Today California took another stand against business. Governor Jerry Brown has signed a law taxing internet sales with immediate effectiveness

According the Orange County Register:

[The law] will immediately cut small-business website revenue 20% to 30%, experts say.

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.

First of all, “The state Board of Equalization”? Really? I guess my friend who manages a business in California that calls it the “Socialist Republic of California” is right.

Furthermore, it is typical of government to sell a new policy based on revenues that assume its intervention will have no effect on the current business environment. However, there are always unintended consequences. In California’s case, these consequences were rather immediate.

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites.

This is what happens with you are dealing with one of the quickest to respond to the market companies in the world–unintended consequences. Thousands of Californians lost their jobs today. More businesses immediately made plans to leave the state, which will add to the 5.4 businesses per week that leave, as we have discussed previously.

Almost all the California Amazon affiliates have fewer than 75 employees and a large percentage have no employees, according to Rebecca Madigan executive director of the Performance Marketing Association, a Camarillo-based nationwide trade association.

“This law won’t impact Amazon that much but it is a crisis for website owners who make revenue by placing ads on their websites for thousands of online retailers,” Madigan said. “Most of them don’t have a physical presence in California.”

Governor Brown has immediately disabled and liked closed many of the small businesses operating 25,000 websites!

California Retailers Association stated:  “We thank Governor Jerry Brown and the leaders in the California State Legislature who have demonstrated their leadership and commitment to California businesses by passing and signing e-fairness into law. Small and large businesses across the state have been held at a major disadvantage by the current law that out-of-state online companies like Amazon.com and Overstock.com have exploited for years. This has cost us jobs and revenues.”

And now we discover the truth. The board members of the California Retailers Association are all big businesses. Under the guise of “fairness”, the usual lie, these big business recognized their inability to complete with with an innovator like Amazon.com or its small business affiliates due to their quickly-fading antiquated business models. So rather than embrace the competition and evolve with what consumers demand, these big businesses sought government intervention. Ironically, the California Retailers Association also claims membership in Californians Against Higher Taxes. It appears they are only against higher taxes when it is in their individual interest.

In reality, government protectionism only stifles innovation. Can you image a world where the government decided the stagecoach industry was indispensable and created unrealistic barriers to entry for the automobile manufacturers? This is the same situation. Amazon.com is better at retailing than the California Retailers Association, it provides what the market demands. So rather than figure out a way to retail better than Amazon, the California Retailers Association expects Californians to be happy with their old, under performing, undesirable business models.

 

Comments

  • Jacosta

    Good one Troy! Just that I do my research!

  • Troy La Mana

    I think Jacosta is a member of Romeny’s staff…

  • Jacosta

    Alaina…here’s where you are missing or ignoring fact and information. There are too many Websites that do go into greater detail that there were many things that Romney cut as wasteful spending and programs while he governed, some of these (not all) were done before and during raising state fees. And, let’s not confuse or mix increasing fees on government programs as “creating” or somehow increasing taxes – the two are different. There is also a huge difference with closing loopholes in states’ tax codes/procedures and creating/increasing taxes. Ask any accountant or auditor and they will agree.

    This includes info on many times that Romney did in fact veto items (as I mentioned above – perhaps again you overlooked it or ignored it?) that the liberal state legislature tried to get passed that would either raise taxes, fees, or not cut enough. There were also times that he’d veto something and the liberal legislature overturned – which were out of his hands, but then gets blamed for?

    Would we rather swim in debt, perhaps losing companies that threaten to leave the state – thereby losing jobs and revenue…or should we get someone in there to get the job done, though painful as it may be, to get us out of debt and keep jobs? BTW – jobs were created under and after Romney’s governorship…and now since a Liberal took over, Massachusetts is back in debt and losing jobs! The people have spoken and they miss Romney!

    • Alaina

      I want someone that is consistent, I’m confident is a Conservative and I can trust.

      Romney is none of those.

  • Jacosta

    Rather than rely on Wikipedia….whose footnote on the matter comes to a dead-end…I did Google it and found much better material on the subject, with explanations and more understanding.

