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Sohodojo Advisory Board Member
Jim Schneider
The Taxman86 Speaks...
31 August 2000
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This Man's Castle Is His Home-based Business; Can California Tax Internet Sales, We Do Not Think So

1. Welcome to the taxman's dream world, Rancho Santa Fe.

As noted several months ago Scott DeGarmo, President & Editor-In- Chief, launched The House of Business--The magazine For The New Home Headquarters and issue #2 September-October 2000 hit the newsstands today. My, my, so few ads, but what interesting stories on each page. The best is on pg. 72 called "This Man's Castle is his home [we added "based business"]," by Jim Bickford. Rancho Santa Fe, California is north of San Diego, about 30 miles, and is home to many of the famous ones with average size lots of one to five, to fifty acres, and homes of 10,000 sq. ft. and up. As suspected many of these are home-based businesses in disguise.

To summarize a very interesting story of a very successful lawyer- turned entrepreneur and his wife, we quote "...Lawyer-turned- entepreneur Terry Giles [the couple also love to entertain and frequently hosts parties and fund-raisers for such good friends as California governor Gray Davis] has had offices in his different homes for years--but nothing compares with the 4,500 square feet of work space in the fantastic California castle where he and his wife Patti [a former Alice in Wonderland at Disneyland (he ran the Jungle Cruise in his earlier life)] run their global businesses..."

The former owner of this 14,000 sq. ft. "castle'" was Ballard Smith and his then wife Linda, whose father, Ray Kroc, founder of McDonald's, was a legend in his own right.

This article is must reading, as is the magazine for Vision + Technology = Prosperity in the House of Business world of the 21st Century, a.k.a. anything over $2.5M. It is clear, however, that tax planning does not seem to be the moving force in these stories, it is being on call 24/7/365 internet time with global businesses and enjoying it more.

Moreover with the repeal of IRC Section 1034, the profits from the sale of these homes may not be tax deferred anymore, but investment assets can under IRC Section 1031.

It is great to see some Democrats enjoying the good life of a home-based business in Rancho Santa Fe, not withstanding the screams and shouts of one of our presidential candidates.

One thing Ray Kroc missed when he owned the San Diego Padre's was the 'entertainment' part of the business, but John Moore's and his crew are in the middle of it.

Here is an interesting example to follow, assuming the City of San Diego understood what they have in intangible assets, it is called marketing, but with the tax favor of the San Diego Enterprise Community.

2. California is generally the leader and now comes a 'new' Internet Sales Tax.

If signed by the governor, then a new sales tax on Internet transactions will appear on transactions involving affiliates of businesses connected to California, which could include Amazon.Com if their joint venture with Toys-R-Us is consummated. We see this one going to the U.S. Supreme Court, since there is a federal moratorium on all "new taxes" on Internet Sales Transactions, which this seems to be.

Jim Schneider, LL.M.

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