Modern technology platforms have eased software development and simultaneously, human culture has embraced innovation to a degree that today, technical idea people can execute their ideas hands-on and after hours. Applications can be built quicker and users are now accustomed to being part of what we would have historically called a beta period. That's becoming more the case even outside of software.
Meanwhile, thanks to ever-forward progress on processor efficiency, hosting costs for applications have become an affordable commodity available to amateurs and ultra-small entrepreneurs. It used to be considered a novelty to own a personal server. It's still unusual, but not because it's costly.
With these two forces, it should be feasible to operate a fledgling home business with merely hundreds of dollars on hand. If technology and the universe of users had their way, the burden of creating a new business should and would be pushed as low as possible to encourage hesitant innovators to stop hesitating.
A recent college-graduate with fat student loans should nevertheless be able to comfortably create a home business in the evenings and weekends. Or perhaps better yet, a high-school graduate should be able to do so while learning college-level material online.
But one area does not benefit from the downward cost momentum of technological progress: government. Taxes and fees are not inexorably linked to technology in the same way the cost of a virtual server is.
Fledgling, not-yet-formed, and not-even-yet-conceived businesses are negatively impacted by what I consider cruelly high taxes and fees. California and many of California's cities do not have the processes or exceptions in place to work fairly with ultra-small businesses. Essentially all state and local governments' taxes and fees appear to be constructed with an assumption that your business is:
- Already successful or going to be successful imminently.
- Not a side project.
If in fact all businesses could reasonably be assumed to be successful and at least a full-time commitment by the proprietor, the existing minimum taxes and fees may be rational. Because with such assumptions, a revenue volume that could reasonably bear these fees is at least more likely. (Although even then, the minimums seem unnecessarily punitive.)
But ultra-small businesses have ultra-small volumes. Possibly forever until they ultimately close up shop or for a long time until they pick up sufficient momentum. At such small volumes, minimum taxes and fees that governments see as compassionately small are in fact oppressive. Or at the very least, suppressive in that they suppress market entrants.
California charges
an annual $800 minimum franchise tax on businesses operating as limited liability companies (LLCs), "whether the corporation is active, operates at a loss or does not do business."
That's more costly than two reserved EC2 Small instances for a year.
My home town of Hawthorne charges an initial $256 fee for operating a business out of my home and then $113 per year to renew the license. If you too lived in Hawthorne and failed to pay that fee (maybe because you didn't even realize you needed to, as in my case), you are in for some late fees as well. Doh!
So that's nearly another EC2 Small instance not purchased.
My own
fledgling home business had gross receipts of $4,145 in 2012, and most of that amount directly represents expenses (the bulk of the money goes out the door as donations to charity), and furthermore, a significant majority of that was from my own use of the business' services in my attempt to prove its experimental model. So you can see what I mean by fledgling.
I work a regular job, so I can fund this business of mine for years without worry. I would like it to be self-sufficient at some point. Putting aside the fact that its gross receipts for 2012 came in large part from myself, in order for it to be self-sufficient, it would need volume at least two times greater than 2012 to pay just for hosting expenses. But it needs
four or
five times the volume to pay for hosting and taxes + fees.
This is (ultra) small potatoes to most companies and possibly most people who are reading this. But remember that idealistic goal I set at the beginning: our society should be seeking a condition where experimental businesses can be self-funded—for years if necessary—by normal people. Technical people, sure, but with very modest capital.
When that mythical high-school graduate briefly entertains the fantasy of creating her or his own Internet business, one reason the idea will be aborted before it's conceived is: "Even if I did all the development myself, I can't afford to run a business." And a big reason they can't afford it is taxes and fees.
It should not be so costly to operate a home-based business in California. If a business is ultra-small—that is, with gross receipts in the realm of $15,000 or less—taxes and fees should be reduced to the bare minimum to cover paperwork filing. $20 or so would be fair, and $100 should be considered a maximum.
The total tax revenue from ultra small businesses cannot possibly register as any meaningful amount for states or cities. So what possible rationale could exist for tuning the system in such a way that new business ideas are aborted before they are tested?
It could be argued that forming an LLC should be eschewed in favor of a sole proprietorship to avoid the State's tax, but this is missing the point. The luxury of LLC protection should not be something that is purchased unless we are prepared to call that what it is: a protection racket.
Full disclosure
My small business is an alternative marketplace of city and state improvement ideas where we the users attempt to influence the powers-that-be by making donations to charity on our ideas' behalf. I have created two tasks and donated to charity on behalf of my opinions above.