    Don’t know why everything gets blamed on Romney when, fact-of-the-matter is, that there was a bi-partison group of Republicans and Democrats (including very Conservative Republicans) who were in favor of drafting a bill that would have some limited taxes imposed on Internet sales BEFORE Romney got involved.

    http://www.commonwealthmagazine.org/Departments/Washington-Notebook/2004/Winter/Massachusetts-comes-around-to-supporting-an-Internet-sales-tax.aspx

    A state CAN impose a sales tax of Internet sales but ONLY on nexus – that the company doing Web based business resides in that particular state. A state cannot impose a tax on Internet sales from a company that is from out of that state’s boundaries; Romney’s closing of loopholes from bills that were already in existence in his state conformed with the Supreme Court ruling on this matter.

    So, no, no money was collected from Web-based retailers outside the State of Massachusetts and he was only conforming to laws already in existence in the state dealing with Internet sales of companies that resided within the state’s borders.

    Makes sense to me now why he did what he did – facing a state deficit in the billions and trying to save a state economy…so, as governor he closed loopholes and raised fees on government services to close the gap and get rid of their deficit.

    The vast majority of the increased state fees were already in the works before he became governor and were going to get approved by the state legislature because the fees were very outdated and set for increases anyway. To his credit (or against, depending on how you look at it), there were numerous state fees that were increased that were introduced by Romney…only because he, too, felt that they were outdated and it would help erase the deficit without raising nominal taxes. Also, there were some state fees that were increased that he either vetoed or amended that made them less burdening on the people in his state.

    NOT that I agree with some or any of these state’s fees or Internet taxes that he was involved in….but when faced with a state debt of $3 billion, losing the faith of corporations who were threatening to leave the state because of the fiscal crisis (which would then turn into greater loss of revenue), and jobs being lost in the meantime – it now becomes clearer why he did what he did.

    Two interesting bits: According to an analysis by the Tax Foundation, the tax per capita burden was 9.8 percent in 2002 in Massachusetts (below the national average of 10.3 percent), and 10.5 percent in 2006 (below the national average of 10.8 percent). And the last polling in Massachusetts (2009) shows overwhelmingly that people in that state favored Romney’s governorship over Deval Patrick! The outcome of all this – Massachusetts ended 2005 with a $500 million surplus! No wonder why people in that state prefer Romney over Patrick now that they are once again in debt!

    And we wouldn’t want Romney because…?

    • Alaina

      The Governor gets blamed because the Governor has veto power. He did not veto, he approved. Obama didn’t write the Obamacare bill or the stimulus bill, but don’t we blame him for those? I sure do and I’m not going to have a double standard for those Governors that I like who pass things I don’t.

      Wikipedia was the first that came up… I didn’t have time to spend hours filtering through articles from 4 years ago, but there are plenty of sources on Google to choose from. I heard about it during the 2008 primaries and remembered it.

      It’s great that Romney brough Massachusetts to a surplus, but look at how he did it. He raised taxes and fees FIRST before cutting spending. Instead of going directly to raising revenue for the state, why didn’t he look at cutting spending first and then figure out how much revenue needed to be raised? That would have been the fiscally conservative thing to do.

      Now, he rails against the Dems looking to raise taxes first, but he did the same thing. There are too many discrepancies between his rhetoric and his record… that’s why he won’t get my vote during the primaries.

    • http://scottslant.blogspot.com/ Scott A. Robinson

      Regarding who a state can tax, you could have simply read Quill V. North Dakota, as mentioned earlier.

  • Gary Russell

    “Board of Equalization”…
    Sounds like something straight out of “Atlas Shrugged”.

    • Stephen Meehan

      or 1984.

  • Alaina

    Romney did the same thing as Governor…

  • Stephen Meehan

    This was a very poorly implemented budget with a ton of mistakes, shortfalls and blatant errors, including this one. However, I have never understood how internet sales continue to go untaxed. Why should I not pay sales tax on a book from Amazon.com, but pay sales tax if I buy it at my local Barnes & Noble?
    The stagecoach analogy is entirely off-base. This is not some special tax only on internet sales in an attempt to protect “big business” (at the expense of tiny Entreprenaurial start-ups like Amazon) — it is charging the same sales tax on all purchases, whether those purchases are made via click & mail or at a scanner. The only problem with the tax is the the “physical presence” clause that screws the affiliates — it could (and should) be written better, but the idea is good.

    • http://scottslant.blogspot.com/ Scott A. Robinson

      A state cannot tax a business that does not reside in its borders because it would be then regulating interstate commerce. The Supreme Court affirmed this in the 1992 case Quill v. North Dakota.

      • dw

        There is also no reason for a state to tax a non-resident business, as the state is providing no service to the business. Unless, of course, the purpose of taxes is not to offset the cost of the state providing a service, but has some other purpose…