Pete Peterson
Late last spring, when I told an accountant friend of mine that I was running for California Secretary of State, there was a long pause on the other end of the phone line, then, catharsis: “Pete! We have to get together for coffee this week. You need to know how tough it is for business owners to work with our Secretary of State’s office!”
Days later at the Coffee Bean on Wilshire in West Los Angeles, Carl escorted me into a world of red tape, paper, and problems, which greet the California entrepreneur as she attempts to launch her dream. We don’t think of the office in these terms, but the California Secretary of State is the first person a small business owner sees when they start up a business (filing registration forms), and the last person they see when they leave (filing dissolution forms).
The sight isn’t pretty…coming or going.
As Carl explained to me, “You know, Pete, when a new business owner wants to start their business here in California, we start the paperwork with Sacramento, and knowing that’s going to take a couple weeks, we go online with the Nevada Secretary of State just so we can register that day and my client can open a business checking account.”
I couldn’t believe what I was hearing until the story broke over the summer that the office was awash in a 6-week backlog of new business filings. Apparently, moves were made following the story that have cut the registration time down to a week. For this we are supposed to be appreciative.
But we don’t just make it difficult to start a small business here; we make it expensive. The California Secretary of State charges LLC’s in the state an $800/year “Business Franchise Tax”. This is more than twice the amount charged than business-hungry states like Nevada, Texas, and Arizona.
At the recent Code for America Conference in San Francisco, I was introduced to the recent Missouri Secretary of State, Robin Carnahan (D). We chatted about my race, and why I was running. I mentioned my intent to fight this annual “LLC Fee”, and she grabbed my arm in amazement, “We charge our businesses $50 to register in Missouri, “ she said. “And we charge it once – not annually.”
Speak to small business owners like I have over the last six months, and the Business Franchise Tax always elicits the most groans. On a personal note, this is the major reason my wife – who owns a small graphic design firm, which is an LLC – wants me to run. For the businesses at the lower ends of the economic ladder it can be one of the largest taxes they’ll pay in a year.
Where does the money go? Nobody seems to know, and some of my own (albeit limited) research into the Secretary of State’s budget doesn’t reveal any answers. It, apparently, doesn’t go in to modernizing the Secretary of State’s website or filing system.
A couple days after my chat with Carl at the Coffee Bean, he forwarded me over an email he received from that (darn!) Nevada Secretary of State. It was a “Quarterly Business Report” sent to every business that has registered in the state. As their Secretary writes in the email, “my office continues to assist business customers by educating them about the crime of business theft and appropriate prevention methods, learning best practices from other state filing offices.”
Without a hint of partisanship (except towards the businesses who register in Nevada), the Report contains useful business tips and information about the business climate in Nevada – how to facilitate starting and growing your business there. The Secretary concludes the email, “I hope you find the information useful, and as always, my staff and I look forward to continuing to serve you.”
I asked Carl if our Secretary of State does anything like this for the businesses that register in California. “No love letters from the State of CA,” he replied dryly, “but the BoE sends me stuff.”
From the beginning, my campaign for this important office has been founded on bringing solutions and a spirit of innovation to an office that desperately needs it. So, as part of my “Pete’s Plan” to be California’s Chief Engagement Officer for Businesses, I propose the following:
1. Enable Rapid e-Filing of Small Business Registrations: There’s no good reason other states make it easier than the world’s technology leader to file a business in this state.
2. Reduce the Ridiculous $800/year Business Franchise Tax: Now, I know what some of you thinking: “Good luck getting that through the Democrat Legislature”, but hear me out. First, the tax is so out of whack with most other states that it borders on an injustice to continue charging it. Second, it is “Sacramento-thinking” to assume that when you reduce taxes you automatically reduce revenue by that amount. I spoke with a property developer in the San Diego area a couple months ago who raised this issue of the “LLC Fee”. “What I’d like to do is put an LLC on each of my four properties, but at $800 a pop, I’m not going to do that.” I asked, “So what if we reduced it to, say, $100?” He responded, “I’d do that in a heart beat, and continue to put LLCs on future individual developments.”
3. Survey Business Owners through the Registration/Dissolution Forms: Why do businesses start and leave California? The Secretary of State is uniquely positioned to ask a few important questions of California small business owners through the registration and dissolution forms, and report that data back to the Legislature in a “Coming/Going Report”. Let’s do it.
4. In fact, let’s keep a running tally of the number of businesses starting and leaving the state through a “BizTracker” on the Secretary of State’s website.
5. And let’s use the invaluable business owner email database to communicate with California’s business owner on a regular basis with helpful tips of how they can keep and grow their business in California.
California has always been the home to entrepreneurs. We need a Secretary of State who will fight for them.