Senate Standing Committee on Revenue and Taxation

Revenue and Taxation will come to order. Thank you all for being here. We don't have a quorum yet. I want to thank Senators Bradford and Dahle for being here on time, but we'll wait for one more Member before we do have a quorum. So we're going to defer the adoption of the Committee rules. We have three bills on our docket today, plus an informational hearing on sustaining journalism in California.

The three bills are SB 911 by Senator Seyarto, SB 1004 by Senator Wilk, and SB 927 by Senator Dahle. I do see that Senator Seyarto is here on time. Thank you, sir. So we'll begin as a Committee of the whole. We'll hold off on motions until we have a quorum. Senator Seyarto, we welcome you to the Committee. This is item number one, SB 911.

Very good. Thank you and good morning, Committee Members. And thank you, honorable Chair. I'm here to present SB 911. SB 911 is similar to the Bill you have heard just this last year from our colleagues in the Assembly, which was AB 46. While similar, SB 911 specifically makes the first $20,000 of annual payments of survivor benefits free within California. I narrowly focused this Bill to just survivors and this limited amount for a few reasons.

First, these surviving spouses and children have lost their primary source of income with the loss of the military Member or Veteran. And then second, by capping the exemption at 20,000, I am focusing the relief to the struggling, the more struggling families. Unfortunately, California is losing this population to the tune of about 800 to 1000 people per year, and this is well beyond the national average by almost triple digits.

California's rate of loss of this population goes well above any statistical rate of loss seen throughout the country by multiple of four. This rate of decline is manifest in California from going to number one in the nation and being home to these recipients, to now in under five years being number three, which is behind Texas and Florida. Six states in the last six years have moved to fully exempt these payments from income taxes.

There are now 48 states in the country that fully or partially exempt these benefits from taxes, and we are left with Vermont as the last two states that fully tax these benefits as income. So why the $20,000 cap? Of the 14 states that partially tax this benefit, the average between them is $20,000. By passing this Bill, SB 911, California can catch up with the national average to provide partial relief to the families that have lost their loved one.

Colleagues I have been trying to push this Bill for the last three years, and in that time, we have lost another 2439 of the people who received these benefits, which translates to about $40 million in lost federal income to the state and economic benefit. SB 911 will help these brave families that have sacrificed so much for our country and will help California show the country that we truly support not just our veterans, but their families as well. So I respectfully ask for your. I vote.

Thank you. Senator Seyarto, we do have a quorum now, so I'm going to ask the secretary to call the role.

[Roll Call] You have a quorum.

So we do have a quorum present. Senator Seyarto, do you have any principal witnesses in favor?

I did not bring any principal witnesses.

So let's then go to those who are here in the hearing room. We'll take testimony from those who are in favor. Our General rules here at the Committee will be two witnesses, two minutes each on each side, and then everyone else is kind of a "me too." But since we don't have any witnesses, we'll go to you first for your introduction.

Thank you so much. And I am just a "me too. But Nicole Wardelman, on behalf of San Bernardino County Board of Supervisors, in support.

Great. Thank you. Any other witnesses here in support? Come on up.

Scott Kaufman, Howard Jarvis Taxpayer Association, in support.

Great. Any other witnesses? All right, seeing none, we'll go to witnesses in opposition. Anyone here in opposition to this Bill, please come forward. All right, seeing none, we'll bring it back to the Committee for questions or comments. Members, any questions or comments for Senator Seyarto?

I'll move the Bill.

All right, Senator Seyarto, thank you for your great work in this space for our wonderful veterans and their survivors. Happy to support the Bill today. Do you want to have anything to say in your close or we'll simply ask for.

I'll simply ask for your, I vote.

All right, Senator Dahle has moved this Bill. Let's do this, though. Should we do the rules before a vote? Okay, so I'm going to defer Senator Dahle's motion for just a moment. Remember, this is our first meeting of the year, so there are Committee rules that we are required to adopt. I hope that everyone's had an opportunity to review them. And is there any discussion on the rules? Seeing none, is there a motion the Vice Chair moves the adoption of the rules. Would that secretary please call the rule.

Motion is to adopt Committee rules. [Roll Call]

All right, we're going to defer the close on the rules till our absent Members are here. So now I want to recognize a motion from Senator Dahle. This would be a do pass to Military and Veterans Affairs Committee. With that secretary, please call the role.

[Roll Call]

Bill has enough votes to get out, but we'll put it on call for absent Members. Thank you Senator Seyarto. Let's invite up our next on time Senator. Always on time. Senator Wilk, welcome to the Committee.

Thank you, sir.

This is SB 1004. And Senator Wilk, you can begin when you're ready.

Have to put on my $3 readers first. Well, good morning, Mr. Chairman and members. I'm pleased to present SB 1004, which would exclude from taxable income settlement payments made in connection with any wildfire that occurred in the state. I'd like to first start by accepting the committee amendments to include the 10 year sunset. The legislature, specifically, the Senate, has decided multiple times in these settlements should not be taxed.

In 2022, SB 1246 and AB 1249 were signed into the law making settlements related to the Thomas Fire, the Woolsey Fire, the Butte Fire, the North Bay Fire, and the Camp Fire tax exempt. Additionally, SB 370 and SB 542 proposed to do the same for the Kincade Fire, the Zogg fire, and pass the Senate unanimously in 2023. In 2020, the Bobcat Fire, which burned over 115,000 acres in and around my district, was determined to have been caused by tree coming in contact with power lines.

Unfortunately, any settlements my constituents receive related to this fire will not be tax free because the Bobcat Fire was included in this past legislative effort. And for me, this is another case of where you're penalized because of the zip code you live in. So this particular area, it's rural. Actually, two other centers have more of this territory than I do, but no one has come to advocate for them. So this has come organically from some of my constituents who live in the Juniper Hills area.

Anyway, all wildfire victims should be afforded the same tax relief as those affected by previously mentioned fires. SB 1004 will ensure that all wildfire settlements are tax free, regardless of where the people reside. With that, I respectfully ask for an aye vote.

Thank you, Senator Wilk. Do you have principal witnesses in favor?

I feel like this is so compelling that I did not need to bring anybody up.

Okay. All good. We'll go to the folks here assembled in the hearing room. Ask anybody who would like to come up and put their name on the record in support to please do so now.

Scott Kaufman, Howard Jarvis Taxpayer Association support.

Thank you, sir. Anybody else here in the hearing room? All right, we'll go to opposition. Is there anyone here in the hearing room in opposition to this fine bill, seeing no one standing or coming forwardm Okay, we'll bring it back to the Committee for comments or questions. Members, any comments, comments or questions? All right, when I recognize that motion in just a moment. Senator Wilk, anything you want to say in closing?.

Respectfully ask for an aye vote.

Thank you for your good work in this area. Recognize the motion from Senator Ashby. This would be a do pass as amended to the Appropriations Committee. With that secretary, please call the roll.

[Roll Call]

All right, that bill has enough votes. We'll put it on a call for action.

Thank you, Members.

Thank you, Senator Wilk. Let's invite Senator Dahle to join us at the podium. He's presenting item number three. This is SB 927. Senator Dahle, welcome.

Thank you, Chair and Members. So this Bill is similar to Senator Wilk's Bill, but a little bit different. So let me give you the differences in these bills. This Bill authorizes the ability to have, when we have a natural disaster in the state, to not have to pay taxes on that income, just like Senator Wilk's. But his Bill is narrowed down to the fire that he's on. So I've done many of these bills over the years.

I had the Camp fire, I had the Dixie fire, every fire we've had, I've authored the Bill, along with my friends in the Senate or Assembly that have been affected by it. And every single time, the Governor and the Legislature has exempted those taxes. So this Bill, what does this Bill do?

This Bill gives a statewide opportunity for if there's been called for a natural disaster by the Federal Government or the state government, it automatically allows you to not have to pay taxes on those reimbursements that come from your insurance or from a utility. So that's what this Bill does a little different than that Bill and makes it just in statute. And let me tell you the real reason why this is very important.

For like Senator Wilk's Bill, he's doing the Bill. They have already been compensated. And when you've been compensated, you have to pay the tax. So when you pay the tax, then you have to go get a refund from the tax after it's been paid. This Bill will allow you, because of the statute. If we pass this Bill, it will allow you to not have to pay it first and then go through the process of reimbursing it.

So for those reasons, I ask for an aye vote on this Bill. It's common sense that if we've had a natural disaster, whether it's fire, whether it's flood, whether it's a mudslide, if it's been designated as a natural disaster by the Federal Government or the State, it will allow you to not have to pay those income taxes. So for those reasons, I asked for an aye vote.

Thank you, Senator. Dahle, you didn't mention the suggested sunset amendment.

I will take those amendments. I'm sorry.

And there's some technical amendments as well. You're okay with us?

Yep.

Okay, good. All right, we're going to open it up to the Committee room. Anybody here want to put their name on the record in support of this legislation, please come forward.

Scott Kaufman, Howard Jarvis Taxpayers Association in support.

Thank you, sir. Anyone else here in the hearing room? All right, we're going to go to opposition. Is there anyone here in the hearing room in opposition to this Bill?

Seeing no one coming forward, we'll bring the matter back to the Committee. Any questions or comments from Committee Members? Questions or comments? Would you like to close Senator Dahle?

I would respectfully ask for an aye vote.

It makes a lot of sense to me that since we put in practice this type of standard so that we don't have to have these one-off bills. So I appreciate your leadership in this area.

It comes out of tragedy, I know, for a lot of your constituents, but it's the right thing to do, and I'm happy to support it today. So with that, is there a motion from. Senator Ashby has Moved the Bill. This is a dupas as amended to appropriation. Secretary, please call the roll.

[Roll Call]

All right, so that completes our Bill list for this hearing today. We also have the rules that we're going to wait for absent Members. I think we're short one Member, two Members.

