviously the assessment of a targeted and discriminatory tax and litigation will result from this law,” the CalChamber said.
A digital ad tax enacted in Maryland several years ago has been the subject of litigation since its inception. Although SB 1327 is different than Maryland’s, the Maryland tax provides a glimpse into California’s future should SB 1327 be signed into law — namely unending and expensive litigation.
