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Sunday, July 26, 2009 | The bill in the mail said the city got access to my tax returns and since I list myself as an author, and have a local address, I must be operating a business here. Therefore I owe them business permit fees for the last four years.
They added penalties for being late. This was my first notice that to be a writer in San Diego, you must pay. Sure enough, this letter says anybody who’s presumed to be an “independent artist, writer or performer” needs a business permit every year.
There are a few scary things here:
1. They’re probing tax returns and sending out notices of liabilities based on “presumptions,” and quoting laws that permit this.
2. They haven’t bothered mentioning this before and are billing for 2006, 2007, 2008 and 2009.
3. They are wrong. I haven’t had royalty income in those years.
This was only a few hundred dollars, but, besides being criminal extortion, hints at bigger bites to come.
The next bite: California sent a bill to an Orange County business I’m involved with. This rescinded the NOL carryforward. (That stands for “Net Operating Loss” and normal tax rules allow you to carry losses forward, and offset profits by those losses. Startups need this since they typically lose money at first.) California reversed this rule. God forbid anybody should innovate in California.
And, get this, they made the reversal retroactive, billing this business for several hundred thousand dollars.
This hints at even bigger bites coming.
A technology company I work on just got a letter from the IRS. It seems that these gentlemen decided that foreign subsidiaries cannot be exempt from U.S. taxes. This is despite five years of filings and approvals.
The IRS changed its mind. They now want five years back taxes from the foreign sales. God forbid a company sells anything overseas to create jobs here. This involves many, many millions of dollars.
So the lesson is, we cannot trust government at any level. They change their minds. You owe them more than they agreed to in the past.
Sadly, we are not dealing with very bright candles in our government chandelier. There are solutions to help these businesses survive. But these solutions suffocate America, California and San Diego.
First of all, I can write books anywhere. With regrets, I might leave my favorite city. That’s a bit rash for the small amount involved. But on a recent trip to Texas, the prices of food, lodging and gas were noticeably cheaper. And there’s no income tax. Ditto for Incline Village or Florida. The temperatures get worse, but how much are we willing to pay for tropical weather?
(The price of a one-way U-Haul truck, 26′ long, on July 17, scheduled for July 31, from San Diego to Dallas is $1940. The same price today for the same date and the same truck going from Dallas to San Diego is $654. There’s big demand for moving vehicles leaving San Diego. There’s none for trucks returning. People are voting by leaving. Just as they did between Miami and Havana or between East and West Berlin. In those cases, of course, they risked their lives to escape government growth. Keep those bags packed.)
Second, the Orange County business could move to Hong Kong. Half their sales come from Europe. Their product is made in mainland China. This’ll speed up final inspection: They can load the stuff on boats and go up the Suez Canal.
Quicker inspection, faster deliveries and their corporate taxes will be cut in half. That’s right, they can cut business taxes in half and their income taxes by more plus make the business better, simply by moving to a Communist country. Think about that. (When explaining this to some liberal friends, I also told them that we had several union pension funds invested in this business, so, we can make life better for those laborers by moving jobs out of the United States. Conservative friends asked if I wasn’t afraid the Chinese would steal some secrets. Of course. So we’ll keep critical design details here and hope. But the fact is that the United States and California are already stealing with unfair taxation.)
Thirdly, the technology company has a simple solution. Leave the country and fire most of the work force here. Then the IRS cannot challenge those foreign earnings. Since, again, sales outside the United States are stronger than those within, why not? There’s another solution that hurts American workers and helps American investors. And sometimes, more often than politicians realize, these are the same people.
Their invested pensions grow faster when the companies leave the country and their job prospects diminish.
This is pathetic. Is it “change?”
None is surprising, because nobody gets it unless they operate in the real world. I’ve been CEO of six southern California businesses. I left when Continental Graphics purchased US Press. The new owners made a bundle by shifting work from California into our Portland facility, where union work rules were rational.
I left Checks To-Go when Rocky Mountain Banknote acquired it. The new owners moved the business to Salt Lake City and benefited from better worker’s compensation rates. When McDonald Douglas acquired Smiley Industries, I left and they moved production to Phoenix, where productivity was superior. When Protection One bought Knight Protective, I left, and they moved the monitoring business to Oregon, where four-day work weeks were allowed without penalty.
With Teledesic, the later investors moved the business to Seattle, for less severe capital gains rates than California’s. With @Backup, I retired for medical reasons: My board got sick of me. This business had $26 million in the bank when the board and I disagreed. They hired three CEOs after me, ran through the money and sold the remnants to a Washington, DC outfit. I’m unfamiliar with the reasons for that move, since I’d been gone two years.
But it’s striking. Every business I’ve run, when successfully sold, was moved by the new owners out of California. That’s because the new owners want to make more money than is possible here.
These policies are reminiscent of General Motors, suddenly seeming to be surprised by Toyota, which has been nibbling away at their business for decades, year after year. Just like other states nibble into California while California continues to tax and spend. Just like some foreign countries, especially those contrary Chinese and Indians, who are trimming government, watch their economies grow and standards of living improve.
Gary Sutton is a retired CEO. He is the author of “Corporate Canaries Avoid Business Disasters with a Coal Miner’s Secrets.”