Amended in Assembly March 29, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2184

Introduced by Assembly Members Low and Calderon

(Coauthors: Assembly Members Bloom, Irwin, and Salas)

February 18, 2016

begin delete An act to add Part 16 (commencing with Section 35100) to Division 2 end delete begin insert An act to amend Section 30166.1 end insert of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 2184, as amended, Low. begin delete Taxation: Internet access: prohibition. end delete begin insert Cigarette tax: stamps and meter machines: report. end insert

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The Cigarette and Tobacco Products Tax Law imposes a tax on distributors of cigarettes at the rate of $0.87 per package of 20 cigarettes. That law requires that tax be paid through the use of stamps or meter impressions, and requires that these stamps or meter impressions be affixed to each package of cigarettes distributed. That law requires stamps and meter register settings to be sold at their denominated values less 0.85% to licensed distributors.

end insert begin insert

Existing law, no later than July 1, 2005, required the Board of Equalization to submit a report to the Legislature that evaluates the average actual costs, including labor, for applying indicia or impressions, bonding, warehousing, and leasing stamping equipment, including case cutters and packers, associated with applying stamps or meter impressions to cigarette packages and requires that report to be updated every 2 years.

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This bill instead would require a report making the same evaluation to be submitted to the Legislature no later than January 1, 2018, and would require that report to be updated and submitted to the Legislature every 2 years.

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Existing law imposes various state income, franchise, property, and excise taxes and various user, regulatory, and franchise fees in connection with activity or property within the jurisdiction of this state. Existing law authorizes counties, cities, and other local agencies to impose various taxes and fees in connection with activity or property within those jurisdictions.

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This bill would prohibit the imposition by the state and any political subdivisions of the state of a tax on Internet access or use of Internet access.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert Section 30166.1 of the end insert begin insert Revenue and Taxation
Code end insert begin insert is amended to read: end insert

30166.1.  

begin insert (a) end insert begin insert   end insert No later than begin delete July 1, 2005, end delete begin insert January 1, 2018, end insert the
board shall submit a report to the Legislature that evaluates the
average actual costs, including labor for applying indicia or
impressions, bonding, warehousing, and leasing stamping
equipment, including case cutters and packers, associated with
applying stamps or meter impressions to cigarette packages. begin delete This
report shall be updated every two years. end delete

begin insert

(b) (1) A report to be submitted pursuant to subdivision (a)
shall be submitted in compliance with Section 9795 of the
Government Code.

end insert begin insert

(2) Notwithstanding Section 10231.5 of the Government Code,
the report required by subdivision (a) shall be updated and
submitted to the Legislature every two years.

end insert

begin delete

SECTION 1.  

Part 16 (commencing with Section 35100) is
added to Division 2 of the Revenue and Taxation Code, to read:

 

PART 16.  California Internet Tax Freedom
Modernization Act of 2016

 

35100.  

This part shall be known and may be cited as the
California Internet Tax Freedom Modernization Act of 2016.

35101.  

The Legislature finds and declares all of the following:

(a) Due to the continued uncertainty created by the United States
Congress’ failure to make permanent the federal Internet Tax
Freedom Act, it is the intent of the Legislature to provide California
consumers with certainty that Internet access will never by
burdened by rates of taxation that are discriminatory in nature.
This concern is especially pertinent because most Californians
have never paid taxes on their Internet access.

(b) The Internet is inherently a matter of interstate and foreign
commerce within the jurisdiction of the United States Congress
under Section 8 of Article I of the United States Constitution.

(c) The electronic marketplace of services, products, and ideas
available through the Internet or online services can be especially
beneficial to all Californians, regardless of age, ethnicity, or gender,
as well as the physically challenged, citizens in rural areas, and
small businesses. It also offers a variety of uses and benefits for
educational institutions and charitable organizations.

(d) Taxes imposed on Internet access or online services by state
and local governments could subject consumers, businesses, and
other users engaged in interstate and foreign commerce to multiple,
confusing, and burdensome taxation, thereby resulting in additional
costs that could reverse the trend of broadband adoption throughout
the state. This could threaten Internet access for Californians at
home, work, and school, and is counterproductive to established
state policies, such as the promotion of telecommuting.

(e) Companies providing Internet access are making substantial
capital investments in new plants and equipment. Multiple and
excessive taxation could place that investment at risk, and
discourage the expansion of investment in Internet access
equipment, thereby placing California at a long-term competitive
disadvantage.

(f) Services provided by local governments are important and
valuable to both consumers and businesses, and this act is not
intended to interfere with existing sources of revenue that provide
funding for local government services. This act is intended to
impose a moratorium on new taxes imposed on Internet access
and online services, as well as the discriminatory application of
existing or new taxes, as defined herein, to Internet access or online
services. Nothing in this act shall be interpreted as precluding the
imposition or collection of new or existing taxes of general
application that are imposed or assessed in a uniform and
nondiscriminatory manner without regard to whether the activities
or transactions taxed are conducted through the use of the Internet,
Internet access, or online services.

