California Senate passes tax on big tech to fund ethnic media, news, fellowships

(The Center Square) – The California Senate passed a $4.8 billion tax on the state’s declining technology sector that would be used to fund “ethnic media” and state-administered…

(The Center Square) – The California Senate passed a $4.8 billion tax on the state’s declining technology sector that would be used to fund “ethnic media” and state-administered “journalism fellowships” after backfilling the state’s general fund.

The bill’ author also likened tech companies that are responsible for the lion’s share of state tax revenue to companies dumping pollutants into the environment.

SB 1327, introduced by State Sen. Steve Glazer, D-Orinda, imposes a 7.25% tax on revenue from selling user data or providing user access to companies with more than $2.5 billion in such revenue, with an exemption for news organizations. 

“California already imposes mitigation fees on companies that put chemicals into the environment,” said Glazer in support of the bill. “In the same way, the fee in my bill assigns the cost of reviving local journalism to those firms whose data extraction and economic activity is causing the news industry’s decline.”

This money, which the California Franchise Tax Board says equates to an approximately 1% tax on national revenue from this income source, would equate to approximately $1.2 billion per quarter on Amazon, Meta, and Google’s ad sales alone. By creating an average refundable tax credit on salaries paid by qualified news organizations of around 40%, and a 20% refundable credit for freelance work — that is, a “credit” against taxes, and a grant when the credit exceeds potential taxes — the FTB says the state would lose $440,000 in revenue for every $1 million in wages paid under the bill. However, the overall fiscal impact of the bill is unknown “due to technical concerns.” 

The bill would allocate $10 million for the University of California, Berkeley, California Local News Fellowship program, and another $5 million annually for a fellowship to “strengthen newsroom and ownership diversity for ethnic and underserved communities.” The bill also includes an official declaration from the State Legislature that “ethnic media stands out as an important form of journalism and communication,” and that “ethnic media promotes social inclusion, encourages civic participation, and addresses disparities among all marginalized groups.” 

Given that the bill would have to fund public education, state financial reserves, backfill the cost of credits to the state’s general fund, and fund fellowships before funding media, it’s not clear if anything would be left for mainstream news organizations. 

The California Chamber of Commerce has attacked the bill as a “job killer,” writing the tax is separate and additional to the sales taxes from advertising, and that the costs will be carried on to small businesses and medium sized businesses who use online advertising to grow their sales but don’t get the bulk discount large businesses do.

 “This bill punitively targets only a handful of taxpayers that sell digital advertising, yet will financially cripple many, many small and medium-sized businesses,” said CalChamber Senior Policy Advocate Preston Young in a statement. “The brunt of this tax will ultimately be borne by smaller employers that rely on advertising to increase the reach of their business.”

While this tax may be passed on to ad buyers, it also may accelerate technology industry layoffs. The American tech industry, focused in California, has shed hundreds of thousands of jobs in recent years, with 93,000 layoffs in 2022, 191,000 layoffs in 2023, and 56,000 layoffs thus far this year. In San Francisco, SF Gate reports laid-off workers are encouraged to sell plasma and their personal belongings to survive, and that ​​one laid-off individual applied for one thousand jobs before being hired by a friend. The report also noted companies are posting “fake” jobs listings to create talent pools to replace higher-cost workers with lower-cost, less-experienced workers in new rounds of layoffs. 

A new tax on big tech — in addition to another bill that would force tech companies to pay news organizations a share of their advertising revenue based on how often news organizations’ content shows up in search results or media feeds — could drive even more tech money and jobs out of the state. California has on net lost 154,000 private sector jobs since September 2022, with its 207,000 net increase in jobs since then entirely attributed to a 361,000 increase in public sector jobs. As private sector jobs exit the state and the ranks of taxpayer-funded jobs grow, the state may face growing financial challenges.

Having passed the State Senate, the bill now faces the State Assembly.