Senator Dodd is here so you can vote on the rules and the other two bills.

All right, well, before we begin the hearing on journalism, let's go ahead and give Senator Dodd an opportunity to add on to the role. So let's begin with Senate Bill. Let's begin. Don't get used to it. SB 911 by Senator Seyarto, the secretary please open the roll.

Motion is do pass to the Committee on Military and Veterans affairs with the chair voting aye, Vice Chair voting aye. [Roll Call]

We're going to put that bill back on call. We'll go next to Senate Bill 1004 by Senator Wilk. Secretary, please call the absent members.

Motion is to pass this amended to the Committee on appropriations with the chair voting aye and Vice Chair voting aye, [Roll Call]

We'll put that bill back on call for absent members. We'll go next to Senate Bill. Actually, we'll go back to the rules. This is the adoption of the rules, Senator Dodd. Secretary, please open the roll.

Motion is adopt committee rules with the chair voting aye, Vice Chair voting aye, [Roll Call]

I will put that bill on call for absent the absent member. Okay.

There should be one more.

You voted on Dahle when you walked in. Yeah, I'm paying attention here in the chair spot. It's a good thing. All right. Unless you want to vote a second time on that. All right, so we're caught up. Okay, well, let's move next then to the informational hearing, sustaining journalism in California Tax and Tax Credit options.

First, let me thank the witnesses that we're going to hear from in a few minutes for traveling near and far to participate in this hearing. This discussion of sustaining journalism, I think of it this way. It's one part health check, one part autopsy, and it's one part rescue mission. And in many ways, it's an uncomfortable conversation for governmental leaders to have. It's uncomfortable because we know that successful journalism is independent, is independent of government.

But we also know that democracy thrives with an informed citizenry, and authoritarian rule survives on ignorance. And it's independent journalism that makes the difference. James Madison described a robust free press as the great ballwark of liberty. He believed that freedom of the press was crucial to the ability of citizens to govern themselves in a democratic republic, and that's why he led the effort to make journalism the only profession and the only industry that is explicitly protected in our constitution.

The past two and a half centuries have proven Madison correct. Our free press informed our people and helped keep government accountable. But it's clear to me, and I know to many of you, that the free press is in decline. The rise of the Internet has devastated the economic model that supported newspapers and other private media for more than 100 years. The number of journalists employed in newsrooms has declined by more than 25% in the last 15 years. Increasingly, communities have no independent source of local news.

Now, that has created a vacuum, and that vacuum has been filled by those who seek to use misinformation and in some cases, conspiracy theories to confuse and manipulate our residents. The exact threat that Madison warned against. So today, this committee will examine ways our state government might follow the lead of many democracies that have invested considerable public resource in supporting a free and independent press.

And one of the key questions is this, can we provide public support to keep local news alive while including the guardrails necessary to keep it independent? Now, we know that this is not just a California issue. Many of us have been watching developments around the world in this space. Actions that have been taken in Australia, in Canada, in various European countries, and proposed actions and actions even taken in states. Here in the United States, we're going to talk about one in particular, Maryland.

Now, this global perspective also puts a spotlight on democracies and in some cases, the decline of democracies. The New York Times last week did some reporting on the visit by the Hungary prime minister, Viktor Orban, to the United States. Hungary has a 35 year young democracy, but it's in peril. And as the reporting covered, it's in peril for a variety of reasons, not the least of which is the takeover of independent news in Hungary. And this issue of our democracy is very relevant to this conversation.

And in many ways, it's kind of like, what are you really talking about? A democracy in peril. But there's a feeling by many that our democracy is more fragile than we could have ever imagined. And as we talk about our rescue plan for the media, for the free press, in my mind, it's very intricately related to the protection of our democracy. This hearing has three parts, and it will be followed by public comment.

First, we're going to hear from KX Jin, who will give us an overview of the current advertising market and describe the effect of changes in the market on newspaper revenues. Second, Darian Shanske and Nikki Dobay, two of the country's top tax experts, will discuss the potential, the pitfalls and lessons learned regarding advertising, digital advertising and digital barter taxes. Lastly, we'll hear from Steve Waldman and Matt Pierce regarding options for tax incentives to stop the decline and foster the recovery of local journalism in the state.

It's important to note that this is an informational hearing. No decisions have been made to legislate on any of the items we will be discussing here today. We are here today, first and foremost, to learn from witnesses with great expertise and expertise and experience in their respective fields. Our goal is to listen, digest the expert testimony so we can build an understanding of this important issue that will better inform our decisions that we may make into the future.

So I hope that everyone that's listening, watching here in the hearing room, will approach the testimony today with open minds and a keen ear. And I'm aware that many of these issues are both subtle and complex, especially about taxation. So I thank you in advance for your patience and attention. I want to also call your attention to the excellent analysis that was prepared for the hearing today. I want to thank Colin Grinnell from our staff, who's prepared to.

Because sometimes when people testify, you start using codes and people don't say, what's that? What do those initials stand for? And the rest, and I want to at least lay the groundwork by identifying two in particular laws that we have to follow, that we have to work with and around in any actions that we would take. The first one is called the Internet Tax Freedom Act, the Internet Tax Freedom Act, and that's to prevent discrimination against digital commerce.

So you'll hear that spoken a lot by the witnesses. There's also the Commerce Clause that attempts to prevent discrimination from one state to another. So you'll hear about those two laws. And the third one that we're really not going to talk about today, but is relevant in this space is Federal Copyright Law. There are limitations to what states can do in that space.

There's certainly a concern about whether or not the use of what they would consider copyright material in our media outlets is being properly used by the platforms. There's litigation in that space, and it's relevant, but it's not something we're going to be talking about today. Finally, let me just express a couple thank yous. Assembly Member Buffy Wicks has shown great leadership and partnership with me and many members on this issue of protecting and supporting journalism.

She has legislation that's pending here in the Senate, and it comes out of her very deep commitment to this issue that we're discussing today, and I want to thank her for her leadership. Secondly, I want to thank the staff of the Senate Judiciary Committee. I know that our consultant relied on their work, the hearing we held at chair Umberg held in December that related to this subject, and we've taken advantage of their good work and research in the presentation that's here today.

Finally, I want to thank the stakeholders involved, certainly the journalists, the publishers, big and small, community, ethnic, and as well as the platforms that we are going to be talking a little bit about and the testimony that you're about to hear. So with that, I want to invite any other member of the committee wanted to make any opening remarks and then we'll begin with our witnesses. Senator Dahle, anything you want to say? Any other members? Okay. All right, so let me invite up KX Jin, come on up here to the front. KX worked at Meta from 2006 to 2023 managing ads and payments in their engineering team. He was a Vice President for Facebook groups and other products and head of their health area. He's a board member at Civic news company and advisor to rebuild local news. Brings a lot of expertise in this space. KX, is that okay to call you KX? Ok. Make sure his microphone's on. We welcome you to the committee and we look forward to your testimony.

Thank you for having me. Is the presentation able to present my slides?

Do you want to go to your PowerPoint?

It's on the screen.

There it is, okay. Took a little pause, but it's up there for everyone to see. Cool. Okay. And you could bring the microphone a little bit closer so we can make sure we hear you.

How do I get the? All right.

Wonderful. Well, thank you for your work on this topic, for convening the hearing, and for having me here today. As you mentioned, my name is KX Jin and I'm speaking in a personal capacity, but relevant background includes leading the Ads engineering team at Meta from essentially the beginning through the IPO.

Can you speak up just a little bit?

Sorry. Also serving as a board Member on the Civic News Company, which is one of the largest local news nonprofit organizations in the United States, and as an advisor to rebuild local news. So today I'm going to talk about three specific things. First is historical trends of advertising spend in the United States, including for the newspaper sector specifically. The second is a deep dive on the current State of digital advertising, with estimates of revenue by company and some implications for California.

And lastly, I'm going to give an overview of existing ad taxation approaches, including revenue sizing for California and some of the potential economic tradeoffs that need to be weighed. So, historical trends. So since 1980, the total US advertising spend has roughly doubled on the newspaper sector. Specifically, newspaper advertising revenues peaked around the year 2000. And if you look at their share of overall advertising revenue, so their share of the overall sector, that's actually been declining since the 1990s.

Initially, this decline was coincident with faster growth in TV. You can see this in the 1990 to 2000 period. And then after 2000, you see this accelerated decline on the Internet channel side. So what happened? And what are the drivers for this decline, especially post 2000? So fundamentally, the Internet just made it cheaper and easier for sellers and buyers to reach each other. As an example, if it's 1995 and I'm trying to sell a car, I typically have only few options. Right?

I'm probably going to put something in the automotive section of the classifieds. If you fast forward five or 10 years, that's changed. I have a lot more options now. I could go to Craigslist. I could go to one of the many online classifieds. And you fast forward another few years, you also have the Internet platforms. So you're probably going to start doing this instead of buying a classified ad, right? It's potentially a higher use of your investment. And that's essentially what happened.

And you see this in the data itself here. So classifieds had a steeper initial decline, which then continued as the largest ad platforms, Alphabet and meta, grew. It's probably worth noting that the decline wasn't solely attributable to the same advertiser moving spend from newspaper to online. For example, in the example I gave in that case, it's possible the advertiser might have just spent less in advertising overall. Right? Previously you would pay by the column inch on the classified side.

Now you can post on Craigslist for free or for a nominal fee. And so it's possible that for that advertiser, the total advertising spend actually went down, even though from an efficiency and outcome perspective, it was better for them. At the same time, on the Internet side, there are also lots of businesses who maybe previously were not able to advertise effectively and are now able to do that.

