To the members of the Nevada Legislature,

I am writing this email to explain why the Nevada Registered Agent Association believes the proposed Business License Fee increase could cost Nevada $30 million per biennium in renewal fees alone.

In past tax battles, our industry has never taken a “no new tax” stance. You will recall that the Registered Agents came to the table in 2001, and again in 2003 with solutions that allowed the Legislature to fund teacher’s pay increases and other critical needs.  Two years after we re-structured then-Governor Guinn’s corporate fee increases into something that we believed would raise the necessary revenue without harming the industry, we came within 1/2 of 1% of hitting our projections.

We hit that statistical “bulls-eye” because we know our industry - and more importantly, we know our clients.  It is imperative that you hear our message at this time. If we felt that you could raise the Business License fee without seriously and irreparably damaging Nevada’s reputation and standing as an incorporation haven, we would not only tell you - we would show you how to do it.

As you already know, thousands of small businesses - both local and from across the country -  have taken time to individually write you or call you in opposition to the fee increase.  Each one tells a unique story as to why they chose Nevada as their choice for incorporation, and each one tells a unique story as to their present business challenges in the most difficult economic times since the Great Depression.

The demographics of our client base are not comprised of the Fortune 500.  Our clients typically represent very small entrepreneurial startup companies.  Frequently these are one-man or mom-and-pop type companies.  We cannot avoid the fact that a very large percentage of individuals from out-of-state who have chosen to incorporate in Nevada did so because of cost savings. Filing fees, license fees, and our corporate tax structure have attracted them for many years in the hundreds of thousands.

In 2002, our Association conducted a study that determined that Nevada’s population only supported 20% of the corporate filings in the State, based on national filing statistics.  This means that approximately 80% of Nevada corporations have been imported from other states.  They are an extremely price-sensitive and mobile client base.  The very fact that they chose to incorporate in Nevada is proof that they are far more aware - and thus are far more likely - to take their business entities to other jurisdictions if the cost in Nevada is too high. They do not think the same way you do about this fee increase.  As the market responds to these fee increases - as markets always do - these entities WILL move elsewhere.

The Business License fee increase will result in a minimum annual renewal fee to the State of Nevada of $325 per entity (annual list + business license).  Compare this to $50 in Wyoming, and you see that we are not just talking about ”only $100″.  Nevada is simply pricing itself out of the market for our core small business client.

In a survey we have been conducting of our out-of-state clients, 51% of existing clients indicate that with the increased fee, they will no longer maintain their business entity in Nevada. Under 5% of those surveyed told us the increased fee made no difference.  Even more shocking, 83% of our existing clients (remember, these are our BEST clients, who already understand the benefits of incorporating in Nevada) told us that the increased fee meant that they would NOT incorporate their next business in Nevada. This will have huge consequences on Nevada’s position in the market as we compete with other states for business filings.

What is the bottom line? If half of our clients choose not to maintain their existing Nevada entities because we price ourselves out of the market, it will cost Nevada FIFTEEN MILLION DOLLARS PER YEAR in lost renewal revenue - or $30 million per biennium. This does not account for the State Business Licenses that will not be renewed, amendments that will not be filed, certificates that will not be ordered, etc.  It also does not account for the precipitous drop in new business filings that we will also see.

Please understand that we are NOT saying “don’t tax us.”  We are saying that if you impose this fee on our clients - our industry could largely disappear entirely. There is much more at stake than perhaps you have understood.

The 5 Best States, and their index scores are:

1. South Dakota, 11.12
2. Nevada, 11.87
3. Wyoming, 14.14
4. Washington, 15.79
5. Texas, 22.42

The Index calculates the score of each state based on 16 different taxes that impact small business and entrepreneurship.  As you can see, South Dakota and Nevada are neck-in-neck for the top spot.

Of the 16 taxes, Nevada ranked #1 in the following categories:

• Personal Income Tax
• Capital Gains Tax
• Corporate Income Tax
• Corporate Capital Gains Tax
• S Corporation Tax
• Individual Alternative Minimum Tax
• Corporate Alternative Minimum Tax
• Death Tax
• New Tax Limitations
• Internet Tax

The 5 Worst States in the Index are:

51.  District of Columbia, 58.31 (It’s hardly a surprise that DC, run by Congress as it is, ranks dead last for tax friendliness).

