Monday, June 13, 2011

A Shop-keeper's-eye View of Regulation

A couple of days ago I read this very interesting post by Amity Shlaes, author of The Forgotten Man.  The post is here, so go read it.

Fascinating reading, and so are the comments.  A few cast doubt on the idea that government can interfere with a small business so much that it becomes a drag on the economy.  I'm pretty sure they have absolutely no idea what they're talking about!

When I started my business I would have never, ever believed how much the government would have their hands in my little business.  My shop was the simplest possible business model:  buy things at one price, sell them at a higher price.  That's it.  So here's what the government, from local all the way to the big Federal Gum-mint, made me do:

I set up as an LLC, which involved a trip to the lawyer and then submitting forms to the Secretary of State in my state.  (1)  I had to also get a sales tax number from the state (2) which allowed me to collect sales tax.  That one took a while.  I submitted a different form to the IRS to get my Federal Taxpayer ID number, sort of like a SSN for corporations.  (3)  Not so bad.

So I needed to open an actual shop.  The space had to be remodeled, and the city had to sign off on the plans.  (4)  And of course I needed a sign, and so that plan also had to be submitted to the city.  (5)  I also needed to get an occupancy permit, the rough equivalent of a business license, from the city.  (6)

Six things, so far.  Not so bad.  But wait!  I needed employees, because I had no plans for doing this on my own.  I had to get a different number from the Department of Labor (7) and then fill out application forms for Unemployment Insurance Payments to start.  (8)  I also had the forms you are familiar with if you've ever had employment:  the Federal form with all the basic info so you can get paid (9) and a state form, again for unemployment insurance (10). 

Okay, up to ten, and I haven't opened my doors yet.  Don't misstep opens the door for the government to poke their noses around in ALL my business!  A tightrope, for sure.  But let's get started, and sell something!

Once a month, I file and pay my state sales tax (11).  Once a quarter, I file and pay the income tax for my employees--state (12) and federal (13).  Oh, wait, my employees didn't work enough to pay federal income tax.  But there was STILL a form to say that they didn't make enough, so I didn't owe (14).  Social Security withholding was a different form and a different method of payment (15).  And once a year I have to file a property tax statement and pay property taxes on my inventory!  (16)  Did you know that businesses have to pay a tax on their inventory at December 31?! Yeah, me neither. Also at the end of the year are my employees' 1099's (17) and my corporate tax return (18).

While I'm open, the Fire Marshall can come visit and tell me to cover up my back door exit sign.  (No joke, that happened one year.)  (19)  The code enforcers can stop by and tell me to raise or lower my sign and take signs out of my window.  (20)  The Department of Labor will stop and inspect the back storage closet to see that I've posted the mandatory "Know Your Rights" poster for my employees.  (21)

Craziest of all, one month after I sold the shop, the new owner received a notice from the county of an audit that they would perform as of 12/31/10.  WHAT?! They sent a long list of paperwork they needed for the audit, including some information from my personal tax return.  (22)  We got through it but what a pain!

Many, many of these reporting requirements are addressed by having a reliable accountant, which I did.  But that has a cost, the cost of compliance with tax regulation.  And one thing to point out is that I had only part-time employees.  Were I to have full-time employees, we would have to worry about health care in the next couple of years.  I have to say there would be TREMENDOUS incentive to cut everyone back to part-time to avoid the whole issue!

I'm not arguing for or against any of these requirements (well, maybe a little), but there are just so many!  It's a Byzantine process, trying to satisfy each one of the government entities that believe they deserve a piece of my business.  How can anyone doubt that these requirements are a drag on small businesses, and that each layer is another business or two or three that doesn't form, where the owner just decides it's not worth it.

So, is all of this regulation worth keeping some great ideas out of the marketplace?  What have we missed out on?

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