New Law Helps Combat Corporate Minutes Scams

A 2012 law is helping small businesses (corporations and LLCs) avoid getting scammed by the corporate minutes solicitations that were the subject of one of this blog's earliest, and by far its most popular and commented on, post. The law requires more notices on such mailings, the idea presumably to help these stand out from official mailings from the Secretary of State regarding Statement of Information filings. The jury is still out on effectiveness.

Secretary of State: Stronger Laws to Prevent Fraudulent Solicitations

Statement of Information Filings with the Secretary State for California LLCs and Corporations

The California Secretary of State has recently changed its procedures such that -unlike other business entity filings - LLC and corporation Statements of Information filed over the counter will be processed on the same timeline and priority as those filed by mail. The current turnaround time for either filing option is approximately four months.

There are two workarounds, neither one without its own problems:

• Use 24-hour expedited filing, at a cost of an additional $350. Number one, this is too expensive to justify its use in most instances and, number two, if there is any mistake on the form, the Secretary of State's office will reject the filing but retain the $350 for its expedited review of the form.
  
  
• For corporations only, the Statement (Forms SI-100, SI-200 C, and SI-200 N/C) may be filed online. The online filing system, however, does not provide a file-stamped copy. And isn't available yet for LLC Statement of Information filings (Forms LLC-12 and LLC-12R). It is anticipated that in late 2011 or early 2012, corporations will be able to receive a filed copy of the Statement of Information online, and that LLC online filing will be available sometime thereafter.

Arguably, the processing times situation has reached the crisis point where the Secretary of State's office is dysfunctional, but, on the other hand, the office has reduced the filing backlog for most other types of filings, perhaps at the expense of Statement of Information processing.

Los Angeles Business Tax Break Proposed

Los Angeles' mayor today proposed an expansion of the City of Los Angeles' new business tax exemption, from two to three years, assuming gross revenues of less than $500,000:

Tax Break for New Businesses Proposed, Los Angeles Business Journal, June 15, 2010

CEOs rank California 51st for Business Environment

More than 600 CEOs rated states on a wide range of criteria from taxation and regulation to workforce quality and living environment, in our sixth annual special report.

In Chief Executive’s annual survey of best and worst states for business, conducted in late January of this year, 651 CEOs across the U.S. again gave Texas top honors, closely followed by North Carolina, Tennessee and Virginia. They gave the booby prize for worst state to California, with New York, Michigan, New Jersey and Massachusetts filling out the bottom five-a line-up virtually unchanged from last year. Florida and Georgia each dropped three places in the ranking, but remain in the top 10. Utah jumped six positions this year to sneak into the top 10 at No. 9.

The business leaders were asked to draw upon their direct experience to rate each state in three general categories: taxation and regulation, quality of workforce and living environment.

Best and Worst States for Business 2010, chiefexecutive.net, 29 April 2010

See also Of 50 States, California ranks 51st, Orange County Register editorial, 5 May 2010:

As the magazine noted, Californians pay among the nation's highest income and sales taxes. Unemployment exceeds the national average, and, contrary to the national trend, "union density is climbing, from 16.1 percent of workers in 1998 to 17.8 percent in 2002."

Indeed, according to the magazine's critique, "organized labor has more political influence in California than in most other states." The magazine zeroes in on perhaps the crux of the problem: "When state employees reach critical mass, they tend to become a permanent lobby for continual growth in government."

That helps to explain why unfunded pension and health care promises for state workers "top $500 billion, and the annual pension contribution has climbed from $320 million to $7.3 billion in less than a decade," as the magazine noted.

It doesn't take a national survey to reveal California's failing business climate. Seven California metro areas were among the 15 national leaders in commercial bankruptcy filings in 2009, according to Equifax Inc. Not coincidentally, California had twice as many personal bankruptcies as any other state in 2009 when it ranked 11th in bankruptcies per capita.

It also doesn't take a CEO to notice the differences between California and top-rated Texas. Texas, with nearly as many residents and the world's 12th largest economy, "is where 70 percent of all new U.S. jobs have been created since 2008," the magazine reported. Also unsurprisingly, Texas gained more than 848,000 net residents based on migration in and out of the state in the past decade, while California lost 1.5 million, according to the Census.

"You feel like [Texas] state government understands the value of business and industry to create jobs and growth," one CEO said in the magazine.