(g) A uniform and coherent national policy concerning national
and subnational taxation of the Internet and online services, in a
manner which does not unreasonably burden interstate and foreign
commerce, may be developed by the United States Congress, acting
pursuant to the powers granted to it by clause 3 of Section 8 of
Article I of the United States Constitution. Until that national
policy is developed, and determined by the Legislature to be in
the best interest of the people of the State of California, a limited
preemption of local taxing authority of the Internet and online
services is appropriate.

(h) Currently the state is not imposing any discriminatory taxes,
within the meaning of this act, on Internet access or online services.
It is the intent of this Legislature that no existing or future state
taxes or state fees be imposed by the state in a discriminatory
manner upon Internet access or online services. This statement of
legislative intent is meant to place the greatest possible barrier to
the creation of discriminatory taxes or fees upon this Legislature
and all future Legislatures.

(i) The Legislature finds and declares that no local government
is currently imposing or collecting any tax on Internet access or
online services, and further that no local government should impose
or collect any tax on Internet access or online services that is
discriminatory within the meaning of this act.

(j) For these reasons, the Legislature finds that, subject to certain
exceptions designed to protect existing local government revenue,
preemption of local government authority to levy taxes on online
services and access to the Internet is a matter of statewide concern.

35102.  

(a) The state and any political subdivision of the state
shall not impose, assess, or collect a tax on Internet access or use
of Internet access.

(b) For purposes of this part, all of the following definitions
shall apply:

(1) “Direct costs” means costs incurred by a governmental
authority solely because of an Internet access provider’s use of the
public right-of-way, that is determined in a manner consistent with
generally accepted accounting principles, but does not include
costs that the governmental authority would have incurred if the
Internet access provider did not make such use of the public
right-of-way.

(2) “Internet” means collectively the myriad of computer and
telecommunications facilities, including equipment and operating
software, which comprise the interconnected worldwide network
of networks that employ the Transmission Control Protocol/Internet
Protocol (TCP/IP), or any predecessor or successor protocols to
that protocol, to communicate information of all kinds by wire or
radio.

(3) (A) “Internet access” means a service that enables users to
connect to the Internet to access content, information, or other
services offered over the Internet, without regard to whether the
service is referred to telecommunications, communications,
transmission, or similar services, and without regard to whether a
provider of the service is subject to regulation by the Federal
Communications Commission as a common carrier under Section
201 and following of Title 47 of the United States Code. Internet
access includes all of the following:

(i) The purchase, use, or sale of communications services,
including telecommunications services by a provider of a service
described in this subparagraph, to the extent the communications
services are purchased, used, or sold to do either of the following:

(I) Provide that service.

(II) Otherwise enable users to access content, information, or
other services offered over the Internet.

(ii) Services that are incidental to the provision of Internet access
when furnished to users as part of that access, such as a home page,
electronic mail and instant messaging, including voice- and
video-capable electronic mail and instant messaging, video clips,
and personal electronic storage capacity.

(iii) A homepage, electronic mail and instant messaging,
including voice- and video-capable electronic mail and instant
messaging, video clips, and personal electronic storage capacity,
that are provided independently or not packaged with Internet
access.

(B) “Internet access” does not include voice, audio or video
programming, or other products and services, except services
described in clause (i), (ii), or (iii) of subparagraph (A), that utilize
Internet protocol or any successor protocol and for which there is
a charge, regardless of whether that charge is separately stated or
aggregated with the charge for services described in clause (i), (ii),
or (iii) of subparagraph (A).

(4) “Political subdivision” means a city, county, or city and
county, including a charter city or county, any special district, or
any other local or regional governmental entity.

(5) (A) “Tax” means a tax as that term is defined in subdivision
(b) of Section 3 of Article XIII A of, or subdivision (e) of Section
1 of Article XIII C of, the California Constitution.

(B) “Tax” does not include any franchise fee or similar fee
imposed by a local franchising authority, pursuant to Section 622
or 653 of the federal Communications Act of 1934 (47 U.S.C.
Secs. 542 and 573), or any other fee related to obligations or
telecommunications carriers under the federal Communications
Act of 1934 (47 U.S.C. Sec. 151 et seq.), as those laws read on the
effective date of this section, except to the extent that any of the
following are true:

(i) The fee is not imposed for the purpose of recovering direct
costs incurred by the local franchising authority or other
governmental authority from providing the specific privilege,
service, or benefit conferred to the payor of the fee.

(ii) The fee is imposed for the use of a public right-of-way based
on a percentage of the service revenue and the fee exceeds the
incremental direct costs incurred by the governmental authority
associated with the provision of that right-of-way to the provider
of Internet access.

(6) (A) “Tax on Internet access or use of Internet access” means
a tax on Internet access or the use of Internet access, regardless of
whether the tax is imposed on a provider of Internet access or a
purchaser of Internet access and regardless of terminology used
to describe the tax.

(B) “Tax on Internet access or use of Internet access” does not
include a tax levied upon or measured by net income, capital stock,
net worth, or property value.

(7) “Use of Internet access” includes the exercise of any right
to Internet access.

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