SACRAMENTO — As Free Speech Coalition (FSC) lobbyist Matt Gray predicted during the Coalition's lobbying days last April, the "porn tax" bill introduced by Assm. Charles Calderon, AB 2914, has been placed in the "suspense" file of the California Assembly's Committee on Appropriations and is likely to remain there until the legislature recesses for the year on Nov. 30.
AB 2914 has had a rocky history in the legislature. A nearly identical bill, AB 1551, failed to be voted out of the Assembly Revenue & Taxation Committee last year, even though the committee's chairman was the sponsor of the bill. This year, AB 2914 was put on "suspense" — that is, scheduled hearings on the bill were postponed — twice before it finally came to a vote on Monday, Aug. 4, where a one-vote (5-4) majority moved the bill forward to the Committee on Appropriations for unexpectedly rapid consideration on Thursday — where according to the California Legislature's Website, the bill was "held under submission" and "referred to the Appropriations' suspense file." With Article IV, sec. 10(c) of the state Constitution mandating Aug. 31 as the final day for any bills introduced during the 2008 legislative session to be passed, it is unlikely that the bill will be taken up again.
Further evidence of the Appropriations Committee's likely lack of interest in passing AB 2914 is its Legislative Counsel's report, prepared by analyst Brad Williams.
While accepting Calderon's estimate that AB 2914 would bring in approximately $260 million to the "special fund" — the Adult Entertainment Impact Fund — which would be established under the bill, Williams estimates that it will cost roughly $2 million per year to administer the fund, while the only savings that targeted revenue would create for the state's General Fund would be to "alleviate pressures on various health and public safety programs currently supported by the General Fund." However, Williams notes that, "The imposition of multiple taxes on adult material will likely result in less in-state production and more internet-based purchases from out-of-state businesses (where collection of use taxes is more problematic). These developments would result in an unknown, but potentially significant, reduction in GF [General Fund] sales and income taxes." FSC has argued that those reductions would more than offset whatever savings the tax might create for the health and public safety programs.
Moreover, Williams' analysis presages several of the legal challenges that would be generated by 2914's passage. For instance, he states that the bill "[r]equires that a business with more than 50% of its gross receipts from adult material pay an 8.3% tax on all of its gross receipts — including those attributable to non-adult material." Since the tax, if implemented, would reach revenues from materials that are not considered to be "adult," this admission by Williams can be seen as a message to committee members that a legal challenge to the law as "overbroad" would likely be successful.
Williams also notes that the bill "[i]mposes an 8.3% tax on the gross receipts of businesses involved in the production, post-production, and distribution of adult material." This multi-tiered taxation scheme of the same material at different points in the stream of commerce would also be open to an overbreadth challenge.
Finally, although Williams recites the claim that the revenues produced from the tax would be used to "ameliorate the negative secondary effects of adult entertainment," in his "Comments" section, Williams reports that, "Opponents of the bill question the constitutionality of the measure and dispute the basic premise of the author regarding ill effects of the adult entertainment industry. They claim that numerous studies indicate that there are no substantial negative secondary effects caused by adult businesses."
Indeed, such studies include those conducted by Dr. Daniel Linz of the University of California - Santa Barbara in several cities around the country — notably Charlotte/Mecklenburg, North Carolina and Ft. Wayne, Indiana — where he found that both convenience stores and fast-food restaurants typically create greater adverse secondary effects (higher crime, reduced property values) than do adult businesses in comparable locations.
With such a negatively-framed analyst's report, it is almost a certainty that the Appropriations Committee will let AB 2914 die in the suspense file — probably to be (attempted to be) resurrected by Assm. Calderon during the 2009 legislative session.
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