Sales Tax Fairness

This month marks the one year anniversary since the Senate passed bipartisan legislation that would allow states to require online sellers to collect the same sales tax as local stores, and now it’s the House’s turn to act. Online sellers currently have a price advantage over bricks-and-mortar retailers, and small retailers are hit hardest due to their inability to absorb higher costs. We live in a world of omnichannel retail – a sale is a sale, no matter what the channel. It’s time America’s sales tax collection system matches 21st century retail and works for companies both large and small, on Main Street and online.

Implementation of the Affordable Care Act

Now that health care reform legislation is the law of the land, many small business owners are asking how they will be impacted. Central to their uncertainty is a burdensome provision within the ACA that defines full-time employment for health benefit eligibility as 30 hours per week – far below the typical definition of full-time work as 40 hours. Mandating employers to provide health coverage for full-time workers is already a significant burden for small businesses. Forcing them to define full-time as 30-hours creates even more challenges and defies common sense. This year, the House passed the Save American Workers Act to restore the traditional definition of full-time work to the ACA, and legislation is moving forward in the Senate.

Minimum Wage and Overtime Rules

In his State of the Union address, President Obama proposed an increase in the Federal minimum wage to $10.10 an hour from $7.25. The Senate recently voted on such a proposal, though it failed to get enough votes to move forward on the actual legislation. NRF believes efforts to raise the minimum wage are rooted in political talking points, not sound public policy. Washington shouldn’t be telling small retailers and restaurants how to run their business. The last thing mom-and-pop shops on Main Street need is another burdensome mandate imposed by Washington. And more new mandates are on the way next year. The President’s latest idea – to significantly alter overtime rules – already has employers scrambling with uncertainty over payroll costs.

Patent Trolls

Patent trolls are increasingly targeting Main Street retailers who lack the financial resources and legal expertise to fight back. The cost of going to court is so high that many small retailers are forced to pay up, diverting much-needed resources from growing their business. Congress is working on a bill to put limits on the lengths trolls can go in extorting money from innocent businesses, and NRF has been leading the fight.

Main street retailers are the heart of our communities and stand at the very core of what it means to live in America. Despite all of the partisanship and political stalemate that we hear of in the news, there are retail advocates in Congress who have consistently supported public policy initiatives that recognize the important contributions of small retailers. This week, NRF will recognize our “Heroes of Main Street” for their support of policies that are important to the retail industry. The awards are a chance to honor elected officials who are doing their part to encourage a healthy, vibrant retail sector.

Retailers can stay informed and make their voice heard in Washington by getting involved with NRF and state retail associations and using these channels to let elected officials know how these issues impact Main Street. Better yet, attend the upcoming Retail Advocates Summit this July on Capitol Hill and educate elected officials about the issues affecting your bottom line.

Passage of landmark sales tax fairness legislation during our annual fly-in last year is a perfect example. Personal stories from 30 states delivered a powerful message on the need to level the playing field between brick-and-mortar and online retailers, and ultimately had a significant impact that led to congressional action.

This year, we are making one change to reflect the idea that we are all advocates. NRF’s annual fly-in has been known for more than 80 years as the Washington Leadership Conference. Its new name – Retail Advocates Summit – reinforces the original mission and purpose: retailers who are passionate about policies they believe in can come to Washington to be advocates for change. It takes a broad coalition, from retailers large and small, to send a loud and clear message to Washington on the issues that matter to our industry.

Congress makes decisions everyday that directly impact retail. Retail Advocates Summit is your chance to educate elected officials and have a say about the issues affecting your bottom line. Now is the time to make your voice heard. Join us this July on Capitol Hill and be an advocate for retail.

Take Action

The fact is, patents touch nearly every aspect of retail operations. But patent trolls have built a business on suing retailers for things the troll didn’t invent and the retailer is using legitimately. Here are a few areas where patent trolls have taken Main Street businesses to court:

1)      Wi-Fi. One of the earliest cases involved small businesses who were sued for using patented Wi-Fi routers in their stores.

2)      Payments. BrandsMart Executive Vice President Lary Sinewitz testified before the House Judiciary Committee in November that his business was targeted for using technology that enables debit cards and gift cards to process information from the magnetic stripe on the back of the card.

3)      Smartphone apps. More than 40 online retailers were sued or threatened by a California company that claimed to hold a patent on the technology that enabled them to link to privacy policies posted on their website.

4)      Online shopping cart. A software company accused Newegg and a number of other retailers of infringement of patents on online shopping carts. Thankfully, a federal appeals court ruled in favor of Newegg and the U.S. Supreme Court let the ruling stand.

5)      Scan-to-email. Appropriately named “scanner trolls,” a troll company filed claims demanding that small businesses pay $1,000 per worker who attached scanned documents to email. And these lawsuits haven’t gone away.