And so it's a mix of those two factors, as well as some real shift from existing advertiser spend to other channels. That said, I think three things are very clear. The first is that the Internet disrupted newspapers ad businesses and that subscriptions have not made up for the difference. The second is that the digital ad sector, and in particular the largest platforms, have significantly grown in revenues over that same time period.

And the third is that whatever the digital ad sector is currently contributing to, local news has clearly not offset those losses that we've seen in this time period. And that's probably the three takeaways that are most important for this conversation. Since there's going to be a lot of focus on the digital ad platforms, it's also worth talking a little bit about how they work at a high level. And essentially they're these two sided marketplaces.

On the one side is the seller and on the other side is the user or the potential buyer. And they essentially try to match sellers with buyers. So they take inputs from sellers, including what you want to sell, who you want to reach, and how much you're willing to pay. And they take inputs from users, starting with the time that the users spend on these platforms, as well as data.

And they essentially try to take these inputs and efficiently match buyers to sellers in terms of where these ads show up. They can show up in search contexts. So these include Google search or Amazon search, as well as what are called display contexts. So this can include video ads you see on YouTube, as well as newsfeed ads in Facebook or Instagram.

And in terms of the drivers for improved return on investment for advertisers, which ultimately in the long run, dictate advertiser spend, there's really three increasing reach and user time spent, increasing data, and improvements in the algorithms that match sellers with buyers all increase seller return on investment. And it is also worth noting that, whether fairly or unfairly, the platforms actually have some pretty significant competitive advantages in this market that have driven some of the consolidation.

Okay, so that kind of got us to where we are today. And so the next section, I'm going to do a deep dive on what that looks like. So as of 2023, about 65% of the advertising spend in the United States is on digital channels. So the majority. The second is TV. And within digital, the top three platforms, Alphabet, Meta, and Amazon, are roughly 60% of all spend.

You can see here that Amazon in recent years has been growing a share and the other two have been a little bit smaller. And then within digital, what is the California attributable revenue? So, it's important to note that these aren't typically reported publicly, but assuming that California revenue is proportional to a share of population in the United States, would suggest roughly $30 billion a year in revenue to people in California.

And of that 30 billion, roughly 20 billion would be attributable to the three companies that I mentioned. And you could also translate that into a per California person figure, which is roughly $800 per person per year. And then from a taxation perspective, I think an important consideration is understanding the profit margins of these companies. And again, these are not split by local jurisdiction, but they are reported on at the global level. And so the global percentage of net income.

So for every dollar of revenue that I referred to previously, how much of that is net income after costs and after taxes ranges from 24% to 29% last year for Alphabet and Meta, it's also important to note that because these companies are essentially conglomerates, they have other business lines besides advertising, that if you were to split out their advertising specific business lines, the margins are likely much higher. So Meta's are likely closer to 50%, and that's generally comparable across the sector.

Okay, so in the last section, I'm just going to do a brief overview of ad taxation mechanisms, as well as some of the trade offs that would need to be considered as we consider them. So the first just definition of what are ad taxes and where have they been implemented? So, for this conversation, ad taxes are taxes on corporate ad revenues. So they're on the overall revenues as opposed to net income that are typically apportioned to a jurisdiction.

And currently, two US states, that's Maryland and New Mexico, as well as around 12 countries globally, tax digital ad revenues. A subset of these also tax nondigital ad revenues and have been doing so for a longer period of time. So, for example, Austria, I believe, has taxed offline advertising since the year 2000, and in 2020 updated its advertising code to also cover digital ads. And then not directly related, but about half of all US states tax sales of some form of digital goods.

So how much could be raised in California by advertising taxes? Obviously there's a lot of assumptions that go into this, but if you were to, as a high level, take a rate that's comparable, or maybe on the lower end of some of the jurisdictions that already enact these taxes, and have a pretty high progressive threshold of 0% marginal tax for the first 2 billion, and 0.5% to 4% above that, that would give a rough estimate of somewhere between 60 and $500 million per year.

So, in the context of the local news conversation, why is it at least worth considering these ad taxes? I think there's two reasons. The first is precedent. Taxes are an established way to address externalities and to promote public goods, even within the technology sector. Broadly. There's an example of the Universal Service Fund at the federal level, which is levied as a percentage of revenues of telecoms, and that funding then later goes to promote universal service initiatives.

And as I've discussed previously, it's pretty clear that the rise of the Internet undercut the existing ad supported funding model for local news, which has created a societal cost, and this would be a direct way of addressing it. The second, and as you all know, this is any type of intervention, has trade offs, and ad taxes have just a different set of trade offs from other approaches, from extracting revenue from the tech sector to support these causes.

And I think it just gives you a different set of options to weigh as you consider funding. On the trade-off side., It's also, I think, quite important to think through the potential economic impacts of ad taxes, as well as what the businesses subject to the tax may do. And so here I briefly outline some of the potential responses. So, the first is that the businesses subject to the tax could choose to withdraw from the market instead of paying the taxes.

In practice, this has not happened in any of the countries that have enacted them, and as I mentioned, offline has been taxed for a while without this issue. The second is that businesses could choose to shoulder the costs of those taxes themselves, and this will reduce their profitability. As I mentioned, the margins of these businesses are in the 25% to 50% range, depending on how you cover. So the percentage of the tax should be considered relative to that.

The third is that the businesses could also choose to pass the costs of those taxes on to their customers instead of shouldering the costs themselves. And if it's passed on to their advertising customers instead of their users, this could increase the cost of advertising spending and reduce ad spend on the platforms that are subject to that tax. And in practice, we've actually seen at least two of them do this in some of the digital sales tax markets today.

And the last point, and this is more specific to local news, is it is possible that in response to some of these things, the businesses subject to these taxes may stop or otherwise reduce their voluntary or other efforts that pay out to the new sector today.

And so if you were to do this, you need to make sure that the amount raised via any tax, and critically, how that tax is allocated needs to be more impactful for the local news outcomes you are trying to accomplish than the status quo, for this to be a net positive overall. And some of the allocation mechanisms I think will be discussed later today.

The only last point to make here is that these considerations are actually the same considerations for any form of government mandated revenue extraction to fund these efforts. So I know there's a more bargaining code oriented proposal, and I think similarly, like platforms that are subject to bargaining code requirements, could choose to withdraw from the market or withdraw from links, given that's how the bargaining code is structured, shoulder the costs themselves, pass costs to the customers, and or reduce voluntary efforts.

So as you're considering different mechanisms for funding, I think my recommendation would be to weigh the trade offs against each other. And then very briefly, it's also worth noting that there are some legal challenges specific to the Maryland Tax, and these are going to be covered more later today as well. So thank you for your time and your focus on these issues, and I hope this has been helpful.

Thank you very much, KX, and thank you for your expertise. I had a couple of questions and follow up. So you've mentioned this advantage that has made this big shift in advertising, that personalized knowledge of who it is that they're communicating with is just an enormous advantage. And you've done this work for Meta, so now I hire you to work for a non-digital outlet. What can they do to compete? Is there anything you think they should be doing differently to compete in this ad marketplace?

Yeah, it's a good question. So back to the slide where the three drivers for ROI are fundamentally reach, like who you can reach or how much time they're spending. Some specifics on data and improved algorithms I have seen there may be some instances where the specific audience that a news outlet or outlet is writing for is like niche enough and specialized enough that they have unique advantages in reaching that audience in ways that cannot be reached by other platforms.

And there are specific sectors, like, for example, EdWeek, which is a nonprofit news organization in the educational sector, which does seem to actually have a pretty viable and growing advertising business based on their 990. So there are, I think, some limited examples of successful advertising businesses at this level. I'm excluding kind of the large national change, which I think are a little bit different, like the New York Times.

But in aggregate, it's not clear to me if that is workable for all of the topics and subject areas that are likely in the public interest. So education happens to have some of these properties. But if you're covering Voting Administration, if you're covering public health, it's not clear if, for example, the EdWeek advantage would translate.

And if you're a general circulation newspaper like the San Francisco Chronicle, that your ability to identify a niche audience and niche advertisers is more limited.

Yes, and I think that's partly why you see empirically the challenges here.

One other question. I think that people listening would probably be pretty surprised to hear you say that the number three advertising or company, that's the top three in advertising revenue is Amazon, because they're not seen as a social media company in the traditional, I guess, or one conventional way of. It's where people, it's kind of a public engagement space. It's just where you buy stuff.

So they don't provide links, let's say they don't provide news links, which has kind of been a hot topic of debate in this space. They just sell stuff. And it's all about that personal data that they've been able to accumulate, isn't it? The heart of it, yeah.

And I think if you go back to how things work slide on the advertiser side, at the end of the day, you could view newspapers in competition for two things. They're in competition for kind of reach and attention on the user side, but then on the business side, they're actually in competition for advertiser dollar.

So while maybe on the link side, Amazon isn't necessarily competing that directly with the news organizations on the advertiser side and on the business side, I think there is probably more overlap, not one to one, for the points I mentioned earlier. But if you're a retailer trying to sell things again, 1995, you have a limited set of options on how to advertise. And the newspapers are larger and fast forward to today, and it's very different, including Amazon as an option.

And I think some of Amazon's unique advantages in both reach and transactional intent on the user side as well as data are now being used to build up a pretty substantial advertising business.

And it's not just because you can get something at a better price at Amazon, it's that they've captured all that personal information of who's searching and where that has made it so attractive.

That's right. And you've probably noticed if you just go to Amazon and anytime you're searching for anything, there's ads all over the place. And I believe it is actually personalized based on your account. So that's how it's working.

Great questions from other Committee Members on this.

I hate pop ups.

All right, well, KX, thank you for your expertise in the space for sharing it with us today. We really appreciate it. Thank you very much. All right, our next up, we have a second panel with two participants. Let me introduce them as they come up to the front. Nikki Dobay is a shareholder with Greenberg Traurig and nationally recognized tax expert. She has an LLM from Capitol University Law School, a JD from the University of Oregon School of Law.

