California’s Sales Tax Revolution: Exploring the Carbon Tax Proposal
California is one of the sleeper states — the states that haven’t yet updated their sales tax regulations in response to Wayfair. Wayfair is the Supreme Court’s landmark 2018 decision overturning Quill and changing the definition of “nexus.” This decision allows states to make laws that compel remote sellers to collect and file sales tax even without physical nexus.
About half the 50 states have made those laws. California, however, has a different and much more radical idea. A new bill has been introduced in the legislature to study the idea of replacing sales taxes altogether with a carbon tax. Consumers would pay less for sustainable products and more for those that affect the environment.
All products would be ranked on the basis of “carbon intensity,” the carbon footprint of the manufacturer, and presumably also the supply chain of the product. Sales and use taxes would be abolished, and consumers would instead pay a carbon tax based on the product’s carbon intensity.
The object of the new tax system would be to encourage consumers to choose more sustainable products. It would therefore be more like the “sin tax” on cigarettes and junk food than like an ordinary sales tax. Sales taxes are intended to raise revenue for the states and municipalities, more than to influence consumer behavior.
The carbon tax bill is not proposing an immediate change in taxes. Rather, it would start a study of the possible effects of making that change. If the carbon tax becomes law, there would be a five-year transition period to figure it out.
Some of the issues that have already come up in discussions:
- Would the carbon tax hurt the state budget?
- Would prices overall rise or fall?
- Would the carbon tax affect manufacturers who already pay for carbon emissions in California?
- How would the carbon tax be calculated for products not made in California?
The calculation of the carbon tax might be an added responsibility for manufacturers. In the European Union, manufacturers are required to produce information on chemicals used in producing their goods. No data, no access to the market — it’s that simple.
California is the sixth largest market in the world, ahead of most nations. If California decides on a carbon tax, manufacturers may have to go along, just as they have had to go along with the EU’s chemical regulations.