If you’re like most retailers, you’ve probably realized that your business uses these common technologies. Fortunately, Congress has shown a willingness to protect retailers and other businesses from vague, frivolous patent claims like these. But trolls and their supporters have been very active in this fight, arguing for measures that won’t effectively alleviate the problem

Retailers – and all innovators – need protection through a provision like a “customer stay” that would put a patent troll’s lawsuit against a business owner on hold if there is a pending suit against the manufacturer from whom the business owner got the technology. In order to stop patent trolls in their tracks, you have to contact your Senators today.

It’s the only way to explain why those same politicians consistently try to redefine the reality of what American consumers are most concerned about, denying those consumers the clarity they seek for a financially secure future.

Recently, Prosper Insights and Analytics surveyed 6,387 adults, asking “What are the three most important issues that you think Congress should focus on in 2014?” Topping the list was the U.S. economy (52 percent), followed closely by job creation/unemployment (47 percent), and finally the federal budget/debt (40 percent). That’s the reality.

But our elected officials are looking that simple reality straight in the eye, and denying it. Time and time again, we are told that Americans are more concerned about raising the minimum wage. In fact, only 23 percent of those polled put that issue in their top three, with healthcare (39 percent) and tax reform (24 percent) as greater priorities. Immigration? 20 percent. Renewable energy sources? 16 percent. View complete survey here.

Three Issues Congress Should Focus On In 2014

Charts from the NRF Foundation’s Retail Insight Center. To access this data and more research please visit the Retail Insight Center.

On minimum wage, even those polled who are making an annual salary of $50,000 or less ranked the issue fifth in their list of priorities (28 percent). Job creation/unemployment was their primary concern (50 percent), followed by the economy (50 percent) and healthcare (40 percent).

It should come as no surprise that a Gallup poll recently found that just 19 percent of Americans rate current U.S. economic conditions as excellent or good while 34 percent say they are poor. Gallup found that 44 percent say the economy is getting better, while 51 percent say it is getting worse.

If you went to a physician suffering chest pain and shortness of breath, you certainly wouldn’t want the doctor spending more time focusing on cosmetic issues such as hair loss and acne. It’s time for our politicians to stop denying reality and start confronting the real issues that will bring the American consumer the relief they seek in order to build a brighter, more secure future for themselves and their children.

It’s not just a desire; it’s a startling clear, simple and undeniable reality.

At a three-hour-plus House Judiciary Committee hearing last Wednesday, members of Congress heard from a panel of lobbyists, experts and attorneys on various proposals to eliminate the sales tax disparity that gives online sellers a price advantage to the detriment of community retailers and Main Street merchants. “The Committee is sympathetic to the plight of traditional retailers,” House Judiciary Chairman Bob Goodlatte, R-Va., said. “It is serious about searching for a solution that the various parties can accept.”

As the committee listened, several themes became evident:

• There was broad, bipartisan agreement that the current patchwork of state laws and court decisions presents a problem, and that Congress and Congress alone can fix the sales tax disparity created by the Supreme Court in its 1992 Quill decision. In that case, the court ruled that sellers can be required to collect sales tax only in states where they have a physical presence such as a headquarters, store, office or warehouse. “Congress has yet to make that critical determination,” John Conyers, D-Mich., said. “So we owe it to our local communities, our local retailers, and state and local governments to act before the end of this year.” 

• Congress has the authority to level the playing field so that retailers – no matter whether they sell their merchandise in a store, through the mail or over the Internet – can compete fairly. Any solution must aim for certainty and take into account simplification requirements, audit protections and implementation costs. “When that retailer closes because they could no longer compete, it’s a burden that’s imposed on that community if that store’s in a shopping center, we know that if one store closes, others may close as well,” Ted Deutch, D-Fla., said.

•  Lawmakers were genuinely concerned that any federal legislation aimed at ending the sales tax disparity shield small business owners (both online and on Main Street) from overregulation or excessive enforcement actions. The importance of interstate and intra-state commerce must be protected. “We have a mandate that we’re not living up to by not dealing with this problem,” Darrell Issa, R-Calif., said.

Instead of turning to the tired “this is a tax increase” posturing, Congress seems more focused on finding a practical solution to the issue that can work for all parties involved –retailers, states, and consumers. “This is, of course, not a new tax,” Steven Cohen, D-Tenn., said. “It’s just simply collecting taxes that are already owed and they’re paid by their hometown retail folks, brick and mortar stores that have the competitive risk advantage.”

While no conclusions were reached, the hearing provided the retail industry reason to be optimistic that Congress is serious about addressing the sales tax disparity and sincere in its desire to level the playing field for all retailers. NRF – long a supporter of the sales tax fairness – will continue to support these concrete conversations as we aim for a federal solution before the 2014 holiday season.

