Gov. Jerry Brown has signed into law California's tax on Internet sales through affiliate advertising which will immediately cut small-business website revenue 20% to 30%, experts say.
The bill, AB 28X, takes effect immediately. The state Board of Equalization says the tax will raise $200 million a year, but critics claim it will raise nothing because online retailers will end their affiliate programs rather than collect the tax.
If demand for a good is elastic (quantity demand is very responsive to price changes) then raising the price of the good will decrease revenues because the increase in the price per unit fails to compensate for the decrease in total quantity demanded.