Unconstitutional Tax Scheme Back on the Table in California

Last week, California Democratic Assemblywoman Nancy Skinner announced the introduction of fresh legislation to force out-of-state, online retailers to collect California sales tax– legislation that critics charge amounts to an effort to introduce a new tax in what is arguably already the most heavily-taxed state in the nation.

The move replicates others pursued in years past by Democratic colleagues of Skinner– but notably avoided by Gov. Jerry Brown in his recently announced budget– and by all accounts seems to ignore the overwhelming likelihood that such a scheme would prove unconstitutional if challenged in court (by virtue of the the Quill v. North Dakota decision).

However, Skinner’s legislation is also being challenged on the basis that it would not, contrary to backers’ assertions, help put a substantial dent in the state budget deficit or eliminate or minimize the need for deep budget cuts in order to close it. In fact, using Skinner’s own numbers, it appears that the institution of a so-called “Amazon tax” would strip away a mere 1.1 percent of California’s budget deficit:

(image via Americans for Tax Reform)

Critics say even the minuscule prospective “help” that might be afforded by the institution of Skinner’s new tax with regard to closing the Golden State’s budget gap may represent a “best-case” scenario: Were the new tax instituted, online retailers could well end their affiliate programs, thereby denying affiliates a revenue stream that enabled them to contribute over $100 million to California’s coffers in 2009.

That could mean the new tax could, at worst, leave California further in the hole than it is already, while risking further job losses– one reason why former Gov. Arnold Schwarzenegger, himself no on-principle opponent of tax increases, opposed this particular scheme, vetoing bills like Skinner’s and blocking similar proposals from integration into state budgets he signed.

Skinner, for her part, argues that affiliate advertising programs would not be terminated (opponents say contrary to available evidence from New York and Illinois).

Either way, Skinner’s bill is set to attract further scrutiny as California debates how best to close its budget gap and public sector workers seeking to avoid budget cuts (some of whom are already voicing support for Skinner’s bill) engage more vocally in the debate. Stay tuned to see whether California rejects an “Amazon tax” scheme once again.