Internet Tax Would Kill Small Businesses

JUNE 23, 2011

By KATY GRIMES

A bill awaiting signature by Gov. Jerry Brown could hasten the spread of Internet taxation bills across the country, putting small business owners at a disadvantage with compliance of more than 7,500 different taxing jurisdictions.

Proponents of AB 153, now wrapped into budget bill AB 28X, already passed by the Legislature, claim that Internet taxation would “level the playing field” between online businesses and “brick and mortar retailers.”

Anytime “leveling the playing field” is used as justification for taxation,  we know that the proponents are really supporting the redistributing the wealth — other people’s wealth.

Ted Green, communications director for the Coalition to Protect Small Business Jobs, said that the media is only focused on what the Internet tax would do to Amazon, eBay and Overstock.com, large Internet retailers and auction sites. “Overlooked are the small business entrepreneurs who have found a way to reach customers without a geographical limit,” Green said.

Green’s organization is concerned that what happens in California will spread nationwide and would be devastating for small business operators and entrepreneurs who don’t have the staff, time or income to spend navigating the 7,500 different taxing jurisdictions across the country.

“Legislators are supporting big business with this bill,” said Green.

On Tuesday, the coalition delivered 19,000 letters to Brown, pleading with the governor to consider the consequences of the bill. “The untold story in the battle over Internet taxes is the disproportionate tax burden this bill and bills like it across the country place on small businesses and entrepreneurs,” said Green.

Killing 20,000 Businesses

More than 20,000 California affiliates stand to lose their business relationships with out-of-state online retailers. Or they could have all of their California business sales charged a sales tax, rendering them non-competitive with states that do not charge sales tax.

State Board of Equalization Member George Runner opposes the Internet tax bills. Runner explained, “Proponents of AB 28X claim it will ‘create fairness’ by ‘leveling the playing field’ between brick and mortar retailers and online sellers and generate $200 million in new revenues for the state.”

Runner has repeatedly said that supporters’ claim of $200 million in new revenues is inaccurate as the new tax will actually result in lost jobs, lower revenues and even costly litigation.

Letter to Brown

In a June 17 letter to Brown, Runner wrote:

Amazon.com and other out-of-state online retailers are not the true victims of this legislation. They have already made it clear they will terminate their in-state affiliate programs and take other steps to ensure they have no nexus and will not be subject to this measure’s provisions.

The true victims of AB 28X are California job creators, both large and small, for-profit and non-profit, who will suffer an unavoidable loss of income if they continue to do business in this state. As many as 25,000 California affiliates who pay an estimated $124 million in state income taxes will be cut-off overnight. Small businesses that currently benefit from affiliate referrals will also suffer lost revenue.

Of the 19,000 letters delivered to the governor, Green provided a letter from Judi Townsend, owner of Mannequin Madness, a small business located in Oakland where Brown served as Mayor for two terms. “Far from the answer to California’s revenue problems, AB 153 could end up costing the state precious revenues,” wrote Townsend. “It reminds me of the Oakland parking meter scheme — a revenue-raising plan hatched by the city which backfired. The increase in parking prices and hours drove shoppers away, forcing struggling businesses to close shop and ultimately reduced local revenue from taxes and parking. The Legislature needs to look carefully at the unintended consequences of AB 153.”

Killing Jobs Creators

Small businesses in California create two out of three new jobs, one-half of all private sector jobs and, surprisingly, 43 percent of all high-tech jobs, according to the coalition.

The most current U.S. Census data reports that there are more than 3.3 million small businesses in California, and 1.1 million have employees. The remaining 2.2 million are California small businesses with no employees. And these small business statistics for California do not include all of the 2 million self-employed individuals working in California, including individuals who have incorporated.

Evan Westrup, a spokesman with the governor’s office, confirmed that the letters were received. When asked about the status of the bill, he said they do not comment on legislation that has not been signed or vetoed yet by the governor.