is a radio broadcast equipment supplier based in the Chicago area. Eric Hoppe founded the company in 1990,
starting it as a catalog sales organization; it has since expanded to other
sales channels as well.
proposals in Washington to close a retail sales tax “loophole.” The issue
affects buyers and sellers of broadcast equipment. As part of Radio World’s
coverage of this issue, which we began in our Sept. 26 edition, I asked Hoppe to expand on his
is Progressive Concepts’ position on the Marketplace Equity Act?
Hoppe, right, and administrative assistant Beth Yucus stand outside Progressive
Concepts in Streamwood, Ill.
Hoppe: As you know, there are currently
two separate bills on the Hill, the Marketplace Equity Act and the Marketplace
Fairness Act. If either one were passed, it could have devastating effects on
small Internet-based businesses like Progressive Concepts.
The biggest problem with both bills is that they set
the exemption limit far too low for small businesses. One sets the exemption
limit at an annual gross sales of less than $500,000, while the other sets the limit
at $1 million in annual gross sales. The exemption limit would allow businesses
whose annual gross sales are below the threshold to be exempt from the new law.
is my opinion that even a business with $2 million to $3 million in gross
annual sales is likely to lack the resources necessary to deal with the added
costs associated with bringing their business into compliance with the plethora
of new tax regulations from 44 other states. Unfortunately, there are no
provisions in either bill for raising the exemption level.
Small businesses like Progressive Concepts would find
themselves overburdened by additional administrative costs incurred by having
to comply with over 44 new state sales tax laws. Larger online e-tailers such
as Target or Wal-Mart are already collecting taxes in those states because they
already have “nexus” [a physical presence of some sort] in those states, so
they would be completely unaffected by the new law.
do the existing retail sales tax laws affect your business operations? Do you
currently collect state tax?
Progressive Concepts is located in Cook County, Ill.
The existing sales tax laws have little effect on Progressive Concepts because
the laws in Cook County are relatively easy to comply with. We simply collect the
appropriate tax rate from any customers who are inside the state of Illinois
and pass it along to the state in the form of an annual sales tax return. However,
can you imagine the added time and costs associated with filing out 45
individual sales tax returns and mailing in 45 checks? Some states will require
monthly returns, thereby compounding the problem for small businesses. It’s a
huge can of worms that I’d rather not open.
very small percentage, less than 1 percent, of our total sales originate within
the state of Illinois. The majority of our sales are derived from out-of-state
(interstate) and international sales. We also do a good deal of business with
the federal government, who are exempt from state sales tax in Illinois.
are only five states that currently have no sales tax: Alaska, Delaware,
Montana, New Hampshire and Oregon.
the proposed changes take effect, what impact do you anticipate they’d have on
It would be incredibly difficult for a small business with
less than three employees such as Progressive Concepts to have to comply with
the myriad of tax laws found in the other 44 states that currently collect
sales tax. I find it ironic that the federal government would even consider
passing a law that most certainly will stifle small businesses at a time when
they should be nurturing them. After all, it’s the economic engines of small
businesses that keep this country running.
including the Consumer Electronics Association say this change simply would
close a collection loophole; they consider it a matter of fairness and say the
loophole is hurting brick-and-mortar retailers.
disagree with anyone who claims that a change will “simply close a collection
loophole.” The way that taxes on interstate commerce are currently treated do
not contain a “loophole”; they are the law.
Let’s take a quick look at the Constitution of the United States of
America, specifically the fifth and sixth paragraphs (clauses) of the ninth
section of the first article.
They state: “No Tax or Duty shall be laid on Articles exported from any
State. No Preference shall be given by any Regulation of Commerce or Revenue to
the Ports of one State over those of another; nor shall Vessels bound to, or
from one State be obliged to enter, clear, or pay Duties in another.”
So what do I say to anyone who feels that the current interstate
taxation system has a “loophole” that needs to be closed?I
would say that such a statement is tantamount to saying that anyone who voices
his or her opinion in the free press is simply using a loophole in the First
Amendment that needs to be closed.
For further reference also see the
Supreme Court 1992 decision in Quill
Corp. vs. North Dakota.[The URL
is posted at radioworld.com/links.]
What impact would the change have on
radio stations that buy from you and other vendors?
it would add to the cost that the customer pays in that customers would now be
required to pay the local sales tax to the vendors. Whatever the local tax rate
is where the sale originates would be the added cost to the customer.
else should readers know about this issue?
Some may argue that customers are shopping at out-of-state
e-tailers in order to avoid paying the sales tax. I disagree.I think that the main reason customers shop
online rather than at brick-and mortar-stores are twofold.
First, with the current exorbitantly high costs of
gasoline, it is cheaper to “let your fingers do the walking,” so to speak.
Second, customers can find a much greater variety of options to choose from
you ever driven to your local retailer to look for a specific product only to
find that they didn’t have what you were looking for, or they were out of
stock? This is especially true for niche broadcast equipment sellers like
Progressive Concepts. How many broadcast equipment dealers are located in your
neighborhood? So I don’t feel that customers are shopping online solely
for the purpose of avoiding sales tax.