Democrats Fail to Thwart the Voice of the People

As published at Flashreport.org:

I’m pleased to report that Senate Republicans yesterday held firm against an attempt by Democrats to strip California voters of their right to hold a referendum on the “Amazon Tax.”

AB 155 would have cemented the failed policy of AB 28X into law, but the measure fell five votes short of the required 2/3rds vote. In his floor speech, Senator Sam Blakeslee rightly described the measure as “an attempt to thwart the voice of the people.”

Opponents of the “Amazon Tax” have already collected more than enough signatures to force a referendum vote next year. And as I recently warned the Governor and legislative leaders, the $200 million they are counting on in “Amazon Tax” budget revenue is certain not to materialize this fiscal year.

Even so, the Governor and Democrat leaders have spurned an offer by Amazon.com to collect the tax in two years and voluntarily bring thousands of jobs to California in exchange for a repeal of AB 28X.

Republicans must continue to hold the line against the Democrats’ anti-democratic efforts. Yesterday’s vote on AB 155 is only the first attempt to undo the “Amazon Tax” referendum effort. Democrat lawmakers will likely continue to seek Republican votes until session adjourns this Friday and could bring the bill back at a moment’s notice.

In addition, Democrats are continuing to search for legal loopholes that would give the Attorney General or some judge an excuse to block the “Amazon Tax” referendum. That will be a tough sell, as even Legislative Counsel has already opined that majority-vote budget bills are referendable under Proposition 25.

But as is evident by the fact that the Democrats brought AB 155 to the floor for a vote, rational thinking isn’t exactly in abundance under the Capitol dome right now.

Ploy to Block “Amazon Tax” Vote Outrageous

As published at FlashReport.org:

On the very day Governor Brown spoke about job creation, legislators are concocting an outrageous ploy to prevent the people from voting to overturn the ‘Amazon Tax.’

Clearly these lawmakers are afraid the public is poised and ready to vote down the failed ‘Amazon Tax’ that is costing our state jobs.

Instead of continuing their attack on out-of-state online retailers, the Governor and Legislature ought to be asking these companies how we can work with them to get Californians back to work.

George Runner on Use Tax Education

A Victory for California’s Small Businesses

It’s not every day a government program becomes less burdensome for small business owners and entrepreneurs, but it can happen.

In my recent op-ed “A Qualified Mess,” I described the many problems plaguing the “Qualified Purchaser Program” — a use tax collection program targeting small business owners. I invited impacted business owners to send me their feedback via a survey on my website, and I shared this feedback with my colleagues and BOE staff.

I also joined small business owners and taxpayer advocates at a press conference urging reforms to this program. This NFIB-sponsored event was well-attended and led to stories by CalWatchDog, Capital Public Radio, The Orange County Register, The Sacramento Business Journal and others.

The Board has solved a good part of the problem. Now it’s the Legislature’s turn to further fix this failed law or, better yet, repeal it entirely.

Government is greediest actor in “Amazon Tax” debate

As published in the North County Times:

Editorial boards and newspaper columnists are quick to assign “greed” as the motive driving Amazon, eBay and others to oppose a new law aimed at making more out-of-state online retailers collect sales tax on behalf of the State of California. But the greediest actor in this drama isn’t Amazon —- it’s the government.

You see, online retailers didn’t pick this fight. State lawmakers did —- out of misguided lust for revenue they’ll never see.

Put aside the rhetoric and consider the facts. Under the U.S. Constitution, state lawmakers can’t compel out-of-state retailers to collect sales tax unless those retailers have a physical retail presence —- known as “nexus” —- in our state. Californians are supposed to pay use tax —- the equivalent of sales tax —- on out-of-state purchases, but few do.

It works the same way in reverse. California businesses making out-of-state sales in states where they have no brick-and-mortar retail presence don’t have to register with the tax bureaucracies in those states, collect and remit sales tax or be subject to audits. In five states where Amazon collects and remits sales tax, many California businesses don’t.

But rather than educate Californians on how sales and use tax law works, lawmakers have managed to confuse the issue. The so-called “Amazon Tax” distorts the definition of nexus in three devilish ways.

Under this new law, out-of-state companies that share income with California-based affiliate advertisers or create jobs in our state via subsidiaries are now suddenly deemed in-state companies if they continue those relationships.

And that’s just the start. The “Amazon Tax” also contains an insidious “long-arm” provision granting sweeping power to the State Board of Equalization to further expand what constitutes nexus. No one knows yet what that will look like, and the resulting uncertainty could make out-of-state companies wary of contracting with Californians for years to come.

