I Wade Into the Shallow End of Starting a Business

I started my day over at a small business fair in Oakland. The IRS was putting on a little show about home-based businesses and tax law that I thought would be informative.

The IRS has gotten a bit twitchy in recent years about home-based businesses because a lot of people try to use them as an angle. You stuff envelopes in the living room while watching TV and try to take the cost of your home and the cable bill as a deduction — that sort of thing.

So they’ve gotten anal about what you’ve got to do in order to deduct expenses for a home business. In order to deduct, say, a portion of your rent corresponding to the room in your house that you use for an office, that room has to be physically distinct from the rest of the house (walls), it’s got to be used exclusively for business (no crib for junior; no skis leaning up against the wall in the corner), and it’s got to be used regularly for business. And that’s just some for instances — the restrictions go on.

But I found some stuff I can use, and also picked up a lot of informative bits from other agencies that were at the fair.

One question that had been on my mind had to do with California Sales Tax. Its rate these days is 7.25%. But in San Francisco, where I live, this is boosted by four local and district taxes — two for 0.5% and two for 0.25% — to a total of 8.75%. But here’s where it gets tricky.

If you live in California, you know about the sales tax — it gets added to your bill for just about everything you buy. But did you know about the use tax?

I didn’t.

Let’s say you order a book from a mail-order company outside of California and they ship it to your California address. Does that company have to collect California sales tax and hand it over to the California government? No — because the regulation of interstate commerce is a federal thing, and states can’t tax it on their own, so sez the Constitution and the Supreme Court.

So — get this — the California government doesn’t tax the “sale” of the book, but the “purchase” of the book (which does happen in California). You, as a good California citizen, are supposed to keep track of everything you buy from out of state, and pay a “use” tax (the same percentage as the sales tax) voluntarily.

Yeah, I bet that happens a whole bunch.

But anyway, how this relates to me and to district taxes is as follows: The same sort of deal applies within the state of California to these additional local and district taxes. If the sale takes place in the district, all of the district taxes apply; but if the purchased product is shipped outside of the district, you don’t have to collect those taxes.

So, I’m thinking… I live in four of these districts. If I start selling something mailorder, do I have to check a map every time I get an order to see which of those districts my customer lives in?

Well, the answer I got from behind one of the tables today is that for all intents and purposes, the four districts are coëxtensive with the city/county of San Francisco, so I’d charge 8.75% to customers in The City, and 7.25% to other Californians. That’s a relief.

This afternoon the National War Tax Resistance Coordinating Committee conference started in Santa Rosa. I’d never been to one of these before and didn’t know much about the group or what to expect. There are about 40 or 50 of us, from all over the country, split about evenly male/female, aged from the late 20s to the 70s or thereabouts.

Almost everyone is from the white granola left. Which is to say, this is the kind of group where standing in a circle, holding hands, and singing something by Peter Paul and Mary is an earnest and unironic display, and where to divide up into four smaller groups the immediate suggestion is “fire signs in this corner, earth signs over there, etc.”

As tax resisters, they run the gamut from folks who haven’t paid taxes for years to folks who are getting their feet wet by refusing to pay the federal excise tax pennies on their monthly phone bill. Some folks, like me, are doing the income reduction / voluntary simplicity technique. Others are working in the underground economy, doing jobs for cash or keeping their monetary transactions offshore. Some others file tax returns but don’t include any payment, and wait for the IRS to work its way through the long bureaucratic process of seizing money from their bank accounts. One fellow had joined with a bunch of other people nationwide in a constitutional challenge to the tax law until the lawyer who was running the scheme got stomped down by the government recently. He’s trying to figure out his next step.

And so everyone’s got a story to tell. We’re all fishing basically the same stream, but some of us are using flies and some are using bait and we’ve all got our own favorite spots and our own techniques. Now we’re talking fish.

Discuss amongst yourselves: Even if I succeed this year in reducing my federal income tax to zero, I still will be paying Social Security taxes. Some say that this is just a trust fund that the government oversees, but others say that this money is essentially just another part of the general fund that the government uses. In order to actually remove my support for the government and its actions, would I need also to stop paying the Social security tax?