Assembly Bill 178: An Open Letter to California Legislators

by Scott Jangro on 01 March 2009

ca-flag.pngI am not a resident of California, but as a member of the online publishing industry with so many of my colleagues who stand to be impacted, I am compelled to write this letter.

California is in a state of financial crisis and of course any effort to increase state revenue is expected and understandable. However, to enact a law similar to the New York State “Amazon Tax”, your Assembly Bill 178, stands to significantly harm many thousands of California State residents.

The changes in AB 178 may appear to be a magic bullet, an extremely efficient way to assign California nexus to virtually all online retailers. But it has a fundamental flaw — these retailers can counter by immediately terminating the marketing relationships that they have with many thousands of California residents and businesses.

By taking these counter-measures, merchants can remain whole. They will trade revenue previously driven from California publishers with revenue that they would keep in new California sales tax, and avoid any work necessary to collect and account for the additional state taxes.

Even if they cannot quantify the decision, terminating affiliates is something that can be done in minutes, making it the easiest and most efficient action to take. The way online affiliate programs are structured and managed technically, they can terminate relationships with any California publisher literally with the flick of a switch.

As was demonstrated in the case of the “Amazon Tax”, many dozens of merchants are very willing to take this action.

Your resident online publishers have no similar recourse. At best it decreases their income, and California’s income taxes. At worst it will drive these publishers out of business or out of your state.

As you proceed with this bill, please consider the downstream effects it has on your state residents, and the ways it will diminish the value of the increased sales taxes that it will garner.

Thanks to the New York state actions, you have the benefit of hindsight. It would be irresponsible to not consider the impact that this has on your own state’s residents and small businesses. If you do proceed with this bill, I hope to see that you have strongly considered this impact and published your findings and justifications.

Sincerely,

Scott Jangro
Stow, Massachusetts

Note to readers

I plan to send this letter to the state legislators. Please feel free to modify and use this letter as you see fit.

Update – important links

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  • Shouldn't we start convincing our merchants to begin collecting sales taxes? Well know that this will not stop with CA... Aren't the merchants in position of start collecting the sales tax with a "flick of a switch"?
  • I can see a huge problem here. The internet is country wide, yet the laws are state-specific. if they make it less profitable for companies to hire people from california they'll just hire them from other states. This is unfair - stuff like this should either be passed on a national scale or not at all.
  • Hi, thanks for the information. I think this plan won't work...
  • I agree, Jess. This move will harm many of the businesses producing the much-needed jobs required to lift the economy out of a recession. The government cannot tax or borrow our way out of this mess. We the people must exercise our right to vote and clean house!
  • Jess
    Mike,

    They may Fail Nexus with the Supreme Court but it will take a long time to apply the nexus test. Meanwhile there is no restraining order on these government entities from trying this unconstitutional stuff. So the tax the Small Web Entrepeneur switch flicks on and the Affiliate marketer takes an immediate fatal hit. The tax revinue takes a hit too, these folks dont know how to balance a checkbook let alone a state budget!

    We must sign up for a protest before it's too late! The California NO-178 tea Party needs you Today!
  • Thanks for the links Scott... I sent a similar letter to the link you provided.
  • Some wise governor from another state will make it an economic development priority to attract Internet businesses fleeing California and New York. You talk about high-tech, green jobs . . . Wow!

    I sincerely doubt these kind of moves in these two states can pass the Supreme Court nexus test when challenges ultimately make it there. This is a federal issue and was settled years ago unless something is done at that level to legally re-define nexus.

    Thanks for your open letter, Scott. Good job highlighing this example of politics gone wild at a time when we need more economic and business activity.
  • This bill will not pass. It's just impossible during this financial crisis. However, the "Terminator" is so stupid that he could find a possibility. I don't live in California, but what if this bill passes, then other states will follow its bad example, and this is just sad.
  • Michael
    Unfortunately, California does not care about small business and has proved it again and again. As a resident of CA I've read about many businesses that pull up their stakes and move out of state. A recent one that comes to mind is Buck Knives who moved from the San Diego area to Idaho.

    More proof? Simply by registering your business an an LLC in CA you are subject to an $800 annual corporate tax whether or not you make a single dime. I hope this bill doesn't pass but it wouldn't surprise at all if it did.
  • I would definitely sign under a letter like this. WTG, Scott.
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