San Diego’s small businesses face a “double whammy” of sales tax burdens as a result of Proposition 30, said John Kabateck, the California executive director at the National Federation of Independent Businesses (NFIB).
California already has the highest statewide sales tax rate in the nation, and the state faces a 3 percent sales tax increase as a result of Proposition 30, Kabateck said.
“We consider it to be a double whammy for small businesses. Not only will it give the customer of a local bookstore or restaurant less reason to patronize that business, but it creates a huge burden for small-business owners who also spend sales tax on goods and inventory,” Kabateck said. “Not only do the customers have to pay more, but every mom-and-pop owner will shell out more for basic goods and services, which is then passed on to the customer as well.”
Ann Kinner, owner of Seabreeze Nautical Books and Charts in Point Loma, said her business is already down because people don’t have money in their pockets, and this may be the worst Christmas quarter she’s seen in the business.
“We’re just like our customers -- we’re not spending money. I’m not going to spend if I can get away without it,” Kinner said. “The thing that catches me is, I can’t adjust my prices to reflect what my costs are. The publishers print the prices on the books. For navigation charts, the prices are established by the government. I can drop prices but I can’t increase to cover my operating expenses.”
Kinner bought the business in 2004 with the intention to sell it in 2014.
“I can’t sell my business because we don’t have the same revenues as when I bought it,” Kinner said. “I can’t begin to think about that now. I’m hoping to still have a business in 2014 and be able to pay off the note.”
Kinner wouldn't be living in California if it weren't for her business, she said, and her financial partner is considering moving out of the state.
"My customers -- they can leave and so they are. They can live in other states and have a nicer lifestyle," Kinner said.
Many of Kinner’s customers are also business owners who have been able to purchase boats and travel, but now won’t have the money to spend. Kinner does not file as an individual for her business, but some small-business owners do, Kabateck said. For those who file as an individual and not as a corporation, small businesses making $250,000 will pay 1 percent more, or $2,500; and small businesses making $310,000 will pay 2 percent more, or $6,200, according to NFIB.
“The income tax rate is now going to be 21 percent higher than the second highest state in the nation for small businesses. It goes upwards to 13.3 percent from 10.3 percent,” Kabateck said. “The majority of our members file as an individual, not a corporation. The governor and Prop. 30 proponents repeatedly seem to call this measure a 'Millionaires Tax,' when in reality it should be called a 'Mom and Pop Tax on Main Street' because most file as individuals and they’re going to feel the pain.”
Small businesses make up 99.2 percent of all businesses in California, according to the NFIB.
“They’re not going to have the money to spend, and they’ll be really upset when they get the tax bill in January for this year, that’s the sneakiest thing,” Kinner said, referring to the income tax rate that is retroactive to the first of the year.
“It’s terribly frustrating and it’s a terrible policy for small businesses that are already fearful of the future, now they must fear the past,” Kabateck said.
Kinner has already cut her employees since she purchased the business in 2004 and doesn’t have many options for more cuts. She started with about five part-time employees and over the years has gone down to two part-time employees, and in 2010 she let one of them go.
Michelle Weinstein, president of FITzee Foods, said there are a lot of unknowns with Prop. 30 but she plans to hire more people in the future, not make cuts.
“We’re not doing much planning. I’ll wait and see what it does to our bottom line,” Weinstein said.
She said she hasn’t received information from her distributors to determine how much her costs will increase.
“Hopefully, we won’t notice anything, and if we do notice an impact, then we will make those decisions at that time,” Weinstein said. “If it’s helping the schools and the community and it’s going to make a difference and the business can support that, great.”
Kabateck said the assurance that schools will receive more money was “rather disingenuous.”
“We’ve seen a nasty, nasty history in Sacramento of politicians spending our hard-earned tax dollars recklessly and dishonestly,” Kabateck said.
2445 Truxtun Rd.
San Diego, CA 92106