Al's Morning Meeting

City Complains that Web E-Commerce is killing Local Stores

I am going to send along something a little unusual today. It is an exchange I had with a press spokesman for the Denver Mayor’s Office. Whether you agree with his position or not, he absolutely raises a strong story issue for you to consider during this Christmas shopping season, the impact that Internet sales is having on local retailers.

The Mayor of Denver is urging people not to shop online this Christmas. He says that online retail sales are killing local merchants and hurting cities because online purchases are not subject to sales tax.

The Mayor’s spokesman sent me an e-mail release saying the mayor, "..encouraged Denver residents to avoid spending their holiday dollars on out-of-state Internet sites and instead to support the local economy by shopping at Denver's local retail stores.

"'We need to support our local merchants and out-of-state on-line sales are taking a bite out of their profits as well as our local tax revenues,' Mayor Webb said. 'Every time you spend money shopping on the Internet, you are depriving local merchants of a sale and you are depriving your local municipalities of the necessary tax revenue to provide critical services. The fact of the matter is that we have fantastic retail stores and our local merchants offer great bargains, more convenient return policies and overall, more choice and flexibility in terms of products, sizes and customer assistance.'"

I challenged Andrew Hudson, the Mayor’s spokesman, who sent me the release. I asked why people should pay sales tax if we never visit the city which ships us our online purchase. Why should I pay a sales tax, I asked, if I don’t have a need to drive on use your city roads or require your police or fire protection? And I asked whether it was possible that Internet sales help the economy just as retail sales do. Internet sales produce income taxes, trucking permit taxes, gasoline taxes and businesses taxes. Besides, don't most of those same retailers profit from Internet sales -- if not at that store at least corporately?

Andrew wrote back, "We are being told by our local merchants in the City of Denver (and in studies nation-wide) that they are losing millions to online sales ... They simply can't compete with a huge warehouse located in some suburb in another part of the country. It's not as simple as just creating a website and opening an Amazon-type warehouse. And I truly believe (while I don't have a study to back it up) that the economic impact of local retailers on a local community is way greater than most Internet businesses.

"Yes, it is self-serving to the degree that cities are losing huge tax revenues from internet sales (which we can't tax) -- in addition to a slowing economy on top of the additional funds cities throughout America are spending on emergency preparedness as a result of the terrorist attacks of 9/11. A study by the U.S. Conference of Mayors estimated that cities will spend more than $2.6 billion in additional security costs between September 11, 2001 and the end of 2002.

"The majority of cities' general fund revenue is from sales tax, which of course goes to police/fire/paramedics, roads, garbage collection, parks and rec. centers, etc. I think that it is important for folks to recognize that there are implications to shopping online, particularly if it is in terms of a loss of sales tax.

"Revenue losses of $45 billion will have an enormous impact on state and local governments. There is no doubt that this will affect state and local governments' ability to provide quality education, effective public safety, efficient transportation and other critical public services."

Resources: USA Today reported Friday that some retailers are seeing people order online then pick up the merchandise at the store. Third Quarter Online retail sales were up more than 30 percent from 2001. And, The San Francisco Business Journal reported, "'Largely it's a function of the fact that there are more people online this year than last year. People online tend to be more active as their tenure increases,' said Lisa Strand, director and chief analyst for NetRatings Inc., a Milpitas-based media and market research firm. Strand said her firm's e-commerce index of top retail websites shows year-over-year growth in visitors of nearly 20 percent in September."

Jock Tax Keeps Growing

My colleague Larry Larsen spotted this story which Al’s Morning Meeting has brought to your attention before. Twenty states and cities slap professional athletes with a jock tax, essentially an income tax every time the players come to town.

In Cincinnati, the city will take the matter up in a couple of weeks. The AP says, "Cincinnati shouldn't impose a city income tax on Major League Baseball players unless visiting lawyers and business executives also have to pay it, according to a lawyer for the owners.

"Cincinnati City Council members are looking for ways to generate revenue to close a projected $35 million budget deficit for the city. Supporters of the proposed 'jock tax' noted that Columbus and Cleveland already impose a similar tax under Ohio law.

"Cincinnati's council is to vote Dec. 18 on whether to tax visiting professional athletes and entertainers. The tax would generate at least $800,000 for Cincinnati each year, two-thirds of which would come from athletes, budget planners said Tuesday.

"Visiting workers in other types of jobs only have to pay the city income tax if they work in Cincinnati for 12 days or more a year, said Stephen Nechemias, a lawyer for the owners."

Background on the tax

The Tax Foundation says, "'The jock tax began with California trying to get back at Michael Jordan for beating the Lakers in 1991,' commented David Hoffman, Tax Foundation Economist and author of ... (a) new report, 'but a decade later, it's getting out of hand. Thousands of people are forced to file income tax returns in more than a dozen states, and many of them aren't athletes or earning a lot of money.'"

The report gives examples of how much money professional athletes are paying in extra taxes to states where they travel to play games. The athletes who pay the most are those who make their homes in states that have no state income tax or a low rate. Alex Rodriguez, whose home state of Texas has no state income tax, will be paying almost $9,000 in jock taxes to Wisconsin for the privilege of playing a few innings in baseball's annual exhibition.

My questions include, who are athletes? What about circus performers, ballet dancers, stock car drivers, rodeo riders or horse race jockeys? Why, if cities tax jocks, don’t they also tax musical performers, people who give big ticket speeches and so on. (Would that be taxing free speech?)

Debit Card Problems

Producer Angie Kane at WTSP-TV sent Al’s Morning Meeting an interesting story about how debit cards and credit cards offer very different levels of protection to their users. Angie writes, "We took a call from a woman who used her debit card to pay for a meal back in July. The bill was $30. She was charged $435.86! Since then, she's tried and tried to get her money back. We talked with someone at Consumer Protection. She says customers should realize using their debit card isn't as safe as using a credit card. And since you can now use debit cards nearly anywhere, this is a story that affects a lot of people."

Making Medicine Taste Better

Here is an interesting website of a Maryland company which is growing like crazy. Their business, to develop flavorings to make medicines taste better. They have developed flavors for everyone from kids and old folks to the family dog.

We are always looking for your great ideas. Send Al a few sentences and hot links.