The tip of the iceberg

California is facing a $20 billion deficit and we can all agree that something has to be done so as to not strain essential services in our state, but is this a sign of things to come?  Does this mean that the State is going to turn to tech as a means of plugging the gaping hole that is our state budget?  The tax legislation is aimed at getting companies like Amazon and Overstock to collect on the billions of dollars of purchases that Californians transact via the internet which have to date been tax-free unless consumers themselves report and pay internet purchase taxes on their tax return (as you can imagine taxpayers rarely volunteer such info).  Bricks and mortar operations in California, including web based operations that have a physical presence or nexus in-state, have to collect and submit taxes on every purchase.  Should it be different if you’re shopping from your laptop?  When this same legislation was introduced last year, Overstock, who employs hundreds of Californians through its affiliate program threatened to pull the plug on affiliate operations in the Golden State.  Overstock and Amazon, joined by other web giants including Yahoo, Google and our potential next governor’s company Ebay, opposed the taxes and lined up against independent sellers, the unions and Netflix.  The Governor backed up the revolt and threatened to veto the bill if it reached his desk.  But this bill has legs and although the smart money says it will clear the Assembly – the Governor’s spokesperson has said his boss is likely to oppose it again this time ‘round.

Last week we asked our member companies how do they feel about these proposed new Internet taxes?  (text of questionnaire below)  What we heard is that our membership is pretty evenly split.  One member response, entitled “moving to Nassau” said: “Put my vote in that additional taxes like this punish companies that employee people in California. Legislators have a challenge on their hands – fix a $20B budget shortfall without driving away the world’s most innovative companies. The state should implement policies that encourage company investment in our education system. This includes informed policies like the single sales factor and a 20-year net operating loss carry forward.”  On the other hand, from those wanting a leveling of the playing field, we heard things like this: “We need to balance our state budget and it will not all come from spending cuts.  Internet retail is a mature industry and no longer needs a tax subsidy.  This tax would help level the field for local businesses.“

So what’s a state to do?  We know from our statewide voter survey released earlier this month that Californians believe in the power of the tech sector to create jobs and pull us out of the grim economic situation we find ourselves in.  Certainly Californian’s feel over taxed already but there’s only 2 ways out of this mess – raise revenues or cut services.  I don’t know about you, but I’d like to see:

1. Our schools funded (and how about some tech curricula while we’re at it)
2. Not turning the mentally ill out on the street
3. Hardened criminals staying behind bars
4. And dare I even bring up health care?

So apparently we need to raise revenue – but how do we do that?  By encouraging investment in CA.  We can’t rest on our laurels of being “#1 in tech”, we’ve taken it for granted and for too long. Our once thriving tech sector is suffering and California is slipping behind in R&D intensity.  It’s time the policy makers turn to tech and not merely as a vehicle for taxation (though yes, and I know a bunch of you will disagree, but everyone should pay their fair share of legally assessed taxes) but as a change agent.  This won’t happen in a vacuum; we need help from Sacramento and DC.

We have some ideas and we’re sure you do too – so join in the conversation.  What can the politicians do to support tech businesses?

A. It’s only fair: people purchasing online should have to pay the same taxes that they’d pay if they physically went to the store-Pampers are Pampers whether you drive to the store and buy them or whether you surf your way there.
B. Give ‘em and inch and they think they’re ruler: the web needs to stay a government free zone-this is just one more tax on California’s working families fashioned to clean up a mess created in Sacramento.
C. I’m moving to Nassau: California’s over regulation is going to drive me and my company to a more business friendly jurisdiction-we already pay some of the nation’s highest taxes, I’d like to be a California business but the cost of doing business and living in CA is getting to be too much.
D. Buy Local: why should Amazon or Overstock have a state sanctioned advantage over our local businesses?-taxing these big businesses levels the playing field for the bricks and mortar retailers in California who are vital members of our community.
E. None of the above? So tell us in your own words….