And Nikki, I know your previous experience includes spending five years as a senior tax counsel for council on state taxation. You've worked at a big four accounting firm and a large international law and corporate law firm in Oregon and been involved in this issue for a long time. So we appreciate you coming here and sharing your expertise. And let me also introduce Darien Shanske.

Professor Shanske holds a JD from Stanford Law School, a PhD from UC Berkeley in Rhetoric, an MA from McGill University in Philosophy, and a BA from Columbia University. Before law school, you worked as a financial consultant to California local governments.

And I know after law school you've worked as an attorney in the public finance Department at a law firm that you Clerk for, Judge Pierre Leval, the United States Court of Appeal, the Second Circuit, and Professor Shanske, thank you for your participation and your expertise in this space. We're going to start with Professor Shanske. All right. We're going to begin with you, in fact. So welcome to the Committee and we look forward to your testimony.

Thank you. It's an honor to be here. I brought copies of my testimony and a really fascinating law review article that I co-wrote. I don't know if we'll have the.

We'll have the Sergeants grab those, so thank you. You can just set them down and they'll distribute them and speak into the microphone so we can hear you, please.

Great. Can everybody hear me okay, well, thank you for this opportunity to present on this important topic today. So California, like most jurisdictions, has chosen to tax consumption. It is a fundamental to sound tax policy to tax the entire tax base. So if we tax consumption, we should tax all of it.

So if we buy a book of maps at a store, and we do, I mean, we tax it and we do, we should also tax the download of a book of maps, and we should also download a barter for Google Maps. As it is, California only taxes the first transaction, the book, the purchase of a book, not the download of a book, and not the barter for essentially a service that replaces the book.

If you don't tax an entire tax base, you are going to distort people's economic behavior and you're going to give an unfair advantage to those businesses that are the beneficiaries of providing, in this case, untaxed consumption. Barters are obviously hard to tax, and in a lot of cases, even though they should technically be subject to taxation under the sales tax, they're not practically taxed.

That said, as we've just learned, the barters at issue, in this case, users trading their personal information in return for so called free services from online platforms, is not a small amount of money that the state should just sort of leave on the table. Of course, there is a question, well, how do you tax a barter? Right? What is the tax base? What is its value?

In the field of taxation, it is very common to use reasonable proxies in a case like this, and in this case, a reasonable and administrable proxy for the value of the barters currently not being taxed is the gross receipts earned by the platforms on the other side of the transaction. The underlying logic is the following. If the gross receipts generated from all the ads did not roughly pay for the free services on the other side, then why would the platforms offer these services? Is it a perfect proxy? No.

Is it a reasonable proxy? Yes. Did I come up with this? No. Did any other lawyer cleverly come up with this? No. Is there some quirky economist who came up with it? No. Two leading economists in the National Tax Journal, the main peer review journal in Economics, wrote a piece talking about this theory in 2021. And they weren't even the first. They weren't talking about it as something novel. They were talking about it as something that is well known.

And I have provided, because I can't help it, copious footnotes to this effect attached to the testimony. So what I am explaining to you is not some overwrought legal subtlety. It is simply a sensible way to deal with this problem. You use the gross receipts as a proxy for the untaxed barter value in order to fill out a gap in your consumption tax base. The state should also deal with taxing downloads of digital books as well.

That is a separate issue that a lot of other states have addressed, and it's also just common sense. There are other reasons for the state to impose a tax like this, for instance. Again, as just talked about, these digital platforms because of network effects, that is because of they're essentially monopolies in their spaces. It makes sense. They're able to earn supernormal profits and it's economically efficient to tax supernormal profits, and we can talk more about those as well.

I see myself as a law Professor primarily here to talk to you about administrability and law, and so I want to make sure that I talk about those things before I get there. One other issue on the policy space. It is commonly said that states do not need these kinds of taxes because these profits of firms like Facebook, the supernormal profits are reached by California's State Corporate Income Tax. And I'm here to tell you that that is not true.

The supernova profits earned by these large multinational corporations are shifted abroad and are not being captured by California State Corporate Income Tax. Unless this Committee, and I think it should, wants to shift to worldwide combined reporting or some other mechanism to capture these shifted profits. That is not a sound response. Furthermore, even if we did reach those supernormal profits, the consumption tax base is separate from the income tax base, right? We tax the purchase of a tangible personal property.

So this mug is subject to the sales tax, whether the mug company earns a profit or not. And then if the mug company earns a profit and there are corporations, they'll pay the corporate income tax on top of it. So the fact that we could but do not reach the profits of these corporations is not relevant to whether or not they should be taxed as part of the consumption tax base.

As to implementation, 12 countries and one state currently have digital taxes roughly like the one proposed here. The UK is apparently the only jurisdiction to have publicly reported on its experience. This experience has been positive, with implementation easier than expected and revenues higher than expected. Right? Unusual for a tax. I can absolutely concede that. But there you go. And again, I cite to it in my testimony.

No doubt attacks like this would be subject to legal challenge as Maryland's first in the nation digital ad tax has been. I am happy to discuss any and all of the legal challenges and have addressed them at some length in that riveting review article I've distributed, but I don't think that's the best use of my time. I will end with my assessment of the main objection, which sounds in the Internet Tax Freedom Act.

The Internet Tax Freedom Act was first passed in 1998 and meant to be temporary, and it was made permanent in 2016 and in key part forbids discriminatory taxes on electronic commerce. And so the argument is that a tax on the receipts from digital ads is discriminatory because there's not a similar tax on non-digital ads. End of story.

The primary response, or a primary response to this argument, relies on the policy argument that I have just made, namely that a digital barter tax would not be a tax on ads, but a tax on the untaxed consumption using ad revenue as a proxy. Put another way, a discrimination requires that two similar things are treated differently.

Since digital ads are part of complex barters involving user data and information, they are not really similar situated to so called traditional ads because you're taxing digital ads because they are special and being a proxy for the untaxed barter. I think these arguments are strong, though it is true that a lower court judge in Maryland rejected versions of these arguments in a decision since vacated.

A perhaps better view of where appellate judges are likely to come out on this is in the piece that I attached to my testimony by a prominent tax commentator called Robert Golder. Robert Golder is a contributing editor at Tax Notes-, and Golder thinks the case a close call. I would add two considerations that suggest to me it's not that close. First, courts should interpret the scope of the ITFA narrowly. There's a presumption against preemption. The ITFA is a textbook example for why this presumption is appropriate.

So let's think about what the ITFA really is. The ITFA is Congress granting a special favor with no policy merit to narrow and powerful special interests. And here is the kicker, it costs Congress nothing to do it because it's giving away the state's tax base. The ITFA is the law, of course, unless it's unconstitutional, and there is a colorable argument that it's not. But then the industry should not get any benefit more than exactly what Congress granted it in the ITFA.

Further, judges are people, I'm told, unless, even though judges should focus on substance and not labels, there's no reason to make these obscure matters, not make them as clear as possible. And so please see the example of a proposed digital barter tax from Tennessee. That proposal has the merit of clearly explaining in its findings what it means to do, namely tax digital barters, and I think that would make the case a little bit stronger.

To be sure, the near certainty of legal challenges should influence how revenues from attacks like this should be budgeted. It also might make sense to fast track possible legal challenges. This would only be prudent, but I don't think prudence should give way to abdication. The sales tax is vitally important to the state, shying away from a straightforward way to plug a big hole because the threat of litigation is another way for the powerful to arrogate advantages to themselves beyond even what the law has granted them.

I'm happy to take any further questions. Thank you.

Thank you, sir. We're going to hold questions until we hear from Ms. Dovet. Welcome to the Committee, and we look your testimony.

Thank you, chair. For the record, Nikki Dobay. I'm a shareholder with Greenberg Traurig. We're actually missing an R in the name, so your spelling actually makes it a little easier to pronounce. So I thank you for that. But thank you for having me inviting me here today to talk about. And I will be focusing on Maryland's experience with the digital advertising tax, which is still the only state we have to enact this novel, one of a kind discriminatory tax.

I am going to be coming at this from a little bit of a different angle, more of a practical angle, a historic angle, to tell you the tale of what I refer to as Maryland's Debacle. And I think there are many lessons that California can learn from its story. So by way of background, Maryland, the digital advertising tax was initially passed in March of 2020 by the Maryland Legislature.

The Governor, just a few months later, vetoed that bill after there was actually a groundswell of grassroots efforts, and that led to the veto. Ultimately, when the legislature came back in 2021, the generally assembly voted to override the governor's veto. A couple point important things to note there about the timing of the passage. The Maryland Senate passed this bill on March 17, 2020 and the House passed it on March 18 of 2020.

I don't know if you guys remember where you were at that time, but I was in lockdown in my house. You may have been scattering around here. And so what is really unfortunate about Maryland's story is they never had the opportunity to have this sort of public debate, to discuss the legal issues and other potential ramifications of this type of tax. And I think that's very important.

And I want to commend you all for having this conversation publicly and letting stakeholders come forward and talk about the various positions. The other thing that is very important and often gets buried in this story is that in February of 2020, the Maryland AG released an opinion in response to this proposal that said, while the digital advertising tax was not clearly unconstitutional, and that's the standard that they're required to look at it through, the AG did say that the proposed tax would likely be preempted by ITFA or the Internet Tax Freedom act, which, sorry if I go into acronyms. So I think those are two important points to really keep in mind that we didn't have a robust public debate on this tax.

And Maryland's own Attorney General, prior to its passage, believed that it would likely be preempted. So just some food for thought as you move forward. I'm not going to go into the specifics of the Maryland digital advertising tax. I think the background paper does a good job of that. One thing I will note is that the legislation left out a key piece of how the tax should be administered, which related to the sourcing provisions. It rather delegated that to the Maryland comptroller.

