GovBytes: California Bill Drives Businesses Out of State

There seems to be public outcry every time a municipal government agrees to foot the bill for a lavish, state-of-the-art stadium or arena in order to entice a professional sports team to make (or keep) its home in that city. Why, people wonder, are our tax dollars subsidizing an already wildly profitable private business?

Yet the stadiums and arenas keep on getting built, and state and local governments keep on paying for them. Why? Because, the argument goes, having that sports team in our city brings in far more than the cost of the facility itself in publicity and restaurant/hotel/merchandise sales. Not only that, but if we don’t build it, someone else will, and then they’ll reap the benefits. In the end, our taxpayers are better off than they would be if we let the team move “follow the money” to another locale.

Now, it seems, we’re watching something similar happen in the corporate world. Chad Vander Veen over at Government Technology reports that in the wake of a new law forcing out-of-state retailers to pay sales tax on online transactions conducted in California, Amazon and Overstock have slashed ties with thousands of affiliated businesses in the state.

Many of about 25,000 affiliates in California, especially larger ones with dozens of employees, are likely to leave the state, Rebecca Madigan, executive director of trade group Performance Marketing Association, told the Los Angeles Times. The affiliates combined paid $152 million in state income taxes last year, she pointed out.

Amazon, Overstock Flee California in Wake of New Tax Law

As you can probably imagine, Californians are none too happy about the move. The general sentiment seems to be that Amazon is acting petty out of annoyance with a law that will reduce its competitive advantage compared to so-called “brick-and-mortar” retailers. Still, a state can’t force a company to operate within its borders if the company decides the tax climate makes it unsound to do so. And the state itself, and its residents, are the ones who will suffer.

Which raises the question…

Should governments spend tax dollars to lure/retain companies and pro sports franchises through tax breaks, the building of facilities and other incentives?


“GovBytes” is a blog series created by GovLoop in partnership with Government Technology. If you see great a story on Gov Tech and want to ask a question around it, please send it to [email protected].

Leave a Comment

Leave a comment

Leave a Reply