California Lawmakers To Stomp On Small Business Owners

Due to the extreme financial crisis that California is experiencing, Assemblymember Nancy Skinner (D) introduced new legislation earlier this year, designed to quickly get the cash needed to help make California whole again.

The pending legislation (Assembly Bill 178 or “AB 178”) calls for out-of-state companies (typically internet retailers) that maintain a physical presence in California to begin collecting sales tax on orders received from within California.

The problem with AB 178 is that it unjustly categorizes thousands of California’s small businesses that are involved in online advertising for the out-of-state-companies as the “physical presence” that California needs to assign the nexus.

The goal of AB178 is to increase state revenue and preserve California’s brick-and-mortar businesses and jobs by leveling the playing field against the competitive out-of-state online retailers. However, history has shown us that ultimately, thousands of California’s small businesses and residents will be significantly harmed.

Last year, the eerily similar “Amazon Tax” law was enacted in New York. Within days, the out-of-state retailers decided it was easier to terminate the relationships with the New York-based small businesses that were providing them with online advertising services instead of beginning to collect sales tax and file the related tax forms.

Many of the impacted small businesses were left with the choice to drastically alter their business operations including laying off employees, move out of state or simply close up shop. Any of these selections diminished the value of the increased sales tax that NY expects to garner.

Ironically, similar legislation is being entertained in Hawaii now as well. Amazon’s Vice President for Global Public Policy, Paul Misener has already indicated their intention to cease all relationships with the Hawaii-based small businesses providing online advertising services for them, should the law become enacted. (See page 6)

Minnesota, Tennessee, Connecticut, Maryland and North Carolina join California with similar legislation on the books. Illogically, all of these states are ignoring the U.S. Supreme Court decision of Quill v. North Dakota which ruled on the nexus issue back in 1992.

A hearing date for California Assembly Bill 178 has been scheduled for April 27, 2009 at 1:30 pm in room 126 at the State Capitol.

There is a lot that can be done to defeat this bill. However, the owners of California’s small businesses who stand to be affected must step up now. Reaching out to your Assemblymember is the most effective way to do so as they do listen to their constituents. It’s time to deluge their offices with all forms of opposition – whether by phone calls, letters, emails, faxes and visits.

It is with great hope that California votes NO on AB 178 after examining the ensuing effects that it will have on their own small businesses and residents.

As a driving force in the US economy, California has the opportunity to set an example to the other states entertaining this dubious legislation, that the State of California encourages and supports their local small businesses.