I'll talk about that later when I really talk about the practical implications of this tax and how it's been dealt with on the administrative and compliance side. Going back to our story. So we're back to February of 2021. We've had a veto override. Literally within days this tax was challenged. There was a federal lawsuit brought by the US Chamber of Commerce. Within just a few weeks, we had a state challenge, declaratory judgment action filed by named taxpayers. And these challenges lay out several issues, legal issues as to why this tax is unconstitutional, I'll just hit on a few of the highlights. So first and foremost, the Internet Tax Freedom act. This is a federal law which is meant to prohibit the imposition of multiple and discriminatory taxes on electronic commerce. Under ITFA, a discriminatory tax is a tax imposed by a state or political subdivision on electronic commerce that is not generally imposed or legally collectible on transactions involving similar property, goods, or services.

In a nutshell, ITFA is meant to prohibit the imposition of certain taxes on digital products or services that are not also imposed on similar traditional products or similar services, or where there's no general tax on a traditional service and commerce. To my mind, the Maryland digital advertising tax is the quintessential discriminatory tax. Maryland does not otherwise tax advertising and taxing it in its digital form, as the Maryland tax does, is a violation of ITFA and is preempted.

With respect to the Commerce Clause, there's really two pieces of the commerce clause that I think are important for you all to focus on. Our commerce clause, of course, has a foreign commerce clause aspect as well as a domestic commerce clause aspect, and the Maryland digital advertising tax violates both. Under the domestic Commerce clause provision, Maryland clearly discriminates against interstate commerce, both in purpose and effect.

If you look at the companies to which are subject to the tax, as well as the rate that gets imposed, it looks at a global revenue number. It does not look at Maryland digital advertising revenue specifically, but rather what that company earns globally or their receipts globally. And then there was also very specific legislative history in Maryland that this tax was meant to be imposed on a handful, 10 to 12 specific companies, none of which were Maryland based companies.

So clearly there was a discriminatory intent when it was passed. I believe there are other arguments under the Commerce Clause that are impacted here, but I won't get into those. With respect to the Foreign Commerce Clause, this is a key piece that Maryland hits on, and really, Maryland runs afoul of this piece of the Federal Commerce Clause that really prevents the Federal Government from speaking with one voice when regulating commercial relations with foreign governments.

It's important to note that the Federal Government has been strongly opposed to the imposition of national level digital services taxes abroad. Starting back in 2019, the US trade representative investigated and threatened to impose trade sanctions on various countries imposing digital services taxes. There's work at the OECD under pillar one with the aim to create global consensus on nexus issues and taxation of digital services in order to eliminate the need for these digital services taxes in other countries. This is a broader conversation.

I'm happy to get into it later. But the reasons that foreign countries have developed these digital services taxes do not exist at the state level. In foreign nations. They don't have economic nexus rules. There's physical presence standards. They still rely on sourcing provisions related to cost of performance and income producing activity. At the state level, we have economic nexus and we also have market based sourcing. So we've addressed those issues at the state level. And so pillar one really seeks to smooth this out globally.

And Maryland has actually drawn the ire of those countries that have really come to the table to get rid of their own digital services taxes due to the US government really pushing them. And now we have a U. S. State that has enacted something very similar. So definitely issues there to be aware of. There are also First Amendment issues, due process issues, equal protection issues. And then with respect to Maryland, there are other Maryland specific laws that are being addressed.

So that's the basis for the legal challenge. I also do want you to understand the sheer magnitude of the litigation in Maryland because I think that is important as you think through these issues. Again, there was federal litigation that was filed almost immediately after the veto override in February of 2021. The district court did dismiss that case under the Tax Injunction act. The Fourth Circuit revived that case as it relates to the First Amendment. So that issue is currently pending before the district court.

The case was sent back down, and I believe that litigation will go on for years with respect to the Tax Injunction Act and whether or not the federal court is in fact barred. So that will be ongoing for some time. At the state level, we had the declaratory judgment action that was also filed almost immediately. This is the case in which the Maryland Circuit Court did in fact strike down the Maryland digital advertising tax as being preempted by ITFA and in violation of the Commerce Clause.

In May of 2023, the Maryland Supreme Court did reverse that ruling and remanded the case with direction to dismiss. That, however, was purely procedural. There, the Supreme Court said that the taxpayers did not exhaust their administrative remedies and that a declaratory judgment action was not prudent. So where are we at now? We are still dealing with a boatload of litigation. The Maryland tax court currently has several cases that have been filed.

Apple was the first to file suit, and there was additional challenges, procedural challenges, put forth by the comptroller seeking to have this taxpayer go through a full blown audit. The tax court rejected that and has agreed to take up the substantive constitutional issues in that case. But we have several other, a handful of those things of these cases going on. One thing, I do have a few more points I would like to make, and I do see my time is short.

I will say when it comes to administration, there has not been a lot of focus on the administration of this tax. The comptroller has adopted rules with respect to sourcing, but there's been no taxpayer that has been audited. The sourcing rules are vague at best. And we're really embroiled in this litigation because to this point, why would you put a lot of resources into administration if ultimately it's going to be overruled?

And finally, I would like to respond to the notion that this is not taxed under the Corporate Income Tax to the extent these receipts are in the taxable base and the benefit of the service, which is your market based sourcing rule, is in California. This revenue is taxed.

And California does have the ability for taxpayers to file on a worldwide basis. To the extent there is a product sold or a service sold that is taxable in California under the sales tax that was sold due to this advertising, that product is subject to sales tax. There are other ways to address gaps in the consumption tax. I do not think you need a new tax to do that.

And then finally, the imposition of a groceries fees tax on advertising, which is a business input, runs contrary to sound tax policy as it applies to consumption taxes. So I would welcome any comments, but I think there's a lot of uncertainty here, and I think if California wants to address a problem, I would look for dollars that are much more reliable. And I just don't see this as a reliable source of revenue for the state.

Thank you Mr. Dobay, thank you. We appreciate your expertise and providing in great detail the adventures in Maryland. But let me now go back to Professor Shanske to ask this question. I know you are aware and read the adventures there. If you were crafting an advertising tax here in California, given the experience that you know about, what might you do the same or different?

Great. Thank you for the question. So, number one, as I explained, I would have clear findings explaining that this is a digital barter tax. It is a tax on the barter, and that is what makes these transactions different from traditional ads. So I would explain clearly to a court what's being done. I wouldn't have a provision about prohibiting passing on the tax that just embroiled Maryland, and I think, needless First Amendment litigation. So there's just no reason really to have a rule like that.

I think that the dormant commerce clause challenge to Maryland's use of global gross receipts is basically meritless. I refer you to Golder's point about that, because Maryland is not actually taxing global receipts. Maryland is treating the value of receipts in Maryland as worth more, if the network is worth more. And that is a well established thing that states do all the time under income tax principles. Nevertheless, as we saw in the preceding presentation, there's no reason to do that.

California can simply use the size of the gross receipts in California as a threshold. So there's no reason to use global receipts and get embroiled in that issue. And so that would be making it clear that this is a tax on the untaxed barter that is a complement to the sales tax. Don't get involved in First Amendment stuff and use a California receipts threshold.

Would you consider the untaxed barter elements to be a loophole in the tax law today?

I think that would be a fair characterization. I mean, a lot of loopholes are created, and to some extent, this one's created to the extent that it fits in the way. But mostly this is just a factor of our sales tax was put into place in the 1930s. It simply wasn't designed to take these kind of transactions into account.

But to the extent that a larger and larger portion of the consumption tax of what we consume is through these so called free services, we need to modernize the consumption tax. So you can call it a loophole or modernizing. I think that would both be fair.

Great. Thank you. And one of the vulnerabilities of the Maryland tax is the Internet Tax Freedom act, that it's discriminatory if you had to write it again, or to write it in California was the mistake that they made that they called it a digital ad tax versus just an ad tax that applies to everyone above a certain threshold.

Isn't that one of the potential remedies there, that if you set a high threshold, it's applicable to anybody who advertises, but we all now know the data on where the spending is. Is that one way to avoid that vulnerability?

Great point. So first, I should just not to challenge the question. I think Maryland tax is going to do just fine. It's easy, especially you have lots of resources to create a lot of litigation, and we just heard about a lot of losing. And I think eventually, though, I can't make certain predictions, and I think there'll be a bumpy road and there'll be multiple levels of decisions. I'm not at all certain that Maryland will not succeed.

But your question is how could you make it easier if you had a tax on all ads with gross receipts over a certain threshold? Yeah, there's not even a plausible argument of discrimination there because you're just taxing larger taxpayers. And there are lots and lots of examples in the tax law where we only impose taxes on taxpayers above a certain threshold.

Ms. Dobay, do you want to respond? I want to give you a chance, an opportunity there, too. And then I'm going to go to my colleagues for any further questions they may have.

Yeah, my response, thank you for the chance to respond. To my mind, anytime there's a tax that targets one specific industry is always going to be discriminatory. And so I think it's always better to look at the tax law through a broader lens and maybe address things like holes or modernizing the consumption tax as a whole. So I won't disagree with that. But to me, I think you get rid of the likelihood of an Internet Tax Freedom act challenge popping up if you tax all advertising. But that is still discriminating against one specific industry.

But is there something inherent about identifying the huge winners in that space, wherever that comes from? What is wrong with that? You can say, well, I just don't like taxes. But if one identifies, and we have a progressive tax code in California, so certainly it's part of our practice to identify those who are more affluent to pay a greater share of their revenue.

From my perspective, I would rather see you all look at this through the lens of the taxes you already have and how to address issues that you potentially see with those taxes, whether it be sourcing within the corporate income tax as it relates to these types of receipts, or changes to the sales tax code as it relates to modernization. And that code being adopted many, many years ago pre Internet. I think that's a better use of time and resources and simply more fair and will provide more stability in California's revenue overall.

