Flap's Blog – FullosseousFlap's Dental Blog

Now, the national Democrats want to tax the internet – just like in California, but now the entire country.

While the nation was captivated by the debt crisis – and whether tax increases would be part of any deal to reduce federal deficits – a group of Democratic senators and congressmen have rolled out legislation that would raise new revenues by targeting online sales from retailers like Wal-Mart and Best Buy.

These lawmakers say that states are losing billions in uncollected state and local sales tax on Internet sales and are touting the support of online retailers like Amazon who say they’re fine with an across-the-board system that would make tax collections simple.

I guess this is payback to Wal-Mart, Best Buy and Target for their advocacy of taxing Amazon in California.

OH! The big retailers turf wars.

It is just starting.

But for the thousands of affiliates in the state now set adrift by Amazon and Overstock, another major out-of-state player, the law is an unfair and misguided attempt to raise revenues on the backs of struggling mom-and-pop businesses.

Rather than bring in tax dollars, they say, it will instead drive away scores of entrepreneurs California needs to innovate its way out of its economic malaise.

“None of us are against a level playing field,” said Robert Smahl with privately held Ebates, an online shopping site in San Francisco with 50 employees. “But this is not the way to do it. You’ve just penalized a small segment of people who don’t have the money to fight the legislation. I don’t think the lawmakers understand that this won’t change anything and it won’t hurt Amazon at all.”

Many affiliates getting hurt are pint-size, like Silicon Valley mom-blogger Tina Case’s Moms Who Click, a camera-buff site that brings in a few hundred dollars monthly.

Her husband works, so she’ll simply lose “the icing on the cake.” Still, she’s angry.

“The law is ridiculous. If the purpose is to generate tax revenues, then by putting affiliates out of business the state’s losing the income taxes we were paying. This will hurt the economy more than help it.”

More than 70 affiliates have already left California, say fellow site-owners, in some cases after being wooed by states such as Texas and Arizona that are anxious to reel in business-tax revenue to shore up their own battered budgets. Other affiliates are brainstorming new business models that would allow them to keep their sites up and running. And still others are waiting to see if an Amazon-backed initiative to roll back the law makes it onto the ballot early next year.

Keith Posehn, a San Diego marketer who’s considering leaving the state after losing 30 percent of his revenue, says the new law complicates an already cutthroat business.

The largest of online marketers will leave California and set up across the border in Nevada or Arizona. Others will just absorbed reduced earning capacity and spend less and hope the law changes.

In the meantime, the “little guy” gets hurt while the Big Box Brick and Mortar stores duke it out with Amazon in the political arena.

But, don’t say I didn’t tell you so months ago.

By the way, this issue of internet sales taxation will not be settled until there is some federal legislation or a decision by a federal appellate court on the nexus issue.

The California Legislature and Democrat Governor Jerry Brown REALLY think they will be able to capture additional state revenue with the Amazon tax?

Their track record with the California “Mary Kay Tax” is not so good, as exposed in this piece over at Cal Watchdog.

Call it the Mary Kay Tax. It hits small businesses —  such as Mary Kay and Avon distributors — with heavy administrative costs, while bringing a pittance to the state treasury.

It’s a tax program the Legislature passed in 2009 to help balance the budget. Then it was signed into law by then-Gov. Arnold Schwarzenegger. But it has been a colossal failure as well as absurdly expensive. Despite the failure and added expense, the program is not getting the ax.

AB X4-18 created the Board of Equalization’s Qualified Purchaser Program
to collect use taxes from the smallest business owners who were not usually registered for sales and use-tax purposes.

But the taxes collected in the ensuing two years are 80 percent below projections. Adding insult to injury, the program is costing taxpayers an additional $10 million a year to administer, while adding 137 state employees.

I remember that this tax when it was passed created quite a bit of buzz in the dental community since all dental offices were required to file additional forms and paper work. As if dentists did not have enough compliance to navigate in California.

But, like everything the Democrat dominated California Legislature seems to touch there are many unintended consequences, including compliance costing almost as much as the tax revenue gain. How smart?

