I've disappeared into an underground dungeon of early stage startupdom again. Literally. (our offices today are in a windowless basement.) But I re-emerge, albeit briefly, with a real world example of how government action can push away businesses.
San Francisco is again considering a gross receipts tax. It's hard for me to understand why anyone would implement a gross receipts tax instead of a tax on profits- why should a business with gross revenues of $10M but profits of only $100K pay ten times the taxes of a business with gross revenues of $1M and profit of $500K?
As it happens, my company, IODA, falls in the first category (albeit at a fraction of those numbers). We are a digital music distributor for independents; we sign up independent labels and then distribute their content to the digital music services such as iTunes, Napster, Sony Connect, etc. When the music sells, the services pay us, we take our 15% commission on the wholesale revenue, and pay out the other 85% to the label. This means that our so-called 'gross' revenue is almost seven times what we really consider to be our gross revenue, and our margin is only a fraction of that 15% commission.
We are expanding rapidly, and looking to move to new office space in the next couple of months. We want to stay in San Francisco; this is where we live, and this is where we want to work. But the proposed 0.15% gross receipts tax would be a 1% tax on our gross revenues. That's alot of money for a small company like IODA. So, we'll wait and see. If the measure passes, we might be able to stick it out for a year before our revenue gets high enough that the tax really hurts. And then San Francisco will lose yet another growing business to the suburbs. And we'll all be worse off for it.