California Internet sales tax bill faces long odds

SAN FRANCISCO (Reuters) - A California bill that could lead to a tax on Internet music downloads faces slim odds of success, but the Democrat who wrote it says a debate over taxing such online retail transactions is overdue.

Assemblyman Charles Calderon told Reuters late on Thursday that California should consider imposing a tax on entertainment downloaded from online merchants such as Apple Inc's iTunes that is similar to the state's levy on music compact discs sold in stores.

Sales taxes should apply equally to online and in-store purchases and California is missing out on revenues from the rise of Internet retailers, Calderon said.

"If you walk into Wal-Mart and buy a CD you walk out paying a tax," Calderon said. "I don't think we're talking about a new tax here. We're talking about whether our laws should keep up with the economy."

Calderon's bill would require California's Board of Equalization to report to lawmakers on the potential for imposing a sales tax on electronic transmissions of information.

For Republican lawmakers that is too close to a new tax.

They will kill the bill along with other legislation Democrats advance to raise existing taxes or introduce new ones, Mike Villines, the state Assembly's Republican leader told Reuters. "We just disagree with it on the merits," he said.

Calderon's bill comes as California faces a $7.5 billion state budget shortfall. Republican Gov. Arnold Schwarzenegger has ruled out raising taxes to fill it and has instead proposed deep spending cuts.

Democratic lawmakers say the proposed cuts are drastic and some are urging tax plans to help close the shortfall, which is taking on added urgency in the state capital of Sacramento as school districts across the state prepare for reduced state financial aid.

Many are beginning to issue layoff notices to bolster their finances and education groups are increasing pressure on lawmakers, especially Democrats, to defend education from spending cuts.

Democrats failed earlier this week to pass a bill through the state Assembly that would have imposed a tax on oil companies -- a 6 percent levy on oil production and a 2 percent on profits exceeding $10 million a year -- and used proceeds for school spending.

The bill fell short of a required two-thirds support as all Assembly Republicans voted it down.

(Editing by Tom Hals)