Why States Should Limit Their Small Business Taxation

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States need revenues. Small businesses are a good source of those revenues. When you put a plus sign between those two things, you have state governments with cartoon-style dollar signs in their eyes.

The problem—because of course there’s a problem—is that small businesses are already taxed at a pretty high rate. Many are just starting to enjoy the growth they once took for granted, months after the recession finally tumbled off the back of the wagon. Adding additional tax burdens to that is tantamount to throwing a stick into the gears of industry, and it can be a public relations fiasco.

Just ask California, which is in the midst of a battle to force Amazon to collect tax and send it to the state based on online purchases made by those living and working in Cali. Legislators are also pushing for a new way of classifying businesses that could force those with more than $100,000 in revenues to pay more than they have by forcing the collection of the use-tax. So many small businesses aren’t even aware they have to pay it.

It’s not that taxes are terrible. Abolishing all taxes would lead to no government, and that would mean some of the prized services the federal and state governments put out their for businesses would simply cease to exist. And California is not wrong to enforce the collection of a tax that’s already been on the books.

Still, they’re fighting a losing battle in the public sphere here. Small businesses resent suddenly being asked to pay a significant tax on something that wasn’t enforced, and California’s efforts to force Amazon and other online retail giants to collect taxes is almost certainly going to lose. Even the perception that you’re greedy—even in a state like California, which has been in a fiscal morass for years—is one that is basically untenable when you’re going up against small business.

So look to California in the coming months. Their success, or lack thereof, might be a catalyst for other states.

Does your state tax you too much? Sound off!

Photo credit to elizalana at http://www.sxc.hu/photo/1345669

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