Townhall...
California’s
Costly Attack on the
Internet
By Meredith Turney
7/18/2011
When
it comes to Internet
entrepreneurship, California is the place to be for aspiring Mark
Zuckerbergs.
Silicon Valley is known around the world as the technology mecca. The
explosion
of new technology in the last two decades has helped drive California’s
economy
and made it the center of the Internet-based business world. But
California’s
reputation as the home of innovative Internet technology is about to
end—all
because of the state government’s greed.
As
part of a state budget deal passed
late last month, Governor Jerry Brown signed a law mandating
Internet-based
companies collect a sales tax on all purchases from California
residents.
Proponents believe the mandate will bring in $200 million in revenue
the
government is missing as Internet-based companies refuse to collect
such taxes.
A
couple hundred million dollars is
but a proverbial drop in the bucket considering the Golden State’s
chronic
billion-dollar budget shortfalls. And the long-term ramifications for
this new
policy of taxing Internet companies will only strengthen the argument
that
California is hostile towards businesses of all shapes and sizes.
For
years, Internet companies outside
of California have skirted the state’s sales tax by claiming that with
no
physical presence or “nexus” in the state, they were not required to
collect a
sales tax on purchases made by California residents. With no sales tax
on
purchases, Internet companies were given a competitive edge over
brick-and-mortar businesses—something that undoubtedly fueled the
massive
growth of the online marketplace.
But
lawmakers and the court system
finally found a way to nail retailers like Amazon by considering
affiliates,
product developers or even marketers the physical presence nexus
triggering
collection of sales taxes. Affiliates are individuals within each state
who
earn a commission on sales they refer to larger sites such as Amazon.
New
York was the first state to pass
the so-called “Amazon Tax”—dubbed thus because its largest target is
the
international Internet retailer—and California quickly followed suit
with
Assembly Bill X1 28. Even as Governor Brown affixed his signature to
the bill
in June 29th, Amazon announced it was terminating business relations
with over
10,000 affiliates within California. A state already grappling with
nearly 12%
unemployment lost thousands more jobs.
In
a recent article, California Board
of Equalization member George Runner—one of the most vocal opponents of
the
Amazon Tax—listed dozens of online sellers who have terminated their
relationships with affiliate sellers in California. Each of those
companies
represents hundreds if not thousands of individuals who made some part
of their
income via online sales.
But
Amazon hasn’t thrown in the towel
completely. Ten days after the Amazon Tax bill was signed, the company
filed a
referendum to take the issue before voters and repeal the law. Once
again, the
people—and business community—have been forced to turn to the direct
vote of
the initiative process because the shortsighted greed of the
legislature is
stifling economic prosperity.
How
sad for California that the people
have to once again sidestep their legislature in order to make
meaningful
reforms. Corrupt, greedy politicians and special interests have created
such a
spider’s web of gerrymandering and restrictive election financing laws
that the
only recourse the people have is direct democracy. While certainly not
the most
desirable means of governance, this is what it has come to in the
former Golden
State.
The
implications of this epic battle
between California’s government and retailers like Amazon cannot be
overlooked.
How ironic that one of the industries that caused the state’s economy
to thrive
and brought in such rich revenues for state coffers is now the very
industry
state leaders are driving away.
In
fact, Amazon CEO Jeff Bezos once
considered establishing the company’s corporate headquarters in Silicon
Valley
because it’s “the single best source for technical talent.” But knowing
the
company would be forced to collect a sales tax in its home state,
Amazon opted
for the tech-friendly alternative of Washington.
If
only California legislators were
wise enough to understand the ramifications of Amazon’s decision. Bezos
knew
the best talent was in California and could have created thousands of
jobs
there. But it was the government’s tax policies that drove the company
into the
arms of another state. Instead of settling for a measly $200 million,
imagine
the millions more generated by having even more Internet companies—and
their
accompanying jobs—based in California.
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it at Townhall
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