California Assemblyman Introduces "iTax Much"

As far as solutions for California’s $14 billion budget deficit go, taxing “digital property” is nearly as outlandish as Gov. Arnold Schwarzenegger’s proposed $4.8 billion cut in education spending.

Yet it’s being bandied about by Democratic State Assemblyman Charles Calderon, whose Assembly Bill 1956 would expand the state’s sales tax to digital goods–music downloads, e-books, pornography and what-not. “The notion of taxing tangible, physical property is really an industrial-era construct when we made widgets and sold widgets,” Calderon argues. “Now it’s not about widgets, it’s about information, and selling information and moving information.”

It certainly is, but is it really prudent to slap an iTax of 8.25% to 8.75% on such information? Especially when those who peddle it could pretty easily create a separate entity out-of-state and avoid it altogether? Driving away e-commerce certainly isn’t going to do California’s budget any good. “When you charge these taxes, all these e-commerce [companies] are going to move outside of California,” said Michelle Steel, a member of the California State Board of Equalization. “California is the high-tech state; why would you want to kick them out?”

Good question. Because if you do force them out, who’s going to provide the state with its massive tax windfalls? From an Associated Press report from January, 2007:

After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes–enough to cover the salaries of more than 3,000 state workers.”