A “Dear John” Letter to the State of California

It hardly needs saying that the witlessness of politicians is infinite, but every now and then the infinite witlessness (or is it greed?) seems abysmal too, and the case of California mandating that Amazon collect sales taxes from its affiliates in the state means that Amazon is cutting ties with those affiliates, meaning California will collect less tax revenue, and suffer a net job loss, because of its public sector greed.  One company has written a “Dear John” letter to California:

Dear California,

We’re terribly sorry to have to do this but we’re no longer a good match for each other. And trust us when we say it’s you, not us…we just can’t afford you anymore.

Ever since you and your new BFF–the Affiliate Nexus Tax–started hanging out, people just don’t want to do as much business with us anymore. Sure, we know it seems only fair that online retailers without a physical presence in California should have to collect sales taxes from their customers just like everyone else. The problem is, until every other state–or the federal government–feels the same way, companies like Amazon.com, Overstock and others have decided that it’s not worth working with us (or 25,000 other California-based businesses) anymore. Apparently, in your eyes, our affiliate relationship makes them liable for collecting taxes. They’ve decided it makes better sense to just work with affiliates beyond your, admittedly still picturesque, borders.

We know this letter might come as a bit of a shock–especially because things had been going so well between us. Last year alone we helped drive $400 million in sales and we’ve doubled the number of California jobs we provide year-after-year. And people started to notice: the LA Business Journal named us a “Best Place to Work in Los Angeles” and then Inc. Magazine just named us one of the “500 Fastest Growing Companies in 2011.” So what went wrong? . . .

Reminds me of the time back in the early 1990s, when California was also in a fiscal black hole (ultimately rescued by the dot.com boom, and no one expects that will happen again), and the rapacious legislature decided to try to grab more revenue by imposing sales tax on capital equipment purchases, which hitherto had not been taxed for a good reason: manufacturers could relocate elsewhere.  Retailers (think Nordstroms) don’t have that luxury, but many businesses do including Internet mail order businesses today.

At the time, Intel was about to site a new $1 billion chip factory, and was looking at California, or New Mexico.  The proposed sales tax on capital equipment would have added $60 million to the price tag to build in California.

The tax manager for Intel appeared before the ways and means committee of the state legislature with a blunt message that I rather liked: Look, he told the committee, you are not going to collect this tax from us.  There are two ways you are not going to collect this tax.  You aren’t going to collect this tax if we locate in New Mexico, and you aren’t going to collect this tax if we locate here in California.  Get it?

Not surprisingly, the Democrats on the committee didn’t get it.  The chairman, in whose district the Intel plant would be built (creating jobs), whined, “But we need the money.”  So the Intel tex guy kept repeating the same message: There are two ways you aren’t going to collect this tax from us. . .

It was most fun to watch such invincible ignorance in action.  But eventually they got it (not that day however), and repealed the sales tax on capital equipment purchases.  But the current legislature doesn’t get it.  So California’s slide continues unabated.



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