50. New Jersey, 51.09

49. Minnesota, 50.79

48. Maine, 49.86

47. California, 49.68

Now, I don’t want to start a political discussion, but looking at the bottom-feeders of this report, you have to ask yourself, “What do these states have in common?”

I’ve seen this sort of thing before. Several years ago we learned of a group of clients that was involved in a Forex trading hustle. I tried to warn them so they could protect themselves, but they were zealots who believed so fervently in the hustle that they couldn’t be convinced - even though I presented them with a spreadsheet that showed how completely unbelievable the purported rate of return was (turning a $100,000 investment into a number exceeding the GNP within 5 years, for example). They all lost their money, and the organizers went to jail.

Then, a few years ago we had a number of clients who got involved in something called “PIPs”, which I immediately identified as a shakedown, much to the chagrin of a couple of employees who had invested in it on the advice of our clients. That deal ran for more than a year after I branded it as a hustle before the whole thing fell apart and the con artists was arrested in Malaysia. That Ponzi scheme cost a lot of people a lot of money.

Which leads me back to the conversation I had with a very nice man who is a client of ours involved with the Global Pension Plan. He is an unassuming person from the midwest, who has been involved in farming for most of his life. He’s got a few thousand dollars invested in this hustle, believing that for every $40 he has put into it, he is going to be receiving $55,000 in the coming years.

And, once again, I couldn’t convince him that he was being tricked. He wanted to “believe”. The sad fact is that money and investments don’t work that way. But greed does. And the con artists know that, which is why there will never be an end to Ponzi schemes, stratagem and criminals like Bernie Madoff.

If you are interested, here are some links on the Global Pension Plan gimmick:

Global Pension Plan, Reverse Pension Plan Will Not Work

Global Pension Plan is, period!

Detail on the Global Pension Plan

Why you should avoid Global Pension Plan

So You Want to be An Entrepreneur?

We have taken over a demolished campground near Guntersville, AL  (Honeycomb, if anyone is familiar with the area) and are currently in the process of rebuilding it and opening it to the public.  We have not previously done business in Alabama, so here is what we have had to do so far to be legal:

1.  Identified and retained an attorney in the state to act as our registered agent (required for in-state process service)

2.  Registered as a “foreign corporation”  (foreign meaning we are from another state) with the Secretary of State

3.  Registered with the state for a Corporate income tax number

4.  Registered with the state for a business privilege tax number  (Nothing sets me off faster than when I get the pious “doing business in our state is a privilege” spiel from a state.  What an awful theory of government and individual rights that statement represents!)  The privilege tax (which is in some sates, like AZ, a euphemism for sales tax)  seems to be a second income tax in AL, calculated on a slightly different basis. (Update: apparently the first year’s taxes must be paid in advance, at the time one starts business in the state).

5.  Registered with the state (yes, with another ID number) to collect sales taxes

6.  Registered with the state to collect lodging taxes  (By the way, spent a couple of hours with the code trying to figure out what these taxes apply to and what they don’t, as this varies by state.  Also, the tax rate tables are a complicated mess, and can vary for two locations located a few yards from each other).

7. Registered with the County (yes, with another ID number) to collect county sales tax.  Actually, they outsource this collection to a private company called “Revenue Discovery Systems” which is a nice Orwellian name for a private tax collector.  Is tax farming coming back in vogue?

8.  Registered with the County to collect county lodging tax.   (sigh, we are going to have to file multiple reports each month to report all of our transaction taxes - some states actually have unified reporting and payment).

9.  No city taxes, it turns out, because we are just outside of any incorporated areas.  Thank goodness for small favors

10.  Registered for state unemployment taxes  (yes, with another ID number).  This was one of those circularities that really drive you crazy.  I can’t pay people until ADP has the state set up for us in the payroll system, but they need an unemployment number that the state refuses to provide until we have issued at least $1500 in state payroll checks.  Arrrgghhh.  Fortunately (?) ADP will go ahead and start issuing the checks without a number, but there is a $50 per month fee for doing so.