Terrific. Well, thank you for your input. I want to go to my colleagues and. Any questions from my colleagues here?

Not really a question. I know that I talked with the chair before the hearing, but I represent 15 counties, and every little town had a paper when I came here 12 years ago, and they're all gone except for maybe a few. But I know that the goal of this part of the hearing is to talk about how we gain revenue and do a tax credit eventually. But there's a lot of angst out there, and this is just a comment.

I mean, people are using my information every day and selling it and profiting off of it and collecting it because that's the platform I choose to get on. It's very frustrating to me. At the same time, they're marketing to me when I don't want to be marketed to. And so I think that in my conversations with the chair and starting to have this dialogue, and I think we should have this dialogue, I think it's important to know that there are huge big corporations at the same time. When I ran for Governor, they were throttling my ability to be able to speak freely. And so I think there's a lot of frustration with my constituents and with people that our First Amendment rights are being taken.

People should be able to say whatever they want to say, even though maybe we may disagree with it. There still ought to be a platform that you can say what you want to say. And that's been the cornerstone of America, which was what the chair came out with, was saying we had freedom of speech, and it's actually in the Constitution, and the press was part of that. And it has changed. There's no doubt about it that we have seen it change dramatically.

So I don't know how we get where we're trying. This is a very broad hearing where we're talking about how we maybe try to give a tax credit to somebody so they can stay in business because the market has just quite frankly, and technology, has changed. And so that's the difficult part of this hearing for me, is to figure out how we thread that. At the same time, we're picking winners and losers at the table.

Thank you, Senator Dahle, for your thoughtful words and perspective. I will note for the record that we did invite representatives of the three largest platforms to participate in this hearing today. They may still testify in public comments I don't want to tell that they may still be wanting to come up and share their thoughts, but I did want to give them an opportunity, and up until now, they have declined.

I hope that they will participate in this conversation irrespective of whether there's a Bill or not, because they've done well, and I think they bear some responsibility to repair the fabric that has been a consequence of their success. So without any further questions, I want to thank both of you for sharing your expertise with us today. All right, we're going to move on to our third panel, and we have two other individuals that have expertise in this space that we will take advantage of.

The first is Steven Waldman. Steve is the founder and President of Rebuild local news. He's also the co founder and former President of report for America, a national service program that places journalists in newsrooms across America. That's close to my heart. As he knows, before becoming an advocate for local journalism, Mr. Waldman was a journalist covering national politics for Newsweek, U. S. News and World Report, and the Washington Monthly. Later he wrote a report for the Federal Communications Commission outlining the information needs of communities.

We also want to invite to the table here Matt Pierce. Matt is President of the Media Guild of the West, a journalism advocate, a longtime reporter for the Los Angeles Times. It's good to have both of you here. Thank you for traveling here and for sharing your thoughts. We'll begin with Mr. Waldman.

Thank you so much for having this hearing. I am the President of the Rebuild Local News and the chair of the Rebuild Local News Coalition, which is an alliance of more than 35 different national and state organizations that represent together about 3000 newsrooms, labor unions, ethnic media, conservative rural weeklies, for profits, nonprofits. It's a very broad coalition, and our goal is to find and advocate for public policies that will counter this collapse of local news while preserving editorial independence. That's a key point.

As you noted, the crisis is really severe. There's new information from the Medill University's most recent report that there's been a 68% drop in the number of journalists in California from 2005 to 2000. It's really staggering. And 160 newspapers haven't closed in California. So really thank you, Senator Glazer, for your focus on this through the fellowship program in general.

And I also want to thank Assembly Member Wicks and Senator Umberg, as well as the California News Publishers Association and the News Media alliance for their work on the California Journalism Preservation Act. I think their efforts have brought a great deal of energy to helping solve this cause. I'm here to describe a few other complementary approaches that you might consider as well that are based in tax policy.

And having studied a variety of different approaches, there is one clear winner, at least in terms of the breadth of support, and that is the idea of a local news employment tax credit. A version of this passed the US House of Representatives in 2021. It's been endorsed by every major publisher group, labor unions, state press associations, and many others. And the federal version.

The way it works is they use the payroll tax refund system as a way of providing subsidies to local newsrooms based on how many editorial employees that they have working on local news. So the subsidy in that case is equivalent to 50% of the reporters wage, up to $50,000 salary. So in other words, it could provide organizations with up to a $25,000 benefit per employee.

So, for example, here in Sacramento, you're lucky enough to have the Sacramento observer, which does an outstanding job covering the black community. Here they have eight editorial staff, and they would get $190,000 in the first year. And Larry Lee, the publisher, tells me that that would enable them to hire more reporters and have more events in the community. In the federal version, I'd note that it's sunset after five years, and that the benefit drops from maximum of 25,000 to 15,000 in years two through five.

You might want to consider a California twist on this, which would be to maintain the higher level if the newsroom maintains or increases their staff, sort of taking a page from PPP and creating those incentives. There's a lot to like about this approach. It's highly targeted to the core challenge, the lack of local reporting in communities. It has good incentives. If a newsroom adds reporters, they get a larger benefit. If they cut staff, they get a smaller benefit. It's easily accessible by smaller newsrooms.

They don't have to hire a grant writer or a lobbyist. If the outlet qualifies, it files for it on its taxes, and the next quarter it gets a refund. We think this would be enormous benefit, especially to small rural weeklies, family owned publications, ethnic media and nonprofits, as well as the bigger players. It's future friendly, which is to say that it doesn't only help the current established players. As new models emerge, as they will, they can benefit too, as long as they meet the basic criteria.

Canada has a similar policy in effect for a couple years now. They call it the labor subsidy, and the early reports are encouraging. A study by the University of North Carolina found that all of the small publishers that they interviewed reported that the credit had increased their ability to hire reporters. So what would this cost? Now? Our estimate is if you use the terms that are in the federal bill, which we think would help about 450 California newsrooms with about 3000 reporters.

Using the model that the joint tax Committee created, it would come out to about $55 to $60 million cost per year for California to implement this. We are agnostic on exactly how to pay for this. I would note that as a matter of scale, based on KX's testimony, a tax of 0.5% on the three companies would pay for the entire employment credit tax program.

But even without a pay for, I hope lawmakers seriously consider this because there are enormous civic benefits to having healthy local news, which I think Matt Pierce will talk about a little bit. And I would add just one other thing that is even more pedestrian maybe, is that local journalism routinely saves governments and consumers billions of dollars, whether it's uncovering waste in government or highlighting corporate scams against consumers, or evidence of malfeasance that the Attorney General then uses to collect fines.

So on a social level, broadly speaking, offering a tax credit for local news employment will likely pay for itself. One thing this approach does not do is attempt to police based on the quality of the newsroom or the ideology. Some tax benefits would therefore no doubt end up supporting publications or TV stations that we might not like individually. But we believe that that kind of broad minded approach is the way to provide the support while preserving editorial independence.

And instead of the newsrooms collapsing and closing, they would have a real shot at covering their communities. Now from there, they still have to make the case to their residents that they're serving them well. There are a few other tax ideas that I'll mention quickly. The federal bill also includes a second idea, which is a tax credit for small businesses that advertise in local news. So it goes to restaurants and grocery stores and other small businesses.

So under the federal bill, it would be 50% of the value, up to a $10,000 advertising spend. So if a small business in Alameda purchased $5,000 worth of advertising in the Alameda Post, the business would get $2,500 rebate. So in this case, no government agency is deciding who gets the ads. It's the small businesses that are making that decision based on their view of who's going to be most effective. Thirdly, a tax credit for subscriptions or donations to local news. We love this idea in concept.

This was in an earlier federal version. It's really one of the best ideas in principle, because you're empowering consumers to help support local news and they make the choices about which local news they think is best. To be honest, as we got into this, we found a couple of glitches in the policy. One was that at least on the federal level, it would only go to itemizers, and there was really no guarantee that most of the tax benefit wouldn't go to people who are already paying for subscriptions instead of trying to generate new ones. But we love the concept and would be happy to work with you to try to figure out how to do that.

And then lastly, I would say that there are ways of having using the tax system to encourage what we call replanting, which is to say encouraging local communities to acquire or retain newspapers so they don't get sold to hedge funds or to out of state companies. So you could give tax benefits to local nonprofits or public benefit corporations that acquire newspapers.

You could have something that Illinois just proposed was a 120 day waiting period on whether when a newspaper is going to be sold to an out of state company to allow for community.

Organize around that. We have other examples in the written testimony of other ways of helping local news and elaboration on these tax ideas. I guess the last thing I would say is that the revised version of the California Journalism Preservation Act, we think could be useful if we're targeted toward California publishers and focus on investing in journalism rather than based on traffic. But we have a lot of detail on all of these ideas that we're happy to provide for you. And thank you again for focusing your attention on this.

Thank you, Mr. Waldman, thank you for your good work in this space for a long time. Appreciate your insight. Mr. Pearce, you're on the ground floor there in so many ways. You get to hear the theorists and the lawyers, and yet you're living the journalism life now. And we appreciate the perspective that you have personally as well as on behalf of the guild. So thank you for participating.

All right, and thank you so much, Senator, and esteemed Committee Members, for hearing from us. I think this is a vital issue of course. I am President of Media Guild of the West for a local union of the News Guild CWA. My own local represents newsrooms in Southern California, Arizona, and Texas. Members from Newsguild at various news Guild locals produce the news that millions of Californians read every day, from legacy newsrooms like the San Francisco Chronicle to new nonprofit newsrooms like CalMatters.

So I was a longtime reporter for the Los Angeles Times up until a few weeks ago. I took a buyout as part of the latest major cut to our newsroom, which has shrunk roughly 40% since 2019. So we deeply appreciate your interest in finding ways to support local journalism and local journalists. I would urge you to think in terms of billions, not millions. If you're thinking about what's necessary to offset the economic losses to journalism over the last few decades.