California Secretary of State Processing Times

California Secretary of State business entity filing times have soared since the first of the year, as a result of the state budget crisis and resulting budget and staff cuts at the Secretary of State's office (which included the closing of some regional offices).

Alas, the Secretary of State also failed to notify practitioners or the general public about these changes before the fact, resulting in unexpected delays to the tune of 6-8 week turnaround for business entity (LLC, corporation, etc.) filings by mail and standard over-the-counter expedited filing times increasing to three weeks and sometimes more from an average of less than two.

Belatedly, the SOS issued this apologetic announcement earlier this month:

http://www.sos.ca.gov/business/pdf/processing-times.pdf [subsequently updated in 2011 to provide an update on the progress the SOS is making to work through these issues]

Some Californians Flee State for Greener Pastures

Go East, young man? Californians look for the exit, Associated Press, January 12, 2009:

The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.

The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.

California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.

A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.

In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history.

Why are so many looking for an exit?

Among other things: California's unemployment rate hit 8.4 percent in November, the third-highest in the nation, and it is expected to get worse. A record 236,000 foreclosures are projected for 2008, more than the prior nine years combined, according to research firm MDA DataQuick. Personal income was about flat last year.

With state government facing a $41.6 billion budget hole over 18 months, residents are bracing for higher taxes, cuts in education and postponed tax rebates....

March 2009 update:

Related: Corporate oil booms in low-tax Switzerland, Reuters, March 12, 2009 ("[A] wave of energy companies has in the last few months announced plans to move to Switzerland -- mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama's tax-seeking administration.") and California Scheming: What One-Party Rule Is Doing To Once-Golden State

California Scheming: What One-Party Rule Is Doing To Once-Golden State

California Scheming: What One-Party Rule Is Doing To Once-Golden State, Investor's Business Daily editorial, December 22, 2008:

.... As the financial crisis in California gets worse, it's pretty clear the real problem isn't the budget at all, but a political system that has resulted in a dysfunctional one-party state. ....

A reasonable response from a mature group of individuals might be to cut spending — especially since polls show that most Californians don't believe their taxes should be raised. Instead, they've chosen to thumb their noses at the people's will. It shows the danger of what is in effect California's one-party rule. .... Frustrated with their inability to raise taxes, Democrats got creative: They decided they could declare outright hikes in taxes to be "fee increases." This would let them pass a massive $9.3 billion in tax hikes without consulting Republicans in the legislature, in direct violation of state law. ....

California is already the most costly place in America to do business, according to the Milken Institute's business cost index. Its business costs in 2006 were 23% higher than the average for the rest of the states, and well above those of its neighboring states.

Worse, energy costs are already 35% higher than the national average. With California's costly new CO2 mandates about to kick in, the economy could well grind to a halt.

Such business mainstays as Intel, Exxel Outdoors, Toyota and Tesla have already left California. Intel is a particularly alarming example: The world leader in chip technology started in Silicon Valley but no longer makes anything in California.

Since 2001, according to the California Manufacturers and Technology Association, the state has lost 440,000 high-wage jobs. Today, the state's jobless rate of 8.4% is third-highest in the nation.

Even Hollywood feels the pinch. In 2003, 66% of Hollywood's feature films were made in-state; today, it's down to 31%. Increasingly, Hollywood is a state of mind — not a place to do business.

Things are so bad that, just last week, 25 business groups wrote an open letter to the state's legislature begging it to think about the role businesses play in the economy.

We wish them luck. Unfortunately, instead of aggressively addressing these competitiveness problems, California's Democrats think they can simply tax their way back to prosperity. They can't.

California's tax base is so narrow — 1% of the population pay 50% of income taxes — that you can't "tax the rich" and get more revenue, a long-held Democratic fantasy. California individuals today bear the sixth-highest tax burden in the nation. Raising taxes won't do anything but drive off productive workers and kill the economy.

It's already happening. Tired with having their voices ignored and faced with soaring taxes, high housing costs and state fiscal chaos, Californians are leaving in droves. They're voting with their feet.

Last year, 135,173 more people left California than moved in, the fourth straight year of net out-migration. As the Los Angeles Times accurately noted, "the trend remains significant because such declines usually occur when working Californians decide better opportunities lie elsewhere."

Members of California's one-party ruling class better start listening to their businesses and productive, overburdened taxpayers, or pretty soon they won't have an economy to fund their government. ....