11.  Registered for state income tax withholding (yes, with another ID number).  Again, need this to pay people legally

12.  Don’t know yet if there is County withholding.  There are county income taxes in some places.

Expect in these forms to fill out the exact same data over, and over, and over again.  The state will maintain corporate records in about 6-8 parallel data bases and corporations are responsible for keeping every one of these data bases correct.

What I have not done yet, but know from experience I will have to do

1.  Obtain county occupancy permits or licenses

2.  Obtain county and/or state health inspections

3.  Obtain Coast Guard inspections of the docks

4.  Registered with the state and/or county to pay personal property taxes

5.  Get miscellaneous bizarre licenses that are absolutely unpredictable and impossible to discover until we are in violation, like the egg merchant license in KY and CO.

I thought for about 3 microseconds about selling beer and wine in our store, but I am sick and tired of the intrusive, picky, petty, and time-consuming liquor licensing processes in most states, and the income we make from alcohol sales simply don’t measure up to the hassle.

Postscript:  I try to remember that we should actually be thankful for this mess.  Though it represents almost 20 hours of my personal time to set up, and hours each month of time filling out forms and reports, not to mention thousands of dollars a year to ADP to help manage, this mess is still orders of magnitude better than what an entrepreneur would face in France or Germany.

How many would-be entrepreneurs does this kind of hassle discourage?  It really underscores the need to have the kind of on-going compliance coaching that our firm offers.  With some guidance and direction this stuff doesn’t need to be as difficult as it seems.

Could it be true?  Is Twitter responsible for the economic madness?

1. Understand it will take twice as much money and twice as much time:  All business requires much more time and capital than is ever planned for.
2. Know yourself:  Make sure you know what your good at and hire out for the rest.
3. Build a professional team: The stronger the team that you have around you, the stronger your business will become.
4. Slow to hire, quick to fire: Make sure all new hires are properly interviewed, vetted, and thoroughly checked out - and when you know someone does not fit, fire them!
5. Build it for your customers: Successful businesses all fill a need that their customer has.
6. When you think it’s time to change… do it now: Fear of the unknown often keeps business owners from making tough choices.
7. Be willing to walk away: If the business model is not working, be willing to walk away before personal financial ruin.
8. Forget 40-hour work weeks: Successful business owners are never afraid to work nights and weekends when circumstances require it.
9. Test market everything: Before launching a new product or service, test market it to make sure you have what your customer wants.
10. Profits before volume: Successful businesses require profits at all levels of growth.  Don’t forego profit to seek out growth.

But the reality is probably much different from our perceptions. Just as the roaring real estate bubble led us to believe things were better than they actually were, the constant talk about foreclosures, layoffs, and economic “crisis” of all kinds probably has us believing things are now much worse than they actually are.

I liken this to following my favorite sports team: The Wolf Pack of the University of Nevada. I am a huge college basketball fan, and because I don’t live in Reno, I follow my team at a distance, which means - because I am also a geek - I lurk on the main message board devoted to my beloved Pack.

What I see there from game to game is, I think, a microcosm of our overall reaction to economic news. When the Wolf Pack wins, the fans are elated and ready to take on the champs. When the Pack loses, the fans angry, frustrated, depressed, and evidently prone to drown their tears at the local pub. The confidence swing from week to week can be really amazing.

A small losing streak of a couple of games has the diehards prepared to fire the coach, complain to the Athletic Director, cancel their season tickets and commit hari kari. A modest winning streak and the fans have the basketball team back in the Sweet 16. Same team. Same coach. Same talent. Same season. Yet, wildly different perceptions of how good or how bad the team really is.

I’ve learned that you just can’t trust the fans to accurately judge the team’s performance. And you can’t trust the talking heads at CNN, CNBC or the Dow Jones Industrial Average to accurately judge the performance of the economy. In all of these cases, the commentators are biased - one way or another - by the psychology of the moment.