Release Date:
September 14, 2000

Contact: Dawn Dingwell
415-989-0833 x 136

SAN FRANCISCO – Expanding California Internet sales taxes could permanently destroy more than 100,000 jobs by 2002 while generating less than one-half percent (0.47 percent) of the state’s total tax revenue, according to Internet Taxes: What California Legislators Should Know.

The new study by Sonia Arrison and Naomi Lopez Bauman of the Pacific Research Institute comes as California Gov. Gray Davis prepares to take action on an Internet tax bill, passed by the state legislature, that could be the first step toward broader Internet taxes. The study, which uses data from the federal General Accounting Office (GAO) and an econometric model called Cal-STAMP, reveals that expanded Internet sales taxes will dampen California’s booming economy.

"E-commerce has created unmatched prosperity in California. People have higher incomes, and they’re spending more on local retail, property, and taxes," said the authors. "If lawmakers increase Internet taxes, jobs will be lost, offsetting initial increases in the state’s revenue."

States collect sales taxes on the Internet, but only on purchases made from vendors that have a substantial physical presence in the state. State lawmakers have been working overtime on ways to get around this "nexus" standard, established by the U.S. Supreme Court, claiming that Internet taxes are necessary for community services. But according to the study, as Internet shopping has grown, traditional retail sales taxes in California have ballooned.

"California should be proud of the state’s robust economy. The challenge that lies ahead will be resisting attempts to quash this growth through the imposition of taxes," said the authors. "In an era of state budget surpluses, Californians must decide whether taxing the Internet is really worth the trade-off."

Sonia Arrison is the director of the Center for Freedom and Technology and Naomi Lopez Bauman is the director of the Center for Enterprise and Opportunity, both at the Pacific Research Institute for Public Policy (PRI). For a copy of this study or to schedule an interview, call Dawn Dingwell at (415) 989-0833, ext. 136. The study can also be found at http://www.pacificresearch.org/.

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The Pacific Research Institute for Public Policy is a non-profit organization dedicated to the promotion of the principles of individual freedom and personal responsibility. The Institute believes these principles are best encouraged through policies that emphasize a free economy, private initiative, and limited government. By focusing on public policy issues such as health care, welfare, education, and the environment, the Institute strives to foster a better understanding of the principles of a free society among leaders in government, academia, the media, and the business community.