(April 15, 2008) An Assembly policy committee yesterday stopped one of two California Chamber of Commerce-opposed bills that will hurt consumers and the economy and will result in taxes on items never taxed before, such as downloadable consumer and business software and other digital products.

The bills, AB 1840/1956 (Charles Calderon; D-Montebello), place a new tax on digital products and are written in a way designed to avoid the requirement that new taxes be subject to a two-thirds vote of the Legislature.

AB 1956 failed to pass the Assembly Revenue and Taxation Committee, while AB 1840 passed the committee on a party line vote on April 14.

Because of the business-hindering factors in the legislation, a growing list of more than 240 organizations, companies and individuals joined the CalChamber in opposing the proposed “digital” tax bills.

AB 1956 would have imposed an expansive, unprecedented new Internet tax on Californians who purchased digital media, including software, e-books, music, videos, cell phone ring tones, cable television and movies on-demand.

AB 1840 leaves a door open to tax small online retailers and Internet service companies that sell products to Californians via the Internet.

AB 1956 avoided the Proposition 13 requirement for new taxes to be approved by a two-thirds vote by ordering the state Board of Equalization to draft a new regulation to tax digital media without providing the necessary underlying statutory authority. Further, the bill attempted to establish that there is existing authority to tax digital media as “tangible” products by manipulating and stretching terminology in current statutes that provide for sales and use tax.

The CalChamber and other opponents contend that digital media is nothing like tangible products, which is why it has never before been subject to tax. If statutory authority existed for the new proposed tax regulation, no bill would be necessary.

Key Votes

The Assembly Revenue and Taxation vote on AB 1840 and AB 1956 was as follows:

AB 1956 failed to pass on a vote of 4-4 with one abstention.

Ayes: Charles Calderon (D-Montebello), Arambula (D-Fresno), Eng (D-Monterey Park), Feuer (D-Los Angeles).

Noes: DeVore (R-Irvine), Ma (D-San Francisco), Plescia (R-La Jolla), Spitzer (R-Orange).

Absent/abstaining/not voting: Hayashi (D-Castro Valley).

AB 1840 passed the committee on a party line vote, 6-3.

Ayes: Charles Calderon (D-Montebello), Arambula (D-Fresno), Eng (D-Monterey Park), Feuer (D-Los Angeles), Hayashi (D-Castro Valley), Ma (D-San Francisco).

Noes: DeVore (R-Irvine), Plescia (R-La Jolla), Spitzer (R-Orange).

The CalChamber will continue to work to stop AB 1840 as it continues on to the Assembly Appropriations Committee.

Staff Contact: Kyla Christoffersen

Additional Materials

Taxation