In our industry, many for profit and nonprofit newsrooms are facing a lot of the same economic headwinds, and a lot of them have cut journalism jobs, especially in the last year, with obvious risks to the health of our democracy. My own local has not developed a position specifically about a digital advertising tax. It's complicated, and I was very interested in hearing the testimony earlier. It's an issue that we'll study, and we're open to having conversations about it.

The local news crisis is so dire that we tend to have a yes and approach to journalism legislation where we're open to multiple different concepts and different lanes of attacking the problem facing our industry, because there are a lot of them. And so it's not inconsistent for us to support Assembly Member Wick's Bill and also look at other legislation as well.

In recent years, a growing body of academic research suggests that newspaper closures and the loss of local journalism jobs has been associated with many hidden costs in our communities, negative externalities, including higher municipal borrowing rates, higher interest rate spreads in local bank loans, and measurable declines in civic engagement.

These sorts of costs should be included in any kind of analysis on the impact of tax relief for local journalism jobs, given the evidence that our communities may already be bearing economic costs from newsroom closers, the Senator mentioned not having any newsrooms in his own Assembly District or his own district anymore, and that's sort of an example of the kind of problems that may already be experienced by these communities. We don't know what kind of costs they're already experiencing just because they haven't been studied.

So the News Guild in our parent union, the Communication Workers of America, tend to support the type of tax frameworks advanced by Mr. Waldman and rebuild local news coalition, particularly tax credits encouraging the hiring and retention of journalists on a broad-based and non-discriminatory basis. California has had experience and success using tax policy to promote employment and retain production in another business sector vital to our state.

The California Film and Television Tax Credit Program has included a production incentive designed to support the employment of below-the-line film workers in California. Research by the LA County Economic Development Corporation has credited that program with supporting more than 110,000 jobs in California between 2015 and 2020. It's managed to do so without violating the Constitution's Dormant Commerce Clause. So in terms of if you get the revenues to spend on journalism, what do you do with it by membership resolution?

My local also supports well designed initiatives to publicly fund public interest journalism. But I'll say as President, my brief experience as a somewhat idealistic advocate for California journalists over the last couple of years, I've become a little bit more skeptical of grant programs.

In particular, Senator Glazer, you may remember that my local took a supportive, amended position on your Senate Bill 911 a couple of years ago, different from the Senate Bill 911 that was discussed this morning, and that would have created the state grant program for public interest journalism. I still feel pretty good about where that Bill was headed with the incoming amendments that we had been working on with your office.

But ultimately I was disturbed to already see infighting between publishers who are going to be competing with each other for a limited amount of grant funding from the state, which bothered me because I think if the state is going to provide some sort of economic support for newsrooms.

It would be preferable that that support promotes good behavior by everybody on a sort of neutral, consistent, and predictable basis, because I'm worried that kind of a set up where you're handpicking winners and losers year after year is going to be a recipe for incentivizing news companies and newsrooms, or even journalists, to come try to approach the state and get special favors or preferential treatment for themselves instead of sticking to General advocacy for our entire industry, which I think is fair game.

And so the creation of the Berkeley School Fellowship Program for Early Career Journalists was a good solution, I thought, since that fellowship is administered by experienced journalism educators. But again, we're talking about providing training and support for young journalists by placing them in professional newsrooms that in many cases may not likely be able to afford to keep them on board once their temporary state fundings ends.

So my own newsroom being an example of that, and the 25 million that the Legislature invested in the Berkeley Fellowship is thought to be the largest state allocation anywhere in the US ever to support local journalism. Thank you, by the way. But that historic investment is dwarfed by the $30 to $40 million that the Los Angeles Times reportedly lost in 2023 alone.

I mean, I've lost far more coworkers in the past year than the Berkeley program has even budgeted to employ across the entire state, and that's in a single newsroom. So when I say we need to be thinking in terms of billions, not millions, one of the things I consistently try to do when I appear in settings like these is to just emphasize the enormous scale of what we're talking about, the disaster that has already happened.

I mean, we have newsrooms still that are cutting jobs, but the disaster has already happened. So that's why I have to think. We have to think much bigger. And so, again, I thank the Committee for your time and look forward to your efforts to support local journals in California.

Thank you. Mr. Pearce, I think you heard, and I heard at least taking some of the tax standards of other states in this space, that upwards of $500 million could be generated, based again, on how it's done. But I certainly agree with you that I am thrilled at the success of the Berkeley Fellowship. But no, it's just a small part of what needs to be done. That's not a rescue plan. That's doing some good work and good things in a lot of places.

Yeah, and I want to be clear, but I'm not talking down about the Berkeley Program. I'm a University of Missouri graduate and I'm proud to say here, though, that you can get a world-class journalism education right here in California. And that's one of the things that really helps with that. And so the state does a fantastic job preparing journalists to go out into their communities and to report on what's going on, even to report on you.

But it's really like, can we make sure that they have careers once we get them out of the wonderful schooling system that we've created for them? That's the real crisis.

Indeed. I appreciate you sharing your support for a number of the spending side elements that rebuild local news has shared with us today. But I want to go back, Steve, to you. A lot of what allows community newspapers to survive is what I guess in the business you'd refer to as stringers, folks that aren't full time employees.

In reviewing and knowing that, is there anything you want to say about how you take that into account, that if it's an employment tax credit, may not always incorporate those. So any thoughts about for a lot of these smaller outlets that can't rely on a full time, other ways that our tax spending side can help?

Yeah, that's a great question. I think there are ways of constructing it so that you could essentially take some amount of money and count it as an FTE. Like if you aggregate x amount of money spent on stringers, freelance, and contractors, editorially adding it up to being an FTE, or a half of an FTE, so that the newsroom would be able to benefit from that as well. In some cases, the newsroom may want to convert their part-time people into employees if they have the.

And that would be great, too. We've had a number of people who said, we have these folks as contractors and stringers, but if this existed, we'd probably make them an employee. But I think if we could come up with a way that would also deal with the fact that, especially at very small levels, that is the reality that a lot of them do rely heavily on freelance.

Let me go back to Mr. Pearce for a moment. Part of the integrity of our journalism corp is recognizing conflicts of interest. And I know, I'd like your reaction to this, that this has been a slow-motion crash. And while they've seen some notable stories about chronicling it, and certainly when a newspaper goes out of business, you get that sad front page story that says, where this is our last edition.

But do you think that journalists, because of their integrity, are not covering this crash because it involves them and their enterprises? Do you think that there's the coverage that you would expect given the severity and the importance of what's happening around us.

I would reframe it slightly, which is that I think in many cases publishers are reluctant to broadcast to their own readers how weak they are. I mean, it's not necessarily good business to tell your own readers that, like, hey, we've had to cut back our services a lot and you're getting a worse product and meanwhile your subscription rate is going up. Unions like mine, part of the reason, I guess, that we've formed is that we feel the strain in our newsrooms.

Many journalists go years without raises. I had actually gone two and a half years without a raise at the LA Times before I left a few weeks ago. We've taken on the mantle of trying to raise the public outcry and try to tell the public what's going on. Because you actually look at survey data of news consumers, a lot of them are unaware that there is an economic crisis in their local communities.

So if you look at surveys and you're asking the public like, do you think your local news outlets are doing okay financially? And they say yes, then I think even as journalists, we've done a poor job communicating to the public exactly what kind of dire straits that we're in. But the other part of this is absolutely correct. I mean, journalists we tend to loathe to make ourselves the center of the story and to put ourselves before our own communities.

And so it's awkward for journalists to come and testify and to lobby and push for certain policies. By definition, when we go to those great journalism schools are telling us, don't do know, I'm happy to do that for my fellow journalists while recognizing that a lot of them would not be comfortable doing the same thing that I'm doing right now.

Mr. Waldman.

I think the other factor is that consumers feel overwhelmed by information and news. So if you talk to a regular person who's not in the industry and you say there's a local news shortage, they look at you with a strange face. What do you mean shortage? I'm just absolutely drowning in information. The shortage, of course, is in local reporting.

But I think part of what has maybe taken a little while for people to realize the severity of the crisis and the implications for communities is that there's a kind of national news avalanche at the same time there's this severe local news shortage.

Another thing, an observation I have, is that there have been persistent attacks on the so called mainstream media out there, and I chuckle sometimes. I don't mean to say it's a laughing matter, but I look at that and I know that it's appearing in all those stories because the journalists themselves want to be fair and therefore they put some of that craziness in there without necessarily fact checking because it's about themselves again.

And yet it's a drumbeat out there that I have seen from certain factions of our political establishment to just erode the integrity of our journalism community of the free press. Matt, you see that it's an awkward thing.

As a card carrying Member of the mainstream media, I recognize this. Look, I'll also say that a lot of the public, and I see this out there, they themselves want more partisan media, or they want more opinionated angles on the issues that they're dealing with. The world's complicated, and sometimes it's hard to take the time to read a 79 page law review article about why a digital ad tax is a good idea.

But it might be easier to listen to a thirty-second TikTok video saying why it's awesome. And that's the reality of how people are engaging with the massive amount of information that they're coming in. I think the public attacks against journalists are sad, but bringing it back to the policy, I think that's why I've come to the position of trying to encourage nondiscriminatory or more viewpoint-neutral public policy on supporting newsrooms and journalists.

Because I do think that I see this sometimes in other testimony or debates about journalism issues. But people want to create a certain specific kind of local media, and I know that they have good intent. But I think you mentioned Viktor Orbán and the Nation of Hungary. That is a country that has very effectively used media policy to create media that is only favorable to the one party that is in power.

