In California, a state already grappling with high operating costs and various urban challenges, small business owners face yet another potential hurdle. Senator Steve Glazer has introduced Senate Bill 1327, proposing a substantial tax on online advertisements, which could significantly impact the small business sector.
This legislation proposes a 7.25 percent tax on digital ads purchased by small businesses on various advertising platforms. Given that small enterprises heavily rely on these digital channels to attract customers, the additional financial burden could be substantial. This move comes at a particularly challenging time for local businesses, which are already dealing with the effects of inflation, recent increases in gasoline taxes, local tax hikes, and rising incidents of shoplifting.
A recent poll revealed that 68 percent of Californians believe they are already overtaxed at the state and local levels. Despite this, the new tax, according to critics, will not directly benefit these small businesses or the average household. Instead, the revenue generated would be redirected through tax credits to subsidize media outlets. This has raised concerns about potential conflicts of interest, as these organizations often cover the very government officials who would control these subsidies.
Comparisons are being drawn to a similar digital advertising tax implemented in Maryland, which has faced legal challenges since its inception. Maryland’s comptroller has publicly criticized the tax, suggesting the state should cease defending a law that was “constitutionally questionable at the time of enactment.”
California’s lawmakers are urged to consider the precedent set by Maryland’s experiences. The Internet Tax Freedom Act, enacted during the Obama administration, explicitly prohibits discriminatory taxation on electronic commerce, highlighting the potential legal challenges that such a tax could face.
For small business owners and solopreneurs in California, the proposed tax represents not just an increase in costs but also a significant operational challenge. With the landscape of digital advertising evolving, such a tax could disproportionately affect those who rely most on digital platforms to reach their audiences.