At a time when California’s unemployment rate is already among the worst in the nation, the “Amazon Tax” sends the entirely wrong message to out-of-state job creators, entrepreneurs and investors. The unfortunate but unsurprising result is lost jobs and income for our state.

It’s not too early to declare the “Amazon Tax” a failure. Out-of-state online retailers have already overwhelmingly chosen to opt out of the new law by ending their affiliate advertising relationships with Californians. They continue to sell into California without collecting sales tax. The “playing field” for retailers has become no more level but is certainly now much more confusing.

A recent USC/LA Times poll found that a majority of young people, Blacks and Latinos, and a plurality of all Californians, oppose this new law. Why? Perhaps they understand better than our tax-hungry Legislature that driving away jobs and investment won’t solve our problems.

For the sake of our state, let’s hope sanity prevails in this debate.

California leaders call for tax fix for small businesses

From the Sacramento Business Journal:

Several state leaders said Monday that the state’s Board of Equalization should revamp a program aimed at collecting out-of-state sales taxes from small businesses — and the legislature should consider killing the program outright — claiming it has failed to generate the money expected and has put an unfair burden on small business owners.

At issue is the state’s Qualified Purchaser Program, which was designed to generate extra revenue in the 2009 budget by requiring small businesses the generate more than $100,000 in gross revenue to pay use tax on items bought out of state going back to 2007.

But business owners say it requires them to spend hours combing through invoices only to determine that 95 percent of the businesses owe no additional tax. That has pushed the average tax owned down to about $47 per filer.

George Runner, a former state senator and current member of the Board of Equalization, said at a news conference that he will seek changes to the current regulations to ease that burden, while looking for a sponsor in the legislature for a bill that would end the program.

The program has collected an additional $56 million in taxes, but has cost $23 million in administrative costs and small business advocates say it has placed a huge burden on businesses that don’t have accounting departments. It was expected to generate four times as much revenue for the state as it has collected.

Businesses that generate $100,000 or more annually were automatically registered for the program. Many were confused, especially because the state’s tax forms already have a place to declare use tax. If the business revenue drops below that figure, the business is still required to file the forms, Runner said.

State heading toward highest unemployment

As published in the Press Enterprise:

The state of Nevada has the highest unemployment rate in the nation, but California is a close second. Unfortunately, recent employment trends show California could soon swap places with Nevada, assuming the dubious distinction of having the worst unemployment rate in America. This is discouraging news for California’s more than two million unemployed workers.

Adding insult to injury, California’s liberal political leaders are like a flock of ostriches with their heads in the sand when it comes to getting California’s economy back on track. As lawmakers continue their annual tradition of sending “job killer” bills to the governor’s desk, California’s economy remains stuck in neutral even as other states pass us by.

Take Nevada, for instance. Nevada’s unemployment rate, which peaked at 14.9 percent — considerably higher than California’s 12.5 percent peak — has fallen to just 12.1 percent. That’s only four tenths of 1 percent higher than our state’s current unemployment rate.

Nevada isn’t the only high unemployment state recovering faster than California. Michigan’s peak unemployment rate of 14.9 percent has fallen more than four points to 10.3 percent.

Clearly, the economic recoveries of Nevada, Michigan and many other states are outshining our own.

This reality is underscored by the flight of California’s work force. Between 2005 and 2009 more than 870,000 Californians packed their bags and departed our state. The top destinations were Arizona, Texas and Oregon, but even Oklahoma attracted nearly 30,000 transplants.

Warning signs

But it’s not just California workers who are leaving. Our employers are as well. According to business relocation coach Joe Vranich, the number of California business relocations is five times higher this year than in 2009. He also warns that at least 14 states are actively recruiting California business owners, encouraging them to expand or relocate for cost savings of up to 40 percent.

The warning signs of California’s jobs problems are everywhere, yet the California Legislature seems oblivious. Lawmakers waste their time on nonpriorities or churn out new taxes, fees, mandates and ridiculous regulations on business owners who are barely surviving.

The Sacramento Bee recently identified 10 bills to watch in the California Legislature. Nine of the 10 bills have nothing to do with jobs. Instead these bills seek to regulate unloaded guns, shark fins, cell phones, ski helmets, smoking and tanning. Given our Legislature’s propensity to regulate every facet of our lives, it’s no wonder the Mercatus Center recently ranked California as the third “least free” state in the nation.

