image thumb Startup flees to Seattle

Entrepreneurs who participate in online retail should pay close attention to the recent relocation of Shopobot from San Francisco, CA to Seattle, WA. Amid rising concerns about online taxation, this Internet-based shopping company has relocated to the more financially stable city of Seattle, WA. It doesn’t take an MBAdegree to know that the current economic crisis has affected companies’ sales, but now, online-based companies are unsure as to how online business will be taxed in the future. This has resulted in many companies relocating to different cities across the United States.

The economic crisis has left state governments short of funds, and they have begun to view the taxation of online sales as a source of potential revenue. This position is being encouraged by big-box stores such as Best Buy, Wal-Mart, and Target. These companies have long resented the perceived cost advantage that online retailers gain from not having to pay local taxes. In California, a law was passed in June that attempts to force large online retailers such as Amazon tocollectsalestaxonpurchasesfromCaliforniaresidents. In response to this new law, Amazon quickly exited the California market by dropping over 10,000 affiliated businesses from their roster.

One of these affiliates was Shopobot. Dave Matthews and Julius Schorzman began their business with the online book shopper in mind, but an experiment tracking high-end camera equipment led the pair to adjust their fledgling company’s focus. The Shopobot app now tracks the price movements of high-end electronics across multiple sites such as EBay, Amazon, and Overstock. The app alerts shoppers to great deals they might otherwise have missed. Shopobot benefited greatly from being part of Amazon’s affiliate program, so when Amazon decided to pull out of California, the small start-up company lost a large portion of its revenue. The repercussions felt by Shopobot did not end with Amazon. Individual stores began to refuse to work with the company. They cited the company’s location in the state of California as the primary reason.

Faced with dwindling revenue and an uncertain future, Shopobot decided to relocate its company to Seattle, WA. In fact, the new company headquarters is just across the street from the Amazon headquarters. Shopobot did not relocate to avoid paying taxes. Amazon already collects tax on sales in Washington. The company moved because of the uncertainty of doing business in the state of California. Unanticipated fees and expenses can be the death of a small business.

The situation in California is a harbinger of things to come. State and local governments are searching for ways in which to generate revenue, and the taxation of the billion-dollar online retail industry is an attractive solution. Entrepreneurs that are heavily involved in online retail should pay close attention to their local government’s position regarding the taxation of online sales. Moving to a state with established laws regarding online business might be their best option. Pulling up stakes and moving is never cheap or easy, but if it means securing the future of a company, it can be the only correct choice.

Shopobot has survived its forced relocation, and the company appears to be thriving. Its technology may be simple, but there is a strong demand for such apps. Shopobot is currently looking to expand its operations in the near future and anticipates another round of fundraising efforts to begin very soon. Having a firm idea of how sales tax will affect projected revenues will certainly help in wooing investors.

Kate Manning didn’t expect to find herself at the intersection of business, marketing, and the Internet, but with sound writing and editing skills, she makes the most of it.