

California Startups: Your Company's Fate May Be Decided Tomorrow - kposehn

Yes, I'm completely serious about that headline.<p><i></i> So, here's the situation: <i></i><p>I've been an affiliate marketer for a number of years before creating a new startup. One of the reasons I did this was to lessen the risk of the stupid Affiliate Tax laws from harming my business.<p>Anyway, after all this effort, the California State Senate came along and introduced SB234 (read the text here: http://leginfo.ca.gov/pub/11-12/bill/sen/sb_0201-0250/sb_234_bill_20110209_introduced.html )<p><i></i> Here's a quick summary of this bill: <i></i><p>- The goal of this bill is to establish through as many means possible that an out-of-state retailer has "nexus" - a physical presence which requires them to collect California sales tax.<p>- Nexus is defined in this bill as "Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property"<p>- The result of this bill is that any out-of-state retailer will <i>not</i> have to collect sales tax if they sever business relationships with a large swath of contractors, service providers, ad networks and affiliates that have a presence in California.<p><i></i> What does this mean for you? <i></i><p>- If you are a company that in any way makes a commission or markets on behalf of another company as your monetization, you are in danger.<p>- If you are a contractor, web host of some kind or other service provider that is even peripherally facilitating the sale of a product in any fashion, you are in danger of out-of-state retailers canceling their contracts. This could include web design, web hosting (including out-of-state hosts with a server in California), coding, mobile apps, you name it.<p>- If you have any manner of advertising for out-of-state retailers, they will likely cancel any budget with you as advertising online itself could qualify as nexus.<p><i></i> Who supports this bill in the CA Legislature? <i></i><p>This bill was sponsored by Senator Hancock (Berkeley district, Democrat) and all votes have been on party lines (Democrats Aye, Republicans Nay). This bill is heavily lobbied by Walmart, Best Buy, Target and Home Depot who have thrown huge amounts of money behind this.<p><i></i> Here is the most recent Senate vote tally: <i></i><p>Ayes - Elaine Alquist, Ellen Corbett, Kevin De Len, Mark DeSaulnier, Noreen Evans, Loni Hancock, Ed Hernandez, Christine Kehoe, Mark Leno, Ted Lieu, Carol Liu, Alan Lowenthal, Gloria Negrete McLeod, Alex Padilla, Fran Pavley, Curren Price, Michael Rubio, Joseph Simitian, Juan Vargas, Lois Wolk, Roderick Wright, Leland Yee<p>Nays - Joel Anderson, Tom Berryhill, Sam Blakeslee, Ron Calderon, Anthony Cannella, Lou Correa, Robert Dutton, Bill Emmerson, Jean Fuller, Ted Gaines, Tom Harman, Bob Huff, Doug La Malfa, George Runner, Tony Strickland, Mimi Walters, Mark Wyland<p><i></i> The Strategy of the Bill: <i></i><p>This bill is very open-ended in order to give as much leeway as possible for interpretation. The strategy is to let the actual enforcement be decided upon by the personalities on the Board of Equalization without any clear definition of nexus.<p><i></i> What You Can Do: <i></i><p>I'm going to be personally trying to drum up opposition for this bill tomorrow in Sacramento along with several other members of the Performance Marketing Association. The best thing you can do to help is reply with your company name, url, number of employees and where you are located along with whether you oppose or whether this will actively harm your business.<p>Many politicians have been going on about how tech businesses are the future of California. Right now we need you to speak up about this so we can get them to listen. Many of the politicians directly in favor of this bill are the very ones who were elected in your districts!
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scottlay
On my hobby site, aroundthecapitol.com, you can post comments about the bill
using disqus and facebook. It's a quick way to alert your friends about this
bill and its impact on your business. I'm an education lobbyist, but have been
working to make legislative information more accessible and actionable.

<http://www.aroundthecapitol.com/Bills/SB_234/20112012/>

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kposehn
Thanks Scott, I was actually using your site for some of this research as well
:)

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scottlay
Cool. I like to refer to the official source as well, and then let people know
that aroundthecapitol has tracking and commenting options. Thanks for letting
people know about this bill.

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kposehn
I'm letting some of the people in the PMA know about your site too - we're
doing a lot of legislation tracking right now.

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scottlay
Most importantly, let me know if anything can be improved or explained more
clearly.

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kposehn
More info on tomorrow's meetin with the legislators:

It starts at 10 and we will be meeting with the sponsor and several others in
order to get opposition rolling. If you have a startup that might be affected
or simply don't like this bill, please sound off so I can put you on the list.
You could make a big difference!

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dazzla
Any update on this meeting?

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mvalente
"Equalization of Opportunity Act" anyone? The "Anti-dog-eat-Dog Rule"?
Socialism FTW.

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kposehn
Gotta mock -- I mean love, really -- the names they come up with. Illinois
called it the "Main Street Fairness Act" when it was sponsored by home depot,
target, best buy and walmart. ( '-')-p

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dazzla
Deal Drop, <http://www.getdealdrop.com>, 0 employees, located in El Dorado
Hills.

100% of Deal Drop revenue is from affiliate commission so this would kill Deal
Drop.

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kposehn
Added, thanks!

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mapster
So this is Bill is going after online sales, including affiliates as a way to
get more ppl into Big Box stores?

If this Bill is a real threat, where is the opposition of the online merchants
(eBay, Amazon, etc.)?

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DrHankPym
I'm still a little unclear with the purpose of this bill. Is this extending a
tax to businesses that work with businesses in CA or am I missing the point?

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scottlay
Yes, instead of applying the physical presence test for sales tax, SB 234
would apply a substantial nexus test. The opponents argue that this would
require Amazon to collect sales tax if it maintains its Affiliates program, as
they are arguably resellers/referrers located within California.

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kposehn
That plus any sort of contracting relationship, electronic representation,
marketing, etc.

They struck the explicit wording and instead opted for a very broad wording,
so pretty much everything qualifies.

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scottlay
Personally, this is a tough one for me. I live in the college town of Davis,
and love my local bookstore and the downtown with small shops. That said,
buying books on Amazon with Prime is tempting and, at 8.75% sales tax is
another plus. (Of course, the biggest is buying electronics...)

Also, the loss of tax revenue is killing the colleges I represent, but this
bill is a band-aid solution and a comprehensive federal one that applies to
all states equally is probably needed.

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kposehn
Agreed, as such we all support streamlined sales tax; pretty much the best way
to fix this IMHO.

