A successful entrepreneur shares her thoughts on business success and failure.

Dear California: I'm Leaving You. Here's Why…

California, I'm leaving you I’ve lived in California for my entire adult life, beginning way back when I was a naive 18-year-old living in the dorms of San Jose State University. (Talk about culture shock…coming from a small farm town in Indiana to the inner city of downtown San Jose!)

In 2009, after living in the Bay Area for nearly 10 years, I decided I wanted a change of pace. San Diego called my name, and I’ve been here since. But now I’m ready to move on…and I’m sad to say the reason why.

You see, I love it here in San Diego. The weather is amazing, the beaches are beautiful, and the people are friendly and generally entrepreneurial. It’s a refreshing change from the Bay Area, where everyone seemed like they were always “too busy” to hang out. Here, life is more laid-back, and I’ve grown to appreciate it.

But one thing I’ve struggled with about California for years is the government. (Yes, I’m going to break my own unspoken rule and wax political on my blog.) The government is notoriously business-unfriendly–with everything from high taxes on business earnings to badgering businesses into more work.)

Examples of the Crap California’s Government has Put Me Through

Okay, you want examples. Here are a few things I’ve had to deal with:

  1. The State of California arbitrarily decided that all businesses that gross over $100,000/year should have an account where you have to report quarterly on the sales tax your customers pay you for goods sold. The only problem? My company only sold services–not products–which aren’t taxed in California. When I closed the account (by going into a local office and spending nearly an hour explaining my situation), they forced it open again and sent me a nastygram explaining that I would owe fines for not filing the quarterly report. You have to file it 4 times a year, and it takes time to fill out, even if you haven’t sold any products and owe the state nothing.
  2. The state charges an income tax of 10% on all income over $47,055. This is in addition to the Federal income tax of 25% on income over $34,001. This is also in addition to an 8.25-9.25% sales tax (depending on where you buy products.) I paid enough in income tax for 2010 to the state of California alone to hire another new worker for my business. I’d bet a lot of money that I’m far more efficient at creating jobs as a small business owner than the state is given the same amount of money. I’d rather have that money to hire someone.
  3. And a really dumb law for small business owners, which Meg Whitman promised to repeal: An annual fee of $800 just to have a corporation in the state of California. (Most states don’t charge you, or only charge you a few dollars, as an annual fee to set up a business. California’s is exorbitant, and it applies as long as you, the primary officer of the corporation, live in California…no matter where you incorporate.)

The Final Straw

But the final straw came recently. I had an inkling that if California voters elected Jerry Brown that I’d end up leaving the state. I campaigned hard for Meg Whitman, as she is extremely supportive of small businesses like mine. Alas, she didn’t win, and California elected a governor for another term who was a ridiculously weak governor in his first term.

And he managed to royally screw things up for small businesses again. Here’s what happened: I have a side income selling products on Amazon. Recently, I’ve invested far more time and money in building niche sites to help bolster my Amazon side income. It’s steadily gone up, from a few hundred dollars a year to what will amount to a few thousand dollars this year. Sure, it’s not a ton of money, but I get the payments in Amazon credit and use them to buy many everyday items.

And then Jerry Brown, our idiot governor, signed a budget that included what many have come to call an “Amazon tax”. Basically, the law says that if Amazon has affiliates (people like me who drive traffic to Amazon in exchange for a cut of sales made from people who click through our links), that Amazon has a “presence” in the state of California–and therefore must collect sales tax here. (Kind of like forcing small businesses to file ridiculous quarterly paperwork based solely on our earnings, not on whether we actually sell taxable goods…)

Amazon made the right decision: Instead of kowtowing to California, they immediately cut off all affiliates here in the state.

And that day, I decided to move. It was a “straw that broke the camel’s back” sort of thing.

Jerry Brown Makes an Idiot Move

Here’s the deal: Amazon sends me a 1099 every year. For those of you not in the United States, it means they send the state government, the Federal government, and me a “receipt” every year showing how much I’ve earned in affiliate commissions. I am then required to pay income tax on that money. And I was dutifully paying income tax on all money earned from Amazon for years.

The state of California just cost itself a bunch of money with that deal. Now, not only do they make less money from affiliates like me who paid income tax on income received from Amazon, but they don’t make any more money from Amazon, because Amazon still doesn’t have to pay sales tax to California.

This is, in effect, one of the dumbest laws ever passed. And it’s pretty much par for the course for someone like Jerry Brown.

I could get around the law by setting up a corporation in some other state and then setting up my Amazon payments to go through that corporation. But then I’d still have to go through the hassle of registering that corporation in California and paying the $800 annual fee (because I live here.) And, of course, I’d still have to pay all those bloody state income taxes. Why bother–when I can just move somewhere else and use that money to help my business and create jobs instead?

But Where to Move…?

The obvious states to move to were states with no state income tax, so that I can move there and immediately create a new job in that state instead of just paying state income tax with that money. The states with no personal income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

In addition, it would be nice to not pay business income tax, either. From the list above, only Nevada, South Dakota, Texas, and Wyoming have no corporate income tax. (See the full list of states with no income tax on Wikipedia.)

Of those four states, Texas is by far the most palatable. I already spend a few weeks a year in Austin thanks to various speaking gigs. In fact, Austin and Las Vegas are the two cities I travel to most. I didn’t want to live in Las Vegas…so Austin it is.

Brian and I are moving to Austin before the end of the year. At this point, I’m not sure exactly when we’ll move, but it will be in November at the latest. And to California, I say: Love your weather–but good riddance!

About the Weather…

The beauty of running an Internet business is that we can truly live anywhere. Yes, Austin gets hot in the summer. But I don’t care, because I will have the income flexibility (thanks to both lower taxes and a lower cost of living) to spend a few months out of the year anywhere I like, as long as it has Internet access. That means I definitely see more long-term, international travel in my future–something I’ve wanted to do for a while. Austin will be a great “home base”, and with its thriving tech and Internet marketing communities, I feel confident we will pick up some great Whoosh Traffic customers there too.

California just isn’t worth it. My priorities have changed. I value income freedom and flexibility more than I value living near the beach. I value having a paid-off house I can call “home” more than I value having a half-million-dollar noose around my neck that declines in value by the day.

Republican vs. Democrat

And lest you think I’m “Republican”, let’s set the record straight on that, too: I believe in small government, dramatically lower spending, and the right for everyone to smoke marijuana and marry whomever they want (as long as both people are consenting adults.) I refused to vote Republican or Democrat in the last presidential election because both candidates believed we should spend our way out of a spending problem. And I abhor the Republicans’ current stance of cutting spending on everything but the military. I love Ron Paul as a politician, but I don’t understand how someone so obviously brilliant doesn’t believe in evolution, and it’s for that reason that I don’t want to see him run as President. If forced to define myself, I tell people I’m a Libertarian.

There, I should have pretty much pissed everyone off with that last paragraph. Now wage your wars in the comments. I’ll go run my business, create jobs, and continue to advocate for less government, fewer laws, and the freedom for us all to create more small businesses…from my new home in Austin, Texas!

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