Despite the dismal collection numbers and the expansion of a state agency during the worst economic crisis in state history, the program is not being shelved. Because the tax was passed by the Legislature, only the Legislature can repeal it. But all is not lost. The BOE can make changes to the program.

The 2009 law requires business owners who receive only $100,000 in gross annual receipts to register with the State Board of Equalization to remit a “use tax.” But the $100,000 threshold is not the amount of income going into the business owner’s pocket. That $100,000 is the total amount of money earned by the business. Owners say that most of that money goes right back into the business to pay expenses, employees and vendors.

The motive for the tax was typical of the California Legislature. It was created to help balance the state’s budget. In these inflationary days in this expensive state, a $100,000-a-year business could be just one or two people.

The program has registered 500,000 California small business owners, targeting sole practitioners such as doctors and dentists, tax preparers and CPA’s, as well as contractors, lawyers, real estate agents and even Avon and Mary Kay cosmetics representatives.

Most of the BOE registrations have been “involuntary.” According to BOE Board Member George Runner, a former Republican state senator, this means that if BOE employees determine that an individual meets the definition of a “qualified purchaser,” the business owner is automatically registered to pay the tax.

Runner held a press conference Monday at the offices of the National Federation of Independent Business. He said that, because so few qualified purchasers have filed use tax returns with the BOE, the agency staff decided to send out 305,000 “delinquent” notices. The notices identified the small business owners as “tax delinquents,” and threatening them with “estimated use tax determinations.” According to Runner, this was done by BOE staff, without the knowledge of BOE board members.

Board members found out about the delinquent-notice mailings when more than 175,000 angry small business owners immediately flooded the agency with phone calls. The BOE legal department was consulted and quickly determined that there was no way to estimate use taxes. According to Runner, this was ample proof that the program should be drastically modified.

Runner said that most people are understandably confused about the use tax. Many area small business owners have had to hire CPAs just to navigate through the new tax process. Most small businesses do not have accounting departments. Even those with accounting departments say that accounting staff is spending far too much time on the cumbersome and confusing tax reporting.

I love it. The Sacramento Board of Equalization staffers on their own decided to call 305,000 business owners tax delinquents. Yeah, that will really help compliance. People will simply go even more underground and avoid paying any taxes.

Or, better yet, leave California for Nevada and Colorado.

Then, there is the cost of compliance to the small businesses that do remain in California. Costs that will be passed along to consumers.

“The average qualified purchaser pays almost as much to their accountant to comply with this program as they pay in use tax, resulting in much more of a burden upon businesses than benefit to the state,” Runner said. “It costs taxpayers an average of $75 for their accountant to prepare the BOE return, even though many owe far less than this amount.”

Expected to generate $264 million in the two years since the law was passed, instead the program has collected only $56 million in taxes. But it has cost a total of $23 million in additional BOE administrative costs. Add in businesses’ tax-preparation costs, which are tax-deductible, and the state well could be losing more in revenue than it gains from this program.

NFIB Executive Director John Kabateck said that his organization represents 20,000 small California businesses and 350,000 across the country. As anti-business laws continue to be imposed on California’s businesses by government bureaucracies, the game of “gotcha” government policies are fast becoming “we’re going to get you,” Kabateck said.

“Small businesses have been closing at a clip,” said Kabateck. “And there are now 2.2 million Californians unemployed.”

Kabateck said that the average small business owner spends countless hours doing paperwork costing at least $48.72 per hour, $400.00 per day and $2,000.00 per week, thanks to taxing agencies like the BOE.

And, the POLS wonder why many businesses, especially small ones, have closed up shop and moved to other states. California Legislators ponder why there are more than two million unemployed Californians.

Me thinks they should look at themselves.

Why the Board is proceeding and wasting taxpayers money on a law that will face a referendum is pure Democratic politics.

But, oh well.

Debate over the 90-day interim period during which Amazon gathers signatures for the voter referendum to repeal the law was a hot issue today between board members. Because the office of legislative counsel issued a recent opinion which said the law would be suspended the minute Amazon qualifies the issue for the ballot, Republican board members George Runner and Michelle Steele
said the BOE should not implement the tax yet.