To get to the bottom of these data thefts perpetrated against some of the largest retailers in the country and affecting millions of consumers, the committee invited precisely — you guessed it — zero retailers to learn about the problem and get their side of the story. As you would expect, the hearing was rife with falsehoods, inaccuracies and half-truths.

We thought we’d highlight four of the best (worst) “whoppers” from this hearing and set the record straight.

Whopper #1: Retailers are not properly incentivized to protect their data: this is why “assigning liability” for these data breaches is important.

Truth: Retailers pay a very large price for data breaches and are very well incented by the market to protect their customers and protect their brand reputation.

Retailers have a vested interest in protecting consumers’ financial information – customers won’t shop in a store they don’t trust. Retailers MUST—and do—comply with the PCI Standard, designed by financial institutions, to protect sensitive information first, before they are even able to process payments in the first place. “Assigning liability” is not the issue, the fundamental problem is that the current card number system is too easily monetized by thieves. Thieves wouldn’t be so quick to steal card data online if it were nearly impossible to convert into credit cards and make fraudulent purchases. Requiring a PIN will quickly render this kind of card data theft fruitless.

Whopper #2: Retailers are in the best position to discover and disclose breaches, but they are reluctant to do so as it could adversely impact sales, stock price or reputation.

Truth: In fact, financial institutions are the ones who typically spot breaches, as their fraud detection systems usually trace back suspicious activity to the source from their fraud-prone cards.

In many cases, the reports of fraudulent card activity provide the first signs (even to the financial institutions) of a sophisticated breach. Even when hacked companies discover they have been breached, they may not immediately disclose it for fear of compromising an undercover “sting” or making the breach worse. A total of 46 states and the District of Columbia legally require retailers to notify customers of data breaches and retailers comply with all laws.

Whopper #3: Financial institutions’ systems are better protected than retailers’ systems, and financial institutions have to adhere to much higher standards.

Truth: Financial institutions are the ones who suffer more breaches than retailers.

Data breaches at retailers account for only 24 percent of incidents, while 37 percent happen at financial institutions, according to the most recent report from Verizon. And that’s true even though there are many more retailers than financial institutions. Retailers spend billions to protect data. Different types of data receive different levels of protection. Payment card data is subject to the PCI-DSS standard in addition to the retailers’ own requirements.

Whopper #4: Retailers unnecessarily store credit card information which creates more opportunities for thieves to steal data.

Truth: In 2007, it was NRF that argued to the card companies that merchants shouldn’t be forced to keep data. However, the card companies insist that merchants retain data, or else they would be required to accept chargebacks and absorb the fraud. The rules established by the payment card industry encourage retailers to keep card data.

1. Sales tax fairness doesn’t create a new tax. Under a 1992 Supreme Court ruling, online sellers are only required to collect sales tax from customers in states where they have a physical presence, such as their headquarters, a store, office or distribution center. But that doesn’t mean tax isn’t owed: Consumers in the 45 states with a sales tax are required to report untaxed purchases on their annual state income tax returns and pay the tax at that point. Few are aware of the requirement and fewer pay, but those who don’t leave themselves open to audits and penalties. By requiring online sellers to collect regardless of physical presence, sales tax fairness legislation would alleviate consumers’ need to remember to pay tax they already owe on these purchases.
2. This is a top priority for small business. Main Street continues to call for legislation that can end online sellers’ unfair advantage. More than 1,000 small business owners signed a Main Street Fairness Coalition letter asking the House to pass sales tax fairness this year. Local retailers are imploring Congress to end this disparity that threatens brick-and-mortar retailer’s ability to budget, hire and continue to grow.
3. Sales tax fairness could create jobs. A study released last summer by economist Arthur Laffer estimated that passage of federal sales tax fairness legislation could help America add 1.5 million jobs over the next decade. The study also found that eliminating the sales tax loophole could increase the nation’s GDP by $563 billion over the same period.
4. The financial impact on communities is huge. Passage of federal sales tax fairness legislation would recover billions in uncollected taxes state and local governments need to support essential services – think police officers and firefighters. See how much your state’s lost revenue is with this interactive map.
5. The fight isn’t over. This week’s hearing is another step in the right direction. But it will be the stories from Main Street that will serve as the strongest force to keep sales tax fairness momentum going. Tell your representative that now is the time to act: Main Street can’t afford to go back to square one in 2015.

We live in a world of omnichannel retail – a sale is a sale, no matter what the channel. It’s time America’s sales tax collection system matches 21^st century retail.

By now you know how patent trolls work. Shell companies purchase overly-vague and broad patents in order to sue businesses for financial gain. They send out terse demand letters written in legalese that threaten business owners with a lawsuit unless they pay a licensing fee for supposed infringement.

