SACRAMENTO – A measure that could force consumers to pay sales tax on downloaded music, books, ring tones, games and movies was narrowly rejected by an Assembly panel Monday after strong opposition from companies that do business in Silicon Valley.
AB 1956 failed in the Revenue and Taxation Committee when Assemblywoman Fiona Ma, D-San Francisco, voted “no” and Assemblywoman Mary Hayashi, D-Hayward, abstained. The measure drew four votes; five were needed for passage.
Hoping to keep his revenue-raising measure alive, Assemblyman Charles Calderon, D-City of Industry, who chairs the committee, will be granted a “reconsideration” vote possibly as early as next week.
Ma, though, said she would again oppose the bill.
The measure asks the state Board of Equalization to reclassify digital downloads as “tangible personal property.” That, in turn, would require companies doing business in California to charge sales tax to California residents who buy their electronic downloads.
About 130 companies and organizations registered formal opposition to the measure. Only six groups were listed as being in support.
“We don’t think this legislation is necessary,” said Greg Turner, a lobbyist for the American Electronics Association, which has 2,500 member companies nationwide, including Apple, whose iTunes online store is the most popular legal download music site. “It’s not just about digital equivalents, it’s much broader than that,” he warned the committee, adding that passage of the law might lead to taxing of consumers’ financial information and research data.
Other firms and organizations against the bill included Yahoo, Microsoft, TechNet, cable television operators and the California Manufacturers and Technology Association. Representatives of the recording industry and the motion-picture industry, meanwhile, said the law would increase piracy.
Most in favor of the measure were representatives for government workers, teachers, police officers, firefighters, county governments and tax reformers.
“This bill takes a very smart approach to the issue,” said Lenny Goldberg of the California Tax Reform Association.
Calderon, who proposed the measure to help bridge the state’s $8 billion budget shortfall, believes California loses at least $500 million in annual revenue by not charging sales tax on downloads.
Although he emphasized repeatedly that his bill merely asks the Board of Equalization to study the effect of a download tax on state revenue, he also asked that the board “include a draft regulation that might be adopted.”
Calderon also observed that the board can decide to tax downloads without being directed by the Legislature.