Imagine wanting to crush independent contractors and small businesses so badly that you would go after your own supporters. In California, that scenario is becoming a reality as Gov. Gavin Newsom’s California Employment Development Department is going after the state’s sacred cow – Hollywood! You may not be sympathetic to Californians or to Hollywood, but don’t let that take away your attention.
These loan-out companies are an industry standard. The solo entrepreneur, for their part, gets an entity that gives them a liability shield. They are also able to expense costs related to their work and can even get extra retirement benefits, like setting up business retirement plans. Of course, the tradeoff is that they are paying their own employment taxes, including the portion usually paid by an employer. But California is now saying no to these contractor entities.
This is an absolute nightmare for small businesses and independent contractors. If California disallows these entities, deciding who is responsible for future and back taxes could create a giant accounting nightmare and huge penalties for those small companies and all of Hollywood.
If California says these business entities are not valid, does that mean the federal government will follow suit? The bigger picture question for you and all Americans is, what does this all mean for other business contractor entities? Because it is hard to believe that this will end with just Hollywood.