Friday, July 08, 2011

California Shoots Self in Foot

Because California legislators are unable to control their urge to spend, especially their urge to spend on public employee pensions and salaries, they are always looking for new sources of revenue. There was one major stream of business not taxed, so the inevitable occurred. The government of the state of California decided to force businesses that do business over the internet to collect sales tax.

It is already law that residents of the state are supposed to pay the sales tax for all internet purchases. There is a line on the state income tax forms for that purpose - a line ignored by Californians. Frustrated by their inability to force Californians to pay yet another tax in one of the highest taxed states in the country, the idea was to “close a loophole” and force internet businesses to do the same tax collection that stores physically located in the state collect - a service they provide “free” to the state.

Already and are reacting to this new law. They are not collecting the sale taxes, though. They are pulling out of the state.

Both businesses have affiliate programs whereby people can sell their products through these major corporations. Both partners in the affiliate programs profit. The major corporations profit by getting a portion of the proceeds, and the small affiliates profit by having their products listed through major outlets where they can reach larger audiences.

These affiliate programs are all ended. The business connections have been severed. Amazon alone had 10,000 affiliates in California, and has ceased to do business with them unless they leave the state.

This law, instead of raising revenue, has created a revenue loss. Instead of increased sales tax, it has resulted in decreased income tax. It may have even resulted in increased unemployment compensation.

One would hope that the legislators and the governor would see the results and admit that a mistake has been made. One would hope that they would see the decreased revenue and the increased unemployment. Of course one would also hope that politicians are honest, capable, and intelligent, but the evidence indicates otherwise.


Thomas said...

>>One would hope that the legislators and the governor would see the results and admit that a mistake has been made.<<

No mistake was made. The state KNEW this would result in lower revenue. Contrary to some libertarian theory, the government is not THAT stupid.

Evidence: California's film & TV industry, and industry unions, are always lobbying for tax breaks -- and are getting them.

And always, politicians publicly brag about how they're saving entertainment industry jobs with tax breaks.

So politicians KNOW that tax breaks create jobs.

The reason politicans are forcing internet retailers to collect sales taxes is NOT to raise revenue -- but to please "bricks & mortar" lobbyists. Walmart, Barnes & Noble, and others lobbied for this bill, to harass their online competition.

Another example of politicians using state power to destroy, or at least harass, those who would compete against politically well-connected businesses.

Ayn R. Key said...

The problem with your rebuttal is that Amazon still sells to California customers. This does nothing to inhibit their ability to do business with Californians.

What it does inhibit is the affiliates, only the affiliates, and nobody but the affiliates - and only the affiliates in California.

So while the brick and mortars can claim a small victory over the affiliates, they still have the same old on-line competition they always had.

Thomas said...

I'm aware that this bill fails to stop Barnes & Noble's competition. That's why I said that they "lobbied for this bill, to harass their online competition."

Harass, not stop.

Sure, Walmarts and B&N would love to stop Amazon. But at least they're harassing Amazon. Making it a little harder to do business in California -- in this case by harming Amazon's online advertising.

I'd read that the Affiliate Program was a significant reason for Amazon's growth in its early years.

Amazon doesn't need it so much anymore. But even so, having to sever its California affiliates is a monkey wrench in their system.