Wednesday, April 13, 2011

Why Improve Our Businesses When We Can Tax Others?

I was talking to someone awhile back about Walmart. The person I was talking to said that she hates Walmart. I asked why. She didn’t say “because Walmart mistreats their employees and are rude and dishonest.” [I’m not saying Walmart does or doesn’t do these things, I am just giving hypothetical reasons someone might give for thinking that Walmart is unethical.] She said the reason that she hates Walmart is because Walmart sells everything; because Walmart sells things cheaply and contains all different types of merchandise they end up putting small local “Mom and Pop” stores out of business.

The person I was talking to feels that Walmart is unethical because other stores go out of business because they can’t compete with Walmart’s vast stock and cheap prices and that it’s wrong for Walmart to succeed while many smaller stores go out of business. While I didn’t respond this way to her at the time, I thought of responding: “I see. So because Walmart is better than their competitors, this makes them bad. You want a Harrison Bergeron type of society where those who are richer, or smarter, or better looking than others should be punished for being so. Walmart is a business that is trying to attract customers by selling things people want at a cheaper price than anywhere else. How is this unethical? It’s better that the more business—savvy store be forced to shut down to make room for those small stores that are more expensive and less convenient than Walmart according to you. Why should someone be punished for running a business well? If someone studies and works hard and is the only student to get an A on a test so there is no grade inflation for the rest of the class, according to you this A student is unethical because now that he got an A no one else’s grades can be inflated and it’s his fault. I’m sorry, but I disagree.”

What this little story of mine shows seems to be a popular notion today. A lot of people feel that it’s not fair that there are people who are attractive, smart, and rich when there are those that aren’t and that it’s justice to level the playing field by taking away from those with advantages and giving it to those with disadvantages. While you’re entitled to your opinion, I’m also entitled to mine. If the only way you can give charity is by robbing from millionaires then don’t give charity. Leave charity to those who can give to the poor without stealing from others (yes, even if those others are millionaires). Why is our country turning into the characters from Raising Arizona who feel that it’s okay to take from others who they deem to “have enough already”?

On April 5, The Retailers Association of Massachusetts plans to unveil its "Main Street Fairness Coalition" at a legislative hearing. The Retailers Association of Massachusetts is made up of local merchants who want people to pay a sales tax when ordering online. The reason that local businesses have to pay sales tax and online businesses don’t is “because of the Quill Corp. vs. North Dakota decision [which rules that] states can only require a company to collect sales taxes if it has some sort of physical presence in the state.” (http://www.metrowestdailynews.com/opinion/x719609407/ Chesto-Retailers-fight-back-against-Amazon). The Quill Corp vs. North Dakota decision gives online stores an advantage local stores don’t have.

Local stores feel that the way to stop losing business is for the government to impose sales tax on online stores. This proposal hopes to level the playing field. Of course there are numerous reasons why people shop online and not in stores that has nothing to do with sales tax. Sales tax is only part of the issue. First of all, online stores have shipping and handling fees which local stores don’t have. But of course, you don’t hear the local stores mentioning this advantage.

If local stores really wanted to get people coming to their stores this would entail lowering their prices and having a wider selection of merchandise. But why lower your prices and make less money when you can have online stores raise theirs? (Or in the above analogy, why study hard to get an A when you can have grade inflation?).

The meeting will take place on Beacon Hill where Massachusetts will decide if this new legislation will get passed. According to Representative Martin J. Walsh, a Dorchester Democrat who supports the bill charging online businesses with having to pay sales tax, “This is less about collecting taxes and more about a question of fairness. This levels the playing field for retailers in Massachusetts who are losing sales to the Internet.’’ (http://www.boston.com/business/articles/2011/04/06/ retailers_push_for_e_commerce_sales_tax/).

States such as IllinoisNew York and Rhode Island have already agreed to charge a 6.25% sales tax, effective July 1st 2012 for online stores that have buildings located in any of those 3 (so far) states (and dozens of more states are proposing to adopt this bill as well).

“According to the National Conference of State Legislatures, states missed out on an estimated $8.6 billion in 2010 from failing to collect sales tax for online and catalog purchases.” (http://www.boston.com/business/articles/2011/04/06/ retailers_push_for_e_commerce_sales_tax/).

The problem I have with this bill isn’t so much that customers have to pay sales tax when ordering online, but the reason that this bill is introduced in the first place. It’s one thing if some states decided to propose this bill, but instead this is coming out of local businesses. It seems obvious to me that these businesses only have self interest in mind, which is okay but at least admit that’s the reason for this bill. Don’t pretend it’s about leveling the playing field when it’s really about money. Local businesses are losing money and they feel this bill will increase sales at local stores. The fact that this bill may increase sales to local businesses but will certainly cause people to spend more money online isn’t the concern of local businesses.

Do local stores really believe the way to attract customers is to isolate them by adding online expenses to people? Why don’t local stores ease the burden on customers by lowering their own prices instead of lobbying the government to raise the prices (through the use of sales tax) of their online competitors? Is the only way to get people to shop at your stores is by taking away the advantages of others? There are advantages to buying in stores already, such as having your item right away and knowing what condition the product is in instead of having to wait a week for online stores to deliver. Customers who shop online have to pay shipping and handling fees that they don’t have to pay when shopping at a local store, but I don’t see the online stores complaining to the government about this.

There are always advantages and disadvantages that both groups have. Isn't better to try to get rid of the disadvantages instead of spreading them to others? Well I guess it’s true what they say: “The best defense is a good offense.” The staff at Gary Rome Auto Group (who have both local and online stores, so we aren't part of the problem) would love to hear your thoughts on this—which only costs 6.25% of your purchase.

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