See also:

Gas Buddy USA Temperature Map

California Legislature Plans To Increase Taxes Amid Recession

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States

California Legislature Plans To Increase Taxes Amid Recession

State Democrats Plan To Increase Taxes, Los Angeles Times, December 17, 2008:

Democratic legislative leaders are planning to use a series of complex legal maneuvers to raise Californians' gas, sales and income taxes over the objection of Republican lawmakers, who have been able to block such proposals in the past.

Under the Democrats' plan, sales taxes would increase by three-fourths of a cent. Gas taxes would go up by 13.5 cents per gallon. And a surcharge of 2.5% would be added to income taxes.

More coverage: California Democrats Devise Plan To Hike Taxes:
By structuring them as fees, they would skirt GOP opponents and raise $9.3 billion; A court fight looms, Los Angeles Times, Decemeber 18, 2008.

See also:

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States

2009 California Employer Payroll Tax Rates

Study: Los Angeles, Santa Monica Among 10 Most Expensive Places to Do Business in United States

And predicted to get worse. Westlake Village rated most business friendly in Los Angeles County. The Daily News reports:

The city of Los Angeles will finish 2008 in familiar company: Among the 10 most expensive places in the country to do business, according to a study released today.

Santa Monica is also on the list compiled by the 14th annual Kosmont-Rose Institute Cost of Doing Business Survey released by the Rose Institute of State & Local Government at Claremont McKenna College.

Los Angeles' placement on the list has remained steady, but at least it hasn't gotten any worse in the past year, according to Larry Kosmont, the survey's founder and president and chief executive officer of Kosmont Companies.

"Cities that charge the highest license fees such as Los Angeles, Philadelphia, and Cincinnati are often those that have a history of uneven relations with the business community," Kosmont said.

But Robert "Bud" Ovrom, Los Angeles' deputy mayor of economic development and housing, said the city is making progress.

For example, next year the city starts the final phase of a five-year plan to reduce the business tax by 15 percent. The final installment, a 3.9 percent reduction, kicks in Jan. 1.

"When I'm talking to companies I almost never hear about business taxes. I don't even hear much about workers' comp," Ovrom said.

"Everything I hear today is (about) the quality of the work force, schools, traffic and affordable housing." ....

On the contrary, the author's clients are more concerned with the high costs of state business taxes,* local business taxes, regulation, and workers' comp. Perhaps Ovrom's conversations are primarily with larger companies...? The article continues:

Los Angeles is challenging for businesses because of its fee and tax structure, it said. And while California cities are more competitive than in the past few years, costs for businesses remain high.

It also noted that Los Angeles County continues to be one of the nation's most expensive places for business and 10 of its cities are among the 50 most costly. The Bay Area is pricey, too.

The situation will worsen next year, Kosmont said, as voter-approved tax and fee increases kick in.

"What is happening in California is the cities are going to the ballot box and winning tax increases," Kosmont said. "Some of these cities were Los Angeles County cities. That makes a bad climate even worse."

Kosmont said that California and many of its cities have been expensive for a long time, but some have tried to compensate with aggressive economic development and redevelopment programs.

But now all are struggling with the state's budget deficit, which is the largest in its history.

The survey compares 402 cities nationwide based on the array of taxes and fees each imposes. They include sales, utility, income, property, and business taxes....

It noted that the highest-cost cities, such as Santa Monica and Oakland, cluster around the aging urban cores, while newer bedroom communities in the outer suburbs charge developers for their growth and pass on the savings to businesses to stimulate their economies.

For example, Kosmont said the least costly city in the county is Westlake Village.

"It has no business tax, no utility tax and very low property taxes.

So it is one of the bargains," Kosmont said.

That's by design, said City Manager Raymond B. Taylor.

"We have strived to be one of the most business-friendly cities in California since our inception in 1981," Taylor said.

About 8,800 people live in the city that abuts the Ventura County line. But there are 850 businesses in the village that generate 11,000 jobs.

"The city recognizes the value and the role that businesses play in terms of job development and the vibrancy of the community," Taylor said.

* A domestic corporation in Utah costs a minimum of $100 in annual franchise tax payable to the state for the privilege of doing business as a corporation in the state; in California, $800, among the highest cost in the nation.

See also:

California Legislature Plans To Increase Taxes

2009 California Employer Payroll Tax Rates