A tenth bill on The Bee’s list, dubbed the “Amazon tax,” was recently approved by the Legislature as a budget measure and signed into law by Gov. Jerry Brown. This measure is just the sort of misguided law that may guarantee California soon becomes the nation’s leader in unemployment.

Losing income

Proponents of the so-called “Amazon tax” claim it will “create fairness” by “leveling the playing field” between California’s brick-and-mortar retailers and out-of-state online sellers. They claim it will generate $200 million in new revenues for the state. But evidence shows this measure will actually cause California to lose, not gain, millions of dollars.

Amazon.com and other out-of-state online retailers have already terminated their California-based affiliate programs and are taking other steps to ensure that they have no legal connection to California that would force them to collect sales tax here. These out-of-state retailers continue to sell into California without collecting sales tax.

Meanwhile, the true victims of the “Amazon tax” are California job creators who will suffer an unavoidable loss of income if they continue to do business in this state. As many as 25,000 California affiliates who pay an estimated $124 million in state income taxes are impacted. Small businesses that currently benefit from affiliate referrals will also suffer lost revenue.

Another surprising victim of this new law is eBay , a homegrown California success story and major private sector employer. Ironically, the “Amazon tax” will actually disadvantage eBay and drive online sellers away from eBay toward to other platforms, like Amazon. As sellers living outside California discover that continued sales on eBay trigger new, unwelcome relationships with California’s tax auditors, they will take their business elsewhere. And I can’t blame them.

Unless California’s leaders want to make California the nation’s unemployment leader, they need to radically transform their priorities. They need to stop making California offensive to business, and instead start wooing private sector jobs by extending a welcome mat to entrepreneurs and businesses of all kinds.

A Temporary Tax That Never Went Away

As published at FlashReport.org:

California taxpayers are celebrating a rare victory. Despite Democrat efforts to extend them, the sweeping “temporary” tax increases of 2009 have gone away. This is an uncommon treat, as many prior tax hikes sold as “temporary” are still with us today.

As Californians enjoy the benefits of this victory, today marks the 20th anniversary of a prior sales tax increase that is still with us. On July 15, 1991 Californians were impaled with a “temporary” sales tax increase of 1.25%. This measure was enacted by the Legislature to address the state budget shortfall during the early 1990s economic downturn.

Fast forward to June of this year. A 2009 sales tax rate increase of 1% was set to expire on July 1, 2011. Despite a vote of the people against extending this and other temporary tax increases, Governor Jerry Brown and Democrat legislators unsuccessfully sought a five year extension of these taxes.

These higher taxes amounted to billions of dollars per year out of the pockets of struggling Californians and into the hands of wasteful government. Combine the 2009 temporary sales tax increase with the 1991 temporary sales tax increase, and we’re talking about $11 billion dollars per year taken from the people. And that’s not even counting the other tax hikes.

For most of our state’s existence California prospered with either no sales tax, or much lower rates than we have today. Today five states—Alaska, Montana, Oregon, Delaware and New Hampshire—still have no sales tax at all. Of these states, two—Alaska and Montana—are among only four states which have no budget deficit.

California opened its doors to the sales tax in 1933 with the Riley-Stuart Act, as did several other states. It was sold as an “emergency measure” during the Great Depression, at a rate of just 2%. As late as 1977 the sales tax rate in California was still only 4.75%. Despite our recent tax reduction, our 7.25% statewide rate remains the highest in the nation, not including over 130 different local governments imposing their own sales tax—raising the tax rate to nearly 10% in some areas.

The answer to California’s problems isn’t higher taxes. Californians already bear the sixth highest tax burden in the nation. Rather we must reduce taxes and limit regulations to create an environment where job creators can expand and thrive.

As today’s somber tax anniversary passes with little notice, let it be a reminder that the government’s appetite for your money is insatiable, and “temporary” taxes rarely go away.

New Law Creates a “Qualified” Mess

As published in the Inland Valley Daily Bulletin, Los Angeles Daily News, Salinas Californian, San Bernardino Sun and Fox & Hounds Daily:

Two years ago, the California Legislature enacted an onerous law requiring business owners dubbed “qualified purchasers” to register with the State Board of Equalization for the purpose of reporting “use tax.” Like many bad laws, this one was cooked up in an attempt to help balance the state’s budget. As you might suspect, it hasn’t worked.

I was serving as a senator at the time and voted against this legislation. Now, as an elected member of the State Board of Equalization, I’m seeing firsthand the mess this law has created.

