Laws That Screw the Self-Employed and Entrepreneurs

I think most economic developers would agree that America is not creating enough "high quality" jobs for its citizens. That's a major problem all economic developers should be concerned about. While none of us should ever stop trying to hold onto and attract employers that create high quality jobs, we need to give much more attention to the self-employment and entrepreneurial path to economic development. In many cases, self-employment is the only way people can find a "wealth-building job."

I run a small boutique consulting company that serves the economic development industy. Being self-employed is my strategy to provide a "high quality" job for myself and support my family. Frankly, that is the only way I can remain in Greater Cleveland, which is doing an even worse job than a very large number of other metro areas in retaining and creating high quality jobs. So, you can imagine why I am concerned about situations like the one told in a recent Tax Foundation (TF) article.

Here is a clip from the TF article. Please read it and consider the issues and their implications for self-employed people, entrepreneurs, and small business owners in your area.

"Imagine you are the proprietor of a small software company, selling your products to customers all over the United States. Your offices are based in your home in South Carolina. You are the only employee of the company. You make occasional sales trips to other states, but generally only sell through advertising your products in magazines and on your website.

You recently made a sale to a customer in New Jersey. The customer is a casino and is using your software to help manage its activities. One day, you receive a letter from the state of New Jersey. They demand taxes from you for the privilege of doing business in New Jersey, and they want you to register to do business in the state. The total cost of the registration fee plus the minimum taxes due exceeds the revenue received from the software sold to your New Jersey customer.

Is it right for New Jersey to levy taxes on your small software company? Oliver Wendell Holmes once said that taxes are what we pay for civilized society. But is it right for a small business with no offices, employees, or other physical presence in New Jersey to pay taxes for government services offered in the Garden State?

H.R. 1956, the Business Activity Tax Simplification Act of 2005, would require a corporation to have employees or real property physically present in a state before it could be required to pay state business activity taxes (e.g., income, franchise, or gross receipts taxes). Physical presence—as opposed to the most popular alternative, economic presence—is the correct standard for our 21st century international economy. Under physical presence, your small software company would not have to pay tax in New Jersey or anywhere else in the world where you merely sell products to customers."

Think about this one. Read more here.