California Assembly Bill 796: How the Proposed Social Media Advertising Tax Will Impact Marketers
- John McCarthy
- Apr 16
- 2 min read
Recent legislative developments in California could significantly affect how brands approach social media advertising. Assembly Bill 796, introduced by Assembly Member Lowenthal, proposes a new tax on social media platform advertising revenue that warrants immediate attention from marketing professionals across the state.
What Is Assembly Bill 796?
AB 796 would impose an as-yet-unspecified tax percentage on advertising revenues from social media platforms for tax years 2026-2030. While the bill exempts advertisers spending less than $100,000 annually, many small and medium-sized businesses exceed this threshold when their annual social media ad spend is combined across platforms. Here is a link to the bill text of AB 796.
The revenue generated would be allocated to a newly created Social Media Safety Trust Fund, ostensibly to address potential social harms from social media use. However, the implementation raises several concerns for marketers and their clients.
Industry Impact Assessment
The proposed tax would likely have several cascading effects on our industry:
Cost increases for businesses already navigating challenging economic conditions
Competitive disadvantage for California-based companies compared to those in other states
Reduced advertising effectiveness as businesses scale back campaigns due to increased costs
Disproportionate impact on industries that rely heavily on social media advertising
Additional administrative burdens in determining which ads "originate in California" for tax purposes
Industry Response
The American Advertising Federation (AAF) and numerous industry partners have formed a coalition to voice opposition to AB 796. This unified front includes:
The AAF national organization is coordinating responses across multiple stakeholders
AAF chapters throughout California are working in concert to amplify the collective voice
Partnerships with influential industry organizations, including the Association of National Advertisers (ANA), Association of American Advertising Agencies (4As), Interactive Advertising Bureau (IAB), NCTA - The Internet & Television Association, and Internet Coalition
Support from organizations beyond advertising, including the National Taxpayers Union and the Consumer Choice Center
Economic Stakes
The coalition has submitted formal opposition documentation highlighting several key points:
Advertising generates over $1.4 trillion in economic activity in California.
The advertising industry supports over 3.4 million jobs in the state (18.9% of all California jobs).
Similar taxes in other countries have resulted in 55% of the tax burden being passed to consumers.
The bill raises significant legal concerns regarding the Permanent Internet Tax Freedom Act, First Amendment issues, and Commerce Clause challenges.
What Marketers Should Know
Social media platforms would likely pass these new costs directly to advertisers, increasing the cost of digital advertising for businesses throughout California. For organizations, agencies, and marketing professionals, this means potentially tighter budgets, more complex campaign planning, and additional considerations when recommending platform distribution strategies.
Looking Ahead
As marketing professionals, we understand the vital role that affordable, effective advertising plays in business growth and economic development. This bill represents not just a financial concern, but potentially a shift in how digital advertising operates within California's economic ecosystem.
We'll monitor this situation closely and provide updates following next week's hearing (link to the hearing schedule). For further information or questions, don't hesitate to contact John McCarthy, President of the Inland Empire chapter (HelloJohnMcCarthy@gmail.com) or mobile (909) 263-0454.
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