That's just not true. If even one California resident signs up for their service to transmit funds--and I am a California resident who has signed up for their service--California law applies.
My understanding is that if a California resident signs up for a service with a company in Iowa that has no California presence, that becomes interstate commerce. According to the Constitution and case law dating back to the 1800s (largely established by mail order companies), California does not have the right to regulate interstate commerce. Even when one end of that transaction is in California.
That is, in fact, at the heart of the whole sales tax issue with Amazon that has been in the news. By California state law, sales tax is owed, but California can't regulate what Amazon, an out of state company, does. Only Congress has that authority. (It looks like they may do it as well.)
I am not a lawyer, and could be wrong. If you want actual legal advice, you need to consult a lawyer. But this is my understanding.
California has the constitutional right to regulate commerce within its borders. When a California resident in California signs up for a service, even a service provided by a company in another state, California law applies.
In this case particular case, California exceeded its constitutional bounds by passing a law that claims to regulate commerce nationwide. Whether or not you agree with that, the exemption order that my company received proves the interpretation.
Either way, Dwolla is not registered as a money transmitter in California, has not applied for a license, is doing business with California residents in the state, and is in violation of the law as a result.
New York used to have a physical presence requirement as part of its money transmission statute; those companies without a physical presence in the state were not required to obtain a license. As of September 30, 2011, that changed: all money transmitters with New York customers must obtain licenses, whether or not there is a physical presence. With the advent of the internet, states are realizing that "presence" does not necessarily have to be physical in order to claim tax revenues or license fee revenues.
I would be very interested to hear about any that you run across.
Unfortunately, until California makes the mistake of attempting to go after a non-California company with this law, the law won't get overturned on the grounds of regulating interstate commerce.
They can claim all the tax revenues and license fee revenues they like, but they'll find themselves sorely disappointed.
What you're missing is that California went after my company for attempting to do business outside of California, which gives my company standing to oppose the law on interstate commerce grounds.
Aaron
I'll be following the civil suit very closely. Best of luck.
It's like saying "the government is after me!" because of the Census.