I am currently the chairman of an online retailer based in Los Angeles, CA… which is very unfortunate because the business environment here is hazardous for startups.
After analyzing our shopping cart abandonments, I’ve calculated that over 60% of our abandoned orders are from Californians. Why Californians? Because the sales tax here is ridiculous!! At 9.75%, Californians pay the highest sales tax in the country. The average sales tax of our abandoned orders is $27.36—although our prices are lower than our competitors, we are at a HUGE disadvantage because Californians can score a better deal buying from our out of state competitors, many of which are based in Nevada.
California is blessed with a prime geographical location to be one of the greatest economies in the world… Stanford, UC Berkeley, and USC pump out thousands of brilliant minds a year… Venture capital firms and the entrepreneurial spirit of Silicon Valley fuel innovation… The port cities of Long Beach and Oakland give us a thriving import / export economy while our neighbors to the south form the backbone of our work force…
Unfortunately…. shortsighted politicians, a liberal voter base, and the Internet threaten to steer our state into the ground. Hazardous tax laws drive Internet entrepreneurs out of California to states like Nevada, where they setup shop, create new jobs, and reap the benefits of state that promotes small business.
Jobs and businesses lost in California will exacerbate state budget shortfalls which will inevitably lead to even higher taxes, feeding a self-destructive cycle.
Case in point: Savvy e-commerce operations like Zappos set up shop in Nevada where they can provide tax-free sales to Californians. CEO Tony Hsieh explicitly cites CA sales taxes as a reason for refusing to open a California office.
So what is take-away lesson of this story/rant?
If you are an Internet entrepreneur, you should seriously consider getting residence in a tax friendly state. For people who make big money from domain parking, this is a no-brainer… If you REALLY hate taxes, follow Frank Schilling’s strategy, expatriate, and move to the BVI.
Many municipalities are teetering on the brink of insolvency, and if history is any indicator of what will happen….there will be an inevitable trend toward HIGHER AND HIGHER TAXES!
Are you wondering if I defected to Nevada? Well actually, I didn’t… but that’s just because I’m not making enough $$ these days for taxes to bother me :(