The problems with patent trolls are endless.

Trolls tie up the courts with frivolous legal claims, force Main Street businesses to pay for legal services and settlements instead of investing that money into their businesses and creating jobs, and hamper technological adoption and innovation. Trolls often target retailers, especially in the high-tech world of online and mobile commerce. Patent troll claims are often made over such common business practices as offering free Wi-Fi in stores or even the use of a shopping cart on a website.

Patent trolls do not produce anything of any real or significant value but do cause great economic harm to American businesses, be it manufacturers, retailers or others. In fact, the average cost of defending against a patent troll’s claims is about $2 million and it can take up to 18 months for the case to work itself out (a lifetime for a small business owner). It is estimated that patent trolls cost businesses between $30-80 billion a year!

But there’s hope.

The Senate Judiciary Committee and the Senate Commerce Committee are working together to pass a patent litigation reform bill that may address many of the abuses. NRF remains very optimistic that the Senate will pass a bill this spring or summer, and that we will see a bill signed into law this year.

Much of the legislative and policy momentum to date has come at the urging of Main Street merchants, who have put a human face on the toll of patent trolls. Complementing that activity and advocacy, NRF Senior Director for Federal Government Relations Beth Provenzano participated in a public forum this week where she urged passage of broad-based and common-sense patent reform legislation.

You can watch the entire panel debate here.

NRF believes retailers, especially small business owners, need protection from patent trolls’ frivolous and costly demands and lawsuits. We are coordinating with our members, coalition partners, other stakeholders and lawmakers to address abusive patent trolls in a comprehensive manner and believe that patent legislation should include:

• Demand Letter transparency in the initial demand letters trolls send to their victims so business owners have more detailed information on the infringements claimed.
• Effective “customer stay” language that puts patent troll lawsuits against business owners “on hold” when the manufacturer of third-party technology provider is involved.
• Expansion of the existing patent program that allows lawsuits over methods of doing business to be reviewed without the need or cost of going go to court

Now is the time to tell your story. We urge you to write an op-ed or letter to the editor, attend a town hall meeting held by your member of Congress or even come to Washington for a congressional hearing or meeting. Simply click here to tell Congress that now is the time to combat patent trolls.

While the experts expressed conflicting post-recessionary analysis from historical and political perspectives – some were optimistic, others pessimistic – the conference found consensus on one issue: tax reform. And considering the tax reform package released today by House Ways and Means Committee Chairman Dave Camp, R-Mich., it was a timely topic.

With more than 500 attendees watching, a panel moderated by NRF President and CEO Matthew Shay featured former directors of the Congressional Budget Office Alice Rivlin and Douglas Holtz-Eakin, with each discussing their steadfast support for reforming the 101-year-old tax system and the need to address both corporate and individual tax rates. Watch a clip from the panel below or visit C-SPAN.com to view in its entirety.

Watch the segment.

NRF has long supported comprehensive tax reform that would lower tax rates for all businesses in return for closing tax breaks that benefit only a few. NRF believes such an approach would make American companies more competitive with the world, spur business investment and help produce more jobs and opportunity. Shay said Camp’s proposal would benefit both retailers and their customers: “This is good for the economy, and what’s good for the economy is good for retail.”

Stripe and swipe was a great technology in the 1980s, the decade the cassette tape Walkman and the Apple Macintosh computer came out.

But in a day when thieves half a world away can hack into a computer system to steal card data rather than breaking into a bank to steal cash, “stripe and swipe” is about as high-tech as an 8-track tape.

That’s why NRF and the retail industry have been pushing cards that encrypt data on an embedded micro-chip and protect consumers by using a secret Personal Identification Number (PIN) rather than relying on the illegible scrawl most people pass off as a signature. You wouldn’t want to rely on a signature to get cash out of an ATM, so why rely on a signature when you use a credit or debit card?

This week, NRF boiled down the advantages of new PIN and Chip technology over old-fashioned stripe-and-swipe with a new infographic.

The easy-to-understand infographic shows two scenarios:

• When a physical card is stolen, a thief can use a magnetic stripe card simply by signing the cardholder’s name, while they are blocked from using a PIN and Chip card because they don’t know the PIN.
• When card numbers are stolen, a thief can easily create a counterfeit magnetic stripe card and sign for the transaction, but a chip card is almost impossible to duplicate and the PIN would block its use even if it could be duplicated.

“PIN and Chip prevents credit card fraud … and protects you,” the infographic reads. “The safest cards deploy both PIN and Chip technology.”

The infographic and NRF’s Myths and Facts on card security were sent to Capitol Hill today. Both will be used as NRF continues to educate policymakers and the public on the retail industry’s efforts to protect consumers against criminals trying to steal their card data.

For more, go to www.nrf.com/datasecurity.