All Things Digital

As far as solutions for California’s $14 billion budget deficit go, taxing “digital property” is nearly as outlandish as Gov. Arnold Schwarzenegger’s proposed $4.8 billion cut in education spending.

Yet it’s being bandied about by Democratic State Assemblyman Charles Calderon, whose Assembly Bill 1956 would expand the state’s sales tax to digital goods–music downloads, e-books, pornography and what-not. “The notion of taxing tangible, physical property is really an industrial-era construct when we made widgets and sold widgets,” Calderon argues. “Now it’s not about widgets, it’s about information, and selling information and moving information.”

It certainly is, but is it really prudent to slap an iTax of 8.25% to 8.75% on such information? Especially when those who peddle it could pretty easily create a separate entity out-of-state and avoid it altogether? Driving away e-commerce certainly isn’t going to do California’s budget any good. “When you charge these taxes, all these e-commerce [companies] are going to move outside of California,” said Michelle Steel, a member of the California State Board of Equalization. “California is the high-tech state; why would you want to kick them out?”

Good question. Because if you do force them out, who’s going to provide the state with its massive tax windfalls? From an Associated Press report from January, 2007:

After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes–enough to cover the salaries of more than 3,000 state workers.”

It seems investors just can’t get enough of Alibaba. Shares in China’s largest e-commerce company skyrocketed 290% yesterday, its first day trading as a public company.

The company’s stock closed at HK$39.50–155 times next year’s estimated earnings. A jaw-dropping multiple even by the giddy standards of the Hong Kong and Chinese stock markets. Value of Alibaba stood at 161 times earnings, based on its projections for 2008. “The growth today reflected our IPO price wasn’t that expensive,” Alibaba chairman Jack Ma told a press conference in Hong Kong. “We are … leaving money on the table to share with others.”

“Others” like Yahoo, for example, which owns a sizable stake in Alibaba Group, the majority owner of Alibaba.com, and could do quite well for itself a a result. Tech Trader Daily’s Eric Savitz breaks it down: “Alibaba Group holds a 75% stake in Alibaba.com, which is worth $17.4 billion. Yahoo owns 39% of Alibaba Group, which puts the value of their share at $6.8 billion. The direct-owned 1.2% stake is worth about $278 million. That puts the total value of Yahoo’s interest in Alibaba.com at north of $7 billion. That’s about 16.7% of Yahoo’s current $42 billion valuation.”

Great news for Yahoo, eh? Now CEO Jerry Yang has something happy to think about while he sits in the Congressional hotseat today answering questions about the company’s role in helping Chinese officials put a journalist accused of leaking state secrets in prison for 10 years …

Yahoo has invested millions of dollars in China over the years. Indeed, it’s a cornerstone investor in Chinese e-commerce site Alibaba.com, which is slated to go public next week in one of the hottest technology initial public offerings since Google.

It had to run afoul of the language barrier sometime, right? It’s just a shame that when it did, Chinese journalist Shi Tao ended up in prison as a result.

Yahoo General Counsel Michael Callahan apologized yesterday to the House Foreign Relations Committee for failing to tell U.S. lawmakers that Yahoo knew more about China’s crackdown on online dissidents than he initially acknowledged in testimony last year. “Months after I testified before two House subcommittees on Yahoo’s approach to business in China, I realized Yahoo had additional information about a 2004 order issued by the Chinese government seeking information about a Yahoo China user,” Callahan said. “I neglected to directly alert the committee of this new information, and that oversight led to a misunderstanding that I deeply regret and have apologized to the committee for creating.”

That oversight, incidentally, meant that Callahan’s testimony of Feb. 16, 2006, was allowed to stand. And that went something like this:

The Shi Tao case raises profound and troubling questions about basic human rights. Nevertheless, it is important to lay out the facts. When Yahoo China in Beijing was required to provide information about the user, who we later learned was Shi Tao, we had no information about the nature of the investigation. Indeed, we were unaware of the particular facts surrounding the case until the news story emerged.

“Let me take this opportunity to correct inaccurate reports that Yahoo Hong Kong gave information to the Chinese government. This is absolutely untrue. Yahoo Hong Kong was not involved in any disclosure of information about Mr. Shi to the Chinese government. In this case, the Chinese government ordered Yahoo China to provide user information, and Yahoo China complied with Chinese law. To be clear–Yahoo China and Yahoo Hong Kong have always operated independently of one another. There was not then, nor is there today, any exchange of user information between Yahoo Hong Kong and Yahoo China.”

Quite an oversight.

So, assuming for the moment that this is an honest account of what happened, how did it happen? Yahoo blames the incident on a lousy translation of the Chinese government’s order, which didn’t mention that its request for user information involved an investigation into state secrets. Mea culpa, eh, Yahoo?