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. Register 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 doesn'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 of time each month 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 entrepeneur would face in France or Germany.
Miss Breeziness:
That's awesome! Congratulations. And even more so for dealing with all this bureaucracy.
March 19, 2009, 12:00 pmLoneSnark:
Do we know what that would be? Do you have any friends in the business from Europe which might enlighten us?
And what makes it worse? Is there a larger volume of paperwork? Or is there more space for a government agent to say "no" without explanation or recourse?
March 19, 2009, 12:39 pmHelder:
this mess is still orders of magnitude better than what an entrepeneur would face in France or Germany.
Actually, I don't think so. I am an entrepreneur in Portugal which is a pretty messed up country in the sense you write above. Portugal is worst than France or Germany and our arbitrariness looks mellower than yours. Where things are a lot worse, I guess, is that it takes a lot longer to get answers and papers signed. What kind of business are ou opening? Red tape and problems also depend on that.
Cheers
Helder Ferreira
March 19, 2009, 1:45 pmHelder:
LoneSnark,
I guess there's more space for a government to say "no" without explanation or recourse; the financing is harder and more taxed, taxes are hihger, more concentrated at national level and although you don't have to pay the first year of it in advance, you start paying the day you create the company but the bureocracy takes months, sometimes years to give you the licenses (you might need to work with provisory licenses for years paying fees for that fact). Anyway, a lot depends on what kind of business you're in.
March 19, 2009, 1:52 pmStan:
This is why I want to pursue public life. Who's fighting for you?
March 19, 2009, 2:26 pmMiklos Hollender:
"almost 20 hours of my personal time" - may I humbly suggest you are doing it wrong? Doesn't the opportunity cost of your time worth hiring an employee for this?
"his mess is still orders of magnitude better than what an entrepeneur would face in France or Germany." - exactly correct, but don't dis Europe as a whole, I'm sure it would be easier in Switzerland and I'm almost sure it would be easier in Austria. It might be even easier in freakin' Sweden: looking at their Economic Freedom Index at Heritage, their overall score is low but Business Freedom happens to be high.
March 19, 2009, 3:07 pmfrankania:
Come to Mexico. The govt. here is SO incompetent and/or corrupt, that most businesses simply have no permits, nor payroll taxes. Most workers are paid cash under the table. You can do whatever you want, if you don't make waves.
March 19, 2009, 5:18 pmT J Sawyer:
This is precisely why there are so many "tax cheats" in this country. This is what is required of someone to properly comply if you want to run your own business. So my cleaning lady does my home for cash. The guy who removed my tree last spring did so for cash. and so on, and so on,...
And I can't ever hold a government position of any significance because I paid them is cash!
March 19, 2009, 5:29 pmGerman:
I hear you - I came to the US to get out of the hassle of overbearing German laws... turns out, there are more laws and strictions here in the US now than there are at home - and while they appear very random here, laws in Germany at least still make sense. Funnily, China is much better. Go figure.
March 19, 2009, 11:22 pmNoumenon:
If you think of the US as analagous to a big open-trade area like the EU, you might want to compare yourself to a Portuguese business opening a business in Germany, not in Portugal.
Really good post.
March 20, 2009, 4:19 amStuhlmann:
My wife runs a small business here in Germany, with retail outlets in several different cities. I don't think she has nearly the level of paperwork as you describe when she opens a new store somewhere. For instance, there are no separate state and county taxes. The tax structure and registration process are more centralized and standardized.
March 20, 2009, 4:46 amnathan:
Sorry to hear my state is so business unfriendly. In some ways AL is great and in some ways its ridiculous. An example of ridiculous being the fact that almost all local issues have to go before the entire state and require an amendment to the constitution. As of now its the longest constitution in the country with nearly 800 amendments.
Please post when the campground is up and running. I live only a short distance away in Huntsville and would love to visit.
March 20, 2009, 8:01 amrob sama:
What kind of business are you opening up there?
March 20, 2009, 8:17 amBrad Warbiany:
While selling beer or wine is undoubtedly a nice financial benefit, I'd say that of all the states that you don't want to mess with when it comes to selling alcohol, Alabama's probably in the top 5. They're still very restrictive with their puritanical blue laws. It wouldn't surprise me if -- from a vendor's perspective -- they're worse than Utah.
March 20, 2009, 9:37 amDave:
This makes me doubt the principle of Federalism. I understand that competition between states serves to keep regulatory burdens low, but isn't that outweighed by added complexity associated with variations between states?
March 20, 2009, 11:36 amfeeblemind:
I admire your perseverence. Taking that machete and hacking your way through that jungle of government paperwork. Re the lodging tax. You are running a campground, right? Does this mean if I pulled into your campground and slept in my own RV, tent etc, I would have to pay a friggin' lodging tax!??
March 20, 2009, 4:12 pm