At issue was whether the new law would or should even take effect.

However, board members Betty Yee and Jerome Horton, Democrats, insisted that because ABx1 28 was already signed into law, it needs to be upheld by the board unless and until it is repealed either by the voters, or in a court of law.

Yee wanted to abandon discussion of the interim period, and instead pushed ahead for implementation of the tax, beginning with an “interested parties” process discussing the need for rule making to implement and clarify the provisions of the bill.

The Board voted 3-2, siding with Yee and Horton to have obtain an opinion from the Attorney General explaining how the referendum process will affect the tax, and to begin the meetings to discuss implementation.

This move is just the beginning of a long litigious process.

Signature gathering is on-going and it is just a matter of time before the referendum folks and the California Attorney General are sued to try to remove the referendum from the ballot -  before and then after it qualifies.

The campaign consultants, communications strategists and the lawyers are all going to get rich while I no longer earn a few bucks from selling Amazon books and media on flapsblog.com.

Wonderful…..

Today the California State Board of Equalization will meet at 10 AM.

The state Board of Equalization will start to tackle how to implement a new law requiring major online retailers to collect sales tax on purchases made by Californians at its Sacramento meeting today.

But any solution for applying the so-called “Amazon Tax,” which was approved last month as part of the budget package backed by Democratic lawmakers, could be short lived. Opponents of the change have filed referendum papers to ask voters to overturn ABX1 28 in the next statewide election, a move that could pull the plug on the plan to generate revenue much sooner than 2012.

A Legislative Counsel opinion sought by Sen. Joel Anderson, R-Alpine, concluded that the law would be suspended once the challenge qualifies for the ballot, even though the majority-vote measure took effect immediately as a result of Proposition 25. That scenario would put the Amazon Tax on hold until the next statewide election, which will likely be held in June 2012.

The meeting will be webcast this morning here and the full agenda in Pdf format is here.

In the meantime, the signature gatherers are proceeding and the television ad mavens are busy.

Looks like it, as per a new legal opinion from the Office of the Legislative Counsel.

Legislative lawyers believe that if a referendum on the new law requiring sales tax collection by online retailers qualifies for the ballot, the law will have to be put on hold until the voters have their say.If that opinion holds, it may raise the stakes for a budget written with an expectation of at least $200 million from the law in question.

“We are of the opinion that the operation of the statute would be suspended during that time period,” writes attorneys for the office of
the Legislative Counsel in a letter dated Friday to state Sen. Joel Anderson (R-San Diego).

Anderson apparently asked for a legal opinion on whether the law, contained in ABx 28, would be operable should the newly launched campaign to overturn it via referendum gather enough voter signatures.

The six page letter (PDF) tackles an issue raised a few times before, and several times since, voters approved Proposition 25 in November: whether a majority vote budget and its related “trailer” bills are subject to referendum.

But, I am positive that this will be litigated once the requisite signatures are gathered.

Which I do not surmise will be too long with Amazon.Com’s deep financial pockets. With the polling already showing a likelihood that the referendum will pass, Walmart, Target and the other brick and mortar retailers will want to keep Amazon’s feet to the fire – and in legal fees.

Some have suggested that the budget and any related bill which includes an “appropriation” could, under Prop 25, may be immune from the referendum. In part, the quandary is linked to the California Constitution’s exclusion of “urgency statutes” (which go into effect immediately and require a supermajority legislative vote) and those “providing for appropriations.” Until Prop 25 lowered the budget vote in the Legislature, both seemed to apply to state’s annual fiscal plan.

“Before Proposition 25,” the opinion letter states, “the referendum was applicable only to statutes that did not go into effect immediately.”

But now, write legislative attorneys, the budget can no longer be considered exempt from referendum because Prop 25 didn’t explicitly say so. And while the constitution doesn’t expressly put a statute on hold once a referendum has qualified for the ballot, Legislative Counsel says the courts have nonetheless operated on that assumption.