By Grant Deary and Carol Burger
Grant Deary is executive vice president overseeing marketing and external affairs for Nor-Cal Beverage Co., email@example.com. Carol Burger is president of Burger Rehabilitation Systems, firstname.lastname@example.org. They wrote this commentary for CALmatters.
Family business owners look to the next quarter-century, not just the next quarter. We treat our employees as extended family. As a result, many of them stay with us for decades. And we strive to provide top-quality products and services.
But instead of helping us grow, Sacramento too often piles on new taxes and regulations that make it more difficult for us to remain in business. We ask lawmakers a simple question: When will enough be enough?
There are three outcomes when our businesses are hit by new taxes or regulations:
- We invest less in our businesses.
- We are forced to cut back on hiring or even eliminate jobs.
- And we look outside California for expansion opportunities.
The year started on a high note for businesses. The federal Tax Cuts and Jobs Act of 2017 reduced the corporate tax rate to 21 percent and abolished the corporate alternative minimum tax, freeing up capital to create new jobs.
Especially important for family businesses, the law also doubled the amount exempt from estate taxes. The 40 percent death tax is a major impediment to keeping businesses from one generation to the next, especially cash-poor and land-rich family farms. While this provision will expire in 2025, it will be a huge help in the short run.
The ink was hardly dry on President Donald Trump’s signature when Sen. Scott Wiener, a San Francisco Democrat, introduced a bill that would have been a first step in imposing a California-only death tax. The proposal is dead for this year, but similar proposals will be made in the future.
The California Tax Foundation calculated that proposed legislation in the most recent session would have added $269 billion in taxes and fees. Thankfully, the vast majority failed. But this onslaught is why we at the Family Business Association of California must continually educate lawmakers and regulators that every time they add another layer of cost, it threatens operation.
Two proposals would have been particularly detrimental to family businesses. One would expand the sales tax to cover services. Another would carve a huge hole in Proposition 13 protections by taxing business property differently than residences.
Burger Rehabilitation Systems, launched in 1978, employs between 350 and 400 full- and part-time employees. We are owner-occupiers of several of our 14 physical therapy clinics in the greater Sacramento area.
A “split roll” property tax would cost business owners between $6 billion and $10 billion a year. For us, that would be a powerful incentive to sell our clinics and invest in other states.
Nor-Cal Beverage Co., founded in 1937, is the largest independent co-packer of tea, ade, chilled juice, water and energy drinks west of the Mississippi. We compete with contract packers around the country.
While there’s an advantage to being closer to our major markets, we have to pay much higher costs than contract packers in other states – as much as 25 percent more in some cases. Adding additional layers of taxes makes us less competitive.
Many larger businesses could manage a services tax by internalizing services instead of contracting out. But smaller family businesses couldn’t afford to insource legal, accounting, marketing, and other important tasks.
And while lawmakers insist they would cut existing sales taxes to cushion the blow, tax rates, once established, almost always go up.
Businesses can usually absorb any single new tax or new costly regulation. But they add up. Seldom is any tax or regulation taken away. We can’t finance every goal of every lawmaker, no matter how laudatory each one might be.
So we ask again: when will enough be enough?