The “Qualified Purchaser Program” was supposed to bring in $200 million in new revenue during its first two years; so far, it has yielded only a fraction of that total, barely covering related expenses, including new staff and other program costs.

The program has registered 500,000 California small business owners, including Avon sellers, dentists and real estate agents. Most of these registrations have been involuntary, meaning that if BOE staff thinks you meet the definition of a “qualified purchaser,” then you’re automatically registered, whether you like it or not. Under the program’s terms, any “service enterprise” that grossed more than $100,000 in a single calendar year and had no prior relationship with BOE must now annually report its “use tax” on a new form.

By and large, Californians, including many of these business owners, are unfamiliar with “use tax.” The use tax is similar to the sales tax, but it is the obligation of the purchaser to remit the tax directly to the BOE, instead of paying it at the point of sale. The use tax applies when you purchase items from a retailer who is not located in California and is not registered to remit tax to California. Purchases subject to use tax include those made on the Internet from sellers outside the state.

What’s particularly frustrating about the Qualified Purchaser Program is that it isn’t even necessary. There already were two different ways for Californians to report use tax: (1) BOE form 79b and (2) a dedicated line on state income tax forms. Now, an arbitrary but rather large group of small business owners must report use tax in a completely unique way. This serves only to make California a more confusing place for our state’s most important job creators: small business owners and entrepreneurs.

Of the 500,000 business owners registered as qualified purchasers, more than 60 percent were so confused by the new program that they didn’t return the paperwork that the BOE sent them. So in May of this year, without my prior knowledge or approval, BOE staff mailed “final” delinquency notices to 305,000 business owners, threatening an “estimated” tax bill for failure to respond.

Not surprisingly, BOE was flooded with thousands of phone calls from angry, confused and frustrated taxpayers, many of whom were forced to endure wait times of several hours or more to talk to a BOE representative. In the past year and a half, BOE has received more than 175,000 calls from qualified purchasers seeking assistance.

Of those qualified purchasers who actually submitted a return, an overwhelming 87 percent reported that they owe zero use tax. Of the few who did owe, the average amount was so small that they likely paid more to their accountant to comply with this program than they paid in tax. And that doesn’t count the taxpayer’s time and frustration.

Impacted business owners have been providing my office with helpful feedback, and I welcome more. I am inviting qualified purchasers to take a survey on my website at http://www.boe.ca.gov/Runner. I plan to share the feedback with my fellow board members and other interested parties.

In the meantime, I will be working with my colleagues on the board to ensure reasonable implementation of this law. But, to be clear, I also will be calling for a complete repeal of the program.

The Qualified Purchaser Program is wasting taxpayers’ time and money with no benefit to the state. Like other Californians, these taxpayers should be able to pay use tax on their income tax forms or on Form 79b, which BOE has made available for years. The law makes no sense, and is yet another example of pointless government interference in the lives of Californians and our economy.

George Runner on the Amazon Tax

Updated July 15, 2011

From the New York Times:

George Runner, a Republican member of the state Board of Equalization, said the proposed referendum would spare not just Amazon but thousands of smaller online retailers, which he argued could not possibly handle the intricacies of collecting sales tax for California, and other states starting to demand it, too.

“Some mom-and-pop company doing an Internet business out of their garage, they would be responsible for collecting sales tax,” said Mr. Runner. He argued, like Amazon, that California’s new law hurts jobs by causing online retailers to cut ties with affiliate companies in the state and to close subsidiary offices.

“They’ll say, ‘We’re not going to do our research for the Kindle in California,’ ” Mr. Runner said. “It just takes more jobs out of California.”

From CBS Los Angeles:

A former state senator on Tuesday called on voters to repeal a new law that requires some of the biggest online retailers to collect sales tax in the state of California.
…
Runner said that projections has warned from the very beginning that revenue projections may have been on the overly-optimistic side.

“In fact, the reality is California is going to see less money because as these affiliates are cut off — not only by Amazon, but by literally thousands of other out-of-state internet companies — California is probably going to be losing about $150 million a year in income tax,” said Runner.

The relocation of such firms would also likely slash jobs across the state, he added.

From a recent e-newsletter:

The so-called “Amazon Tax” is now California law, and it’s already a failure. After having terminated their advertising relationships with thousands of California-based Internet affiliate businesses, leading out-of-state online sellers continue to sell into California without collecting sales tax.

Proponents of the “Amazon Tax” claimed it would “create fairness” by “leveling the playing field” between California’s brick and mortar retailers and out-of-state online sellers. They claimed it would generate $200 million in new revenues for the state this year. But they were wrong.