California has proposed a new digital advertising tax (AB 2829) that has been met with mixed reactions from businesses and consumers alike. If passed, the tax would be levied on large-scale California businesses that generate over $100,000,000.00 in annual global revenue from digital advertising services and would take effect on January 1, 2025.

Some have hailed the proposal as a way to generate much-needed revenue for the state’s budget, which was hit hard by the COVID-19 pandemic and has not yet fully recovered. Supporters of the tax also argue that it would help level the playing field between brick-and-mortar businesses and digital retailers, which have avoided many of the taxes and regulations that traditional companies face.

Opponents of the tax disagree and argue that the new tax would be harmful to both businesses and consumers alike. Opponents argue that it would make it more difficult for businesses to compete in an already challenging economic environment and that the tax would be difficult to enforce as it raises constitutional concerns surrounding the Due Process and Commerce Clauses. Opponents also argue that although there is an anti-passthrough provision disallowing the tax from being charged to the consumer as a separate fee, surcharge, or line item, businesses would instead pass the cost along to consumers under the guise of higher prices.

This recent California proposal has generated significant debate and controversy, with solid arguments on both sides. What are your thoughts?

You can reach Dan Thompson at Dan@thompsontax.com or call 916.333.2404

Part 1: Tax Relief for Working Families

Calculation of Refundable Credit on a Per-Child Basis. —Under current law, the maximum refundable child tax credit for a taxpayer is computed by multiplying that taxpayer’s earned income (in excess of $2,500) by 15 percent. This provision modifies the calculation of the maximum refundable credit amount by providing that taxpayers first multiply their earned income (in excess of $2,500) by 15 percent, and then multiply that amount by the number of qualifying children. This policy would be effective for tax years 2023, 2024, and 2025. Modification in Overall Limit on Refundable Child Tax Credit. —Under current law, the maximum refundable child tax credit is limited to $1,600 per child for 2023, even if the earned income limitation described above is in excess of this amount. This provision increases the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025, along with the inflation adjustment described below.
Adjustment of Child Tax Credit for Inflation. —This provision would adjust the $2,000 value of the child tax credit for inflation in tax years 2024 and 2025, rounded down to the nearest $100. Rule for Determination of Earned Income. —For tax years 2024 and 2025, taxpayers may, at their election, use their earned income from the prior taxable year in calculating their maximum child tax credit if the taxpayer’s earned income in the current taxable year was less than the taxpayer’s earned income in the prior taxable year.

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