And God love all of you, but we're in a state where it's dominated by one political party in particular. And so I do want us to be a little bit self conscious about. For me, yes, I think we can create responsible journalism policy right here in California.

At the same time, I also represent journalists in Texas, and I would love to be able to say that they created a policy in California that was fair and non-(discriminatory and encouraged good behavior and community investment by all sorts of different newsrooms. And it's the kind of thing that we could take to Texas, dominated by a different party. And you know, this could be a good idea for you, too.

This is something that we can promote that's fair and doesn't discriminate and also doesn't turn people against each other.

Well, those insights are very helpful. I mean, the goal, of course, is to find the resources. But this is on the spending side that you're saying that, of course, there are folks in your world, the purists, who would say government should have a complete hands off. And I acknowledge the importance of independent journalism.

And it's a tough one to even have these conversations to say that if there are resources, how can government, and you talk about SB 911 from two years ago and the challenge of trying to thread that needle where you want to put money there, but you want to have the hands off and how do you do it? So your insights are helpful there, but it might be seen as some, as crossing a boundary that they think the government should never cross.

Well, I know Mr. Waldman has some lines about this, but the government has actually long been in the business of supporting journalism in American history, from the founders with postal subsidies to make it easier to get newspapers to readers at the founding of our republic to understand our democracy. So we have a history of this, actually. It's actually more in recent decades where the government's gotten more scared of laying down some basic rules just to make the marketplace fair.

And I do think when I come here, I'm asking for fairness. When I'm advocating for bills like Assembly Member Wick's, I think that Bill is a matter of know. I think we have some very large companies that have throttled journalism in California economically. And I'm just asking for marketplace that is actually going to produce the results that we need to sustain this democracy. I don't want favors. I want a world that makes sense.

I'm going to give the last answer to my last question to Mr. Waldman, and then we're going to go to public comment unless panel Members have questions. Mr. Waldman, as Mr. Pearce has indicated, government has played a role in supporting independent journalism here in America and around the world. And people think, is this the exception to the rule?

And maybe you could speak to examples in England with the BBC and other places where in an appropriate way, and if they're inappropriate, you should say, because we don't want one party controlling the news, as we understand is happening in Hungary. Could you speak to that?

Yeah, we actually, in the United States, relative to the rest of the world, we actually spend a smaller percentage of budget and GDP to support media than other countries. But we still have had very significant support for the media or policy that has helped over the years. The postal subsidy that the founding fathers created literally in their first Congress.

It was actually one of the first acts or social programs that they created, was a massive subsidy for the newspaper industry in the form of having lower postage rates for newspapers to be sent around in modern dollars. It would be about $40 billion a year, about the size of the NASA budget that the government was saying support. But it's really interesting to look at why that worked.

It wasn't Ben Franklin sitting there with Federalist and Jeffersonian papers deciding which were good and saying, these should get a benefit and these shouldn't. It was a broad-based benefit that helped all sorts of different newspapers, including ones know George Washington hated. And they just accepted that because they said, we have to lift up the whole field in a fair way. And it was accepted by the public for that same reason.

And that's why I think we end up coming back to some of these tax ideas, because even though it's not about postal subsidies, the principles of the tax ideas are actually the same as the principles that were in the postal subsidy. Simple standards that are universal, that would be applied to a broad range of people.

And one encouraging thing is that this federal Bill, which includes the employment tax credit and the tax credit for small businesses that advertise, has now been endorsed by the National Restaurant Association, 21 Republicans and 21 Democrats. So what we are finding is that this particular approach is viewed as more neutral and that legislators of all different ideologies are making a distinction, even the ones that are very, very critical of mainstream media and would rather not help National media, still are seeing the importance of local news.

And ultimately, it's not in their minds about helping keep jobs for reporters. I'm not sure everyone cares about that. It's that it's doing real harm to the communities. It's making communities poorer, less informed, less able to address their problems, have higher taxes. And so that, I think it is absolutely true. I mean, this is kind of a funny coalition, because it's like a coalition of people who would really rather not be there.

No one really is rushing to the idea that, "Oh", let's get the government to help. But everyone has really come to the conclusion that the crisis is so severe and the consequences to democracy and the health of communities are so grave that we really do need to look at careful, First Amendment-friendly policies, and that fortunately, they do exist. They can be done.

Well, thank you both for your testimony today. You bring a really important insight to our work, to the crisis that we're in the middle of. And I appreciate that. Continued conversations as we go forward and as we try to figure out a way in this rescue plan to do it the right way. But it's certainly one of the most important things we can do here in this Senate this year. So thank you both very much.

Thank you.

We're going to go to public comment. Do you want to get your votes in before we do that, Senator? Well, okay, let's do that then. We're going to pause for just a moment. We can open up the roll for pending. Yeah, Senator Skinner, we have six votes to adopt the rules, so let's start with that measure to adopt the rules, and we'll call the roll on that.

Motion is to adopt Committee rules. [Roll Call]

Bill is that the rules are adopted, seven to zero. Next up is SB 911 by Senator Seyarto.

Motion is dupast to the Committee on Military and Veterans Affairs. [Roll Call]

Okay, Bill is out, six to zero. SB 104 by Senator Wilk. Please open the roll.

Motion is to pass this amendment to the Committee on the Appropriations. [Roll Call]

Bill is out, seven to zero. SB 927 by Senator Dahle.

Motion is to pass this amendment to the Committee on Appropriations. [Roll Call]

Bill is out, six to zero. All right, we're going to go to public comment, but one thing I want to say, if those who want to testify to please come up to the front here, is that California. What put California on the map? And it was gold, it was gold mining. That's what put California on the map, brought people out from across the nation and across the world to our great state.

And it's the basis for so much of our young history in this place we call California. But if you talk about the modern gold rush today, it's data mining. Not gold mining, it's data mining. And the ability of these platforms to capture individualized data on Californians and for those from around the world has really ignited an enterprise that in some ways we have great appreciation for and praise for.

And yet we seize some of the consequences of that success as we have hollowed out newsrooms across the state, let alone dozens that have closed. So that has become the modern day gold rush in California. Is that data mining, and we have to find a way to be supportive of all the platforms that have done so well that we so appreciate that ingenuity and innovation, but we also have to deal with the consequences that have really provided cracks in our foundation of our democracy.

It's a very, very serious issue, and I know of few things that we deal with here in the Senate that can match the importance of trying to shore up that foundation in the years ahead. So with that, we want to open up public comment. Anyone who's been here in the hearing room, thank you for your patience during this testimony. We welcome you to the microphone. Please introduce yourself. And we're setting aside a minute for each person.

Good morning, Chair and Members. Peter Blocker with the California Taxpayers Association. I'd like to first thank you and the Committee for holding this hearing today, having this open dialogue and on an important issue, and appreciate your comments and taking the issue very seriously. We agree with the comments made today by the Attorney from Greenberg Traurig. So on the problems of digital advertising tax.

So I won't take any more of the Committee's time, except add that our Association, even though it has not been a California issue yet, having closely monitoring and following the Maryland Tax and the litigation there, and would caution the state in adopting a tax like this while that is ongoing. But we look forward to continuing this dialogue, moving forward. And again, thank you for the opportunity to speak today.

Thank you.

Thank you, sir. Appreciate it.

Good morning. Stephanie Estrada with Cruz Strategies on behalf of California Black Media and our 30 affiliated black media outlets each, who operate distinctly with their own business models. We appreciate the chair and the Committee's attention to this important matter, and we look forward to collaborating with all the stakeholders here to ensure the perspective of black media outlets is heard and valued in these discussions today. Thank you.

Thank you.

Mr. Chair and Member, Samantha Corbin with the California Tax Reform Association. Also appreciate the conversation today. And think in particular, panel two was illuminative of some significantly broader issues with the state's tax and revenue system and its volatility, particularly around the fact that the state currently does not tax intangible products or digital services. And that disparity creates much broader problems than even just this important issue regarding journalism.

And so would encourage this Committee to explore those challenges even beyond today as a means of addressing some of the problems we're facing across the broader budget, while at the same time we do have concerns about specifically looking at additional tax expenditures, 40% on the dollar of which is a direct cut to K through $14 in the state, at a time where we have very little additional to lose in the budget. Thank you.

Thank you very much. And look forward to continuing dialogue with you as well. Hello.

Good morning, Mr. Chair and Members of the Committee, Brittany Barsati with the California News Publishers Association. We have around 450 publications throughout the State of California, been serving this great state since 1888. Well, I thank the chair and the Committee for your interest in this important topic. Thank you.

Thank you so much. Look forward to partnering with you as well.

Hello. Scott Kaufman, Howard Jarvis Taxpayers Association. I was also a journalist for almost 10 years, so I very much understand the plight of local news media. When I was a journalist, I kept an empty box under my desk. I called it my layoff box. I fortunately never had to use it, but unfortunately had to give it to my colleagues on a number of occasions. So very sympathetic to the issue.

Obviously, though, being the Howard Jarvis Taxpayers Association, we are concerned with any new taxes, especially one targeted that could be deemed discriminatory, could result in, I believe the technical term was boatload of litigation and would very likely be passed on to the end user, the consumer. But happy to discuss anything.

Thank you very much. I see. Senator Umberg, you've joined us. Thank you for your participation. I complimented you earlier on your leadership in this space and your hearing that you held at UCLA in December. Welcome to the Committee. Anything you want to say?

Well, thank you, Chair Glazer. This is an important issue. Echoing the comments of those who've already expressed their points of view, I regret that I couldn't be here earlier, but for the first time my 11 year legislative career, I will watch the tape.

Thank you, Senator Umberg, and appreciate your engagement on this. All right, well, that completes the work of the Senate Committee on Revenue and Taxation. Want to thank everyone who traveled near and far to participate with us, and we look forward to the continued dialogue in the weeks ahead. And with that, this Committee is adjourned.