Entrepreneur Tells California to Kiss Off

Entrepreneur Erica Douglass loves California in many ways, but the young entrepreneur says she's leaving it for a city with a much fairer startup climate (yup, Austin, Texas). She explained her move via a mock breakup letter with the Golden State that she posted on her blog.

First a bit of background on Douglass: In 2007, when she was just 26, she sold the Web hosting company she created six years earlier for $1.1 million. She has since co-founded Whoosh Traffic, a website design firm, and started a blog, Erica.biz to help other entrepreneurs get started.

Last Thursday, Douglass, who has lived in California for 12 years, used her Erica.biz platform to announce that she was leaving the beaches, sunshine and laid-back atmosphere of San Diego to move to Austin, Texas, because her adopted state has become inhospitable for business people like herself. Austin, incidentally, seems to get nothing but kudos as a place for small businesses and for young professionals.

And as she packs up to move away, others are taking notice, continuing to comment on her post nearly a week later, and cheering her on for making the decision to change her location. What's inspiring so many people?

Here are some highlights from the young entrepreneur's letter, "Dear California: I’m Leaving You. Here’s Why."

Unnecessary Paperwork: The state mandates that all businesses that gross over $100,000 a year set up an account where they report quarterly on the sales tax that customers pay for goods sold. Although her company sells services, which are not taxed, rather than goods, the state told Douglass she would still have to fill out the laborious paperwork four times a year.

“When I closed the account (by going into a local office and spending nearly an hour explaining my situation), they forced it open again and sent me a nastygram explaining that I would owe fines for not filing the quarterly report,” wrote Douglass.

High Taxes Plus Business Fees: The state charges an income tax of 10 percent on all income over $47,055, which comes on top of federal income tax of 25 percent on income over $34,000. On top of that, state residents pay sales tax ranging from 8 to slightly over 9 percent.

“I paid enough in income tax for 2010 to the state of California alone to hire another new worker for my business,” wrote Douglass.

The state also charges an annual fee of $800 for a business to be a corporation in California.

The Amazon Tax: The final straw for Douglass, though, came when Jerry Brown, the state's governor, signed a budget that included the so-called "Amazon tax." The argument is that if Amazon has affiliates in California it has to collect sales tax. Douglass, who sells products on Amazon as a modest side business that yields a “few thousand dollars per year,” is one of the affiliates. Amazon cut California affiliates out because of the law, and according to Douglass, both she and the state of California lost out because of Brown’s move, since she paid income tax on the money she made via Amazon.

Douglass notes that she chose Texas because because it is one of only four states (the others are Nevada, South Dakota and Wyoming) that has no personal income tax, plus no corporate income tax.

Since it was posted, Douglass' "letter" to California received more than 100 responses from fellow entrepreneurs. Their reactions ranged from Austin enthusiasts, “Average days of sunshine: 300 or more,” wrote Kevin Velasco, to warnings about Austin' property taxes, to California residents who felt her pain: “It’s great that you have a truly location-independent business so you can pick up and move to Austin,” noted one small business owner who apparent didn’t have that option.

In her post, Douglass said she’ll miss the California weather, but will enjoy shaking off the state's financial burdens.

“Yes, Austin gets hot in the summer. But I don’t care, because I will have the income flexibility (thanks to both lower taxes and a lower cost of living) to spend a few months out of the year anywhere I like, as long as it has Internet access,” wrote Douglass.

What more does a young Web entrepreneur need?

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Teresa Novellino writes for Portfolio.com