Leave it to California to come up with a radical new business model, thanks to the efforts of State Senator Darrel Steinberg’s move to require withholding from independent contractors’ billings. The consequences are not likely what the Senator had in mind.

Without going in to the pros or cons of the Senator’s justification, it is odd given the distributed nature of a knowledge based economy, of which California is/was once the leader. It is one thing to touch tangibles, like physical plant and equipment, but the gossamer nature of software and all that is driven by it, such as bank accounts outside of California, make enforcement practically impossible. Beyond interfering with contracts, the overhead imposed on private companies increasingly makes software contract work performed in the State not worth the trouble.

California has, so far at least, elected to not tax intangibles like downloaded software products and deliverables, which overnight changed the performance mechanism for all kinds of service companies. This same technology and approach can be used to do incremental deliveries, with the micropayment mechanism required already in place.

In addition, the Service Oriented Architecture, or SOA, along with web services and object oriented programming, which techies like to talk about at great length, make implementing a workflow like development strategy something that is not only readily available, but already in use today. Akin to the just in time logistical control in physical manufacturing, such approaches make to point of origin arbitrary to the point of being meaningless.

The rapid rise of home based businesses, telecommuting and virtual shops like eLance are other indications of a fundamental change in the way knowledge based business will be done.

We really should thank Senator Steinberg and his Republicrat and Demlican cretins colleagues for helping this change along, moving away from a static, political and command line worldview to one that is far richer, dynamic, interesting and enabling.

Along the same line, Senator Steinberg might ask why one of his own, former Speaker of the State Assembly Robert Hertzberg, now chairman of G24i headquartered in Campbell, CA, moved production to Wales (in Great Briton).

© Copyright 2010 Chuck Brooks for FutureWare SCG

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Tags: california business taxes, distributed computing, knowledge based economy, object oriented programming, service oriented architecture, soa, telecommuting, web services

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