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.

 

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