California Independent Contractors Under Attack
There’s an important legislative issue being considered in California right now that will affect millions of independent contractors (Realtors, taxi drivers, many in the construction trades, etc.) – including direct sellers.
In a desperate attempt to balance California’s budget, lawmakers there are considering a proposal that would mandate withholding on all payments to independent contractors.
In a state that has an 11.5% unemployment rate, lawmakers are looking at any and every mechanism to make the numbers work – even if they only work on paper. It is estimated that the withholding plan will generate $1.9 billion in revenue, but in reality very little of that money will be new revenue and the majority of it will be returned to taxpayers at the end of the year. By 2011, the Franchise Tax Board estimates the state will lose money on the program. In the end, all the state will be left with is the bill for administering the program.
For direct sellers, this withholding program doesn’t take into account expenses, the cost of items bought for resale or any other costs of doing business. Taxes are withheld on the entire amount paid to the direct seller. Until the state refunds the money, a direct seller’s cash flow is limited and they have essentially given an interest-free loan to the government.
At a time when the State of California should be looking for ways to encourage spending and business growth, they are instead considering proposals that look good only on paper and will end up negatively impacting millions of Californians.
This provision is included in the budget proposal approved by the conference committee and could be considered by the Assembly and Senate any time during the week of June 22. View the following video for all the details and contact your California legislators and the Governor right away to ask them to remove independent contractor withholding from the budget proposal or to exempt direct sellers from any such proposal.
This proposal is bad for direct sellers, bad for business and bad for California!
Contact Your Elected Officials in California:
Phone: 916-445-2841
To e-mail the Governor, please visit http://gov.ca.gov/interact
Tags: california, california governor, california legislature, direct sellers, independent contractor, schwarzenegger, taxes, withholding
June 23rd, 2009 at 3:44 pm
These payments (although usually only representing a discount to people participating in MLMs) are considered income for tax purposes aren’t they? Aren’t other (hourly)working Californians also required to have their income tax withheld until tax season? Why allow a loop hole for these ‘independent contractor’ types?
Aren’t many MLM aspiring independent salsepeople basically taught to ignore all the expenses necessary to generate what merely represents a ‘discount over retail’ on products many of these ‘contractors’ self-consume without ever seriously considering a resale?
I think if I were a legitimate independent contractor in California (like a carpenter, realtor or taxi driver), I don’t think I’d like to have all these questionable MLM ‘independents’ linked to my legitimate profitable business? Hasn’t MLM been rife with problems and scandal?
June 23rd, 2009 at 4:15 pm
The “other working Californians” you mention have taxes withheld from their pay based on a formula designed to approximate what they’ll owe in April. The formula isn’t always perfect, but it’s usually about right.
The problem with withholding on independent contractors is that it’s an across the board rate that doesn’t take into account anything about the individual taxpayer.
California’s own Franchise Tax Board has stated that a majority of independent contractors will be overwithheld - even at a 2 percent withholding rate. The legislature already knows that a majority of the money they collect will need to be returned so the net result is this is just an accounting gimmick for budgeting purposes.