A Free Ride?

By Frank Dallahan -- JCK Online, 6/1/2007 2:00:00 AM

It seems to me that Internet sellers of jewelry are getting a free ride. Far be it from me to advocate additional taxes on anyone or any business. If memory serves me correctly, it's about the first of May when we all start working for ourselves instead of the federal and state governments. That's the date our income tax obligations are fulfilled for the current year. Come to think of it, the timing adds insult to injury. The annual income tax filing date for 2006—April 17 this year—has just passed, and we haven't earned enough to pay for our 2007 tax liability. Interesting.

The retail jewelry business is fairly stable from a macro perspective. In total, revenue rises approximately 5 percent to 7 percent each year. On the local level, however, competition is fierce. There are the regional chains fighting it out with the national chains, and every year it seems that the backbone of the industry—the independents—is shrinking. Last year, according to the Jewelers Board of Trade, the number of independents once again declined, from 24,543 in 2005 to 23,778, a drop of 3 percent.

As if the competitive scene weren't tough enough for retail jewelers, the rise of Internet sellers over the past few years has added to the independents' misery index. Besides having a significant cost advantage—a single location in a low-rent area where traffic isn't a consideration, not much in the way of marketing expenditures to promote their business, no elegant displays, little invested in inventory—Internet sellers get most everything on memo from their favorite diamond suppliers and pay for only what they've already sold. What a business! On top of that, the Internet sellers have another competitive advantage: no local sales tax.

I'm not sure I understand why Internet sellers with no retail stores are exempt from charging sales taxes. There has to be some compelling logic to it. Perhaps those in the central economic planning departments in the state capitals and Washington, D.C., concluded that the Internet sellers deserve a competitive advantage over the remaining 23,778 retail jewelers in the United States. This is probably one more example of the inequity of the current tax code and why it should be scrapped in favor of one that treats every business equally.

At the end of the day we are all too busy to do anything like write a letter to our state and federal representatives. We are so absorbed with e-mail, meetings, travel, conferences, trade shows, selling, and producing that we really think our legislators are cognizant of these matters. They are much more concerned with important issues like the number of U.S. attorneys that have been fired obviously for political reasons and running for reelection, if not for president!

It is time to get to some really important work and start communicating on a regular basis with your legislators. Unless you do it, they will never address the truly important matters of the day, like tax equity. For them to get a free ride, all you have to do is keep quiet.

frankdallahan@comcast.net