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Archive for Tuesday, August 26, 2003

Sales tax law concerns retailers

Lawrence store owner fears closure

August 26, 2003

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Lawrence businessman Bob Hess said there was a good chance that controversial changes to the state's sales tax laws would cause him to spend less time and money collecting taxes.

But that doesn't mean Hess, owner of Bob's Bernina Sewing & Vacuum Center, agrees with a Kansas Department of Revenue official who last week told lawmakers that problems associated with the sales tax changes had been exaggerated by fearful merchants.

It's because Hess fears the changes will force him to shut down his 23-year-old store at 2449 Iowa.

"It will get simpler because I'll just close my doors and let the state take care of me," Hess said.

That law, which took effect July 1, requires merchants to collect state and local sales taxes based on the rates imposed where customers have goods delivered, ending a decades-long practice of using the rates imposed where a merchant was located. So a customer who buys a sewing machine from Hess' store in Lawrence and has it delivered to Baldwin now must pay the Baldwin sales tax rate.

Previously, Hess charged all his customers the Lawrence tax rate, regardless of where the merchandise was delivered.

But Bob's Bernina has found a way to get around the problem. Signs in Hess' store notify customers that he'll no longer deliver outside of Lawrence. He estimated he did about 10 to 20 deliveries per month outside Lawrence. He expects to lose most of those sales, which represented anywhere from $30,000 to $100,000 a month in revenue.

"They're just making it that much harder for us to make a living," Hess said. "I don't think we'll be able to run a business that way. I just figured we'll have to retire."

Paperwork problems

Bob Hess, owner of Bob's Bernina Sewing & Vacuum Center, says
he will no longer deliver outside of Lawrence because of new sales
tax laws. New regulations require businesses to charge the sales
tax of where the product is delivered.

Bob Hess, owner of Bob's Bernina Sewing & Vacuum Center, says he will no longer deliver outside of Lawrence because of new sales tax laws. New regulations require businesses to charge the sales tax of where the product is delivered.

Hess sees two problems with the new system. First, he said, it's difficult to know what rate to charge a customer because the state has 751 taxing jurisdictions. Second, it creates a paperwork nightmare when it comes time to fill out the monthly sales tax report that must be sent to the state. That's because merchants must include how much sales tax was collected for each jurisdiction.

"My wife does all the book work, and she said we had to quit the deliveries because it was going to be too much paperwork," Hess said.

Contacted Monday, Richard Cram, director of policy and research for the Kansas Department of Revenue, stood behind remarks he made last week to the state's Legislative Budget Committee.

Cram said the department's information technology staff had visited many businesses in the state and come up with relatively simple and inexpensive solutions to potential collection and reporting problems.

"What we've found is that when people think about it a little bit more, it maybe isn't as overwhelming as they first thought," Cram said.

Despite that, Marlee Carpenter, executive director of the Kansas Retail Council, said she hadn't noticed a decline in the level of concern about the change from her group's members. She said the organization supported the idea for the law change, which aims to lay the groundwork to level the playing field between Internet and brick-and-mortar-retailers.

"But the way this is being enacted in Kansas, it is not going to work for the state's small retailers," Carpenter said.

Longer grace period

Larger retailers also are reporting problems. Mick Ranney -- owner of Footprints, a Lawrence-based sandal and shoe retailer that operates a nationwide catalog business -- said the change was adding complications to his sales process.

He said Kansas customers using his catalog now must call the store to get the proper tax rate before they can send in their order. Ranney said it was either that or print all 751 tax rates in his catalog, which he said would cost too much in printing and mailing.

"It concerns me because every hurdle you put in front of a customer reduces your ability to make a sale to them," Ranney said.

Revenue department officials have said they'll be relaxed in their enforcement measures until Jan. 1 to give businesses time to adjust to the system. Carpenter said her group would push to have that grace period extended.

Cram said the department would consider lengthening the grace period. He said the department was working on developing a searchable database that would allow retailers to look up a sales tax rate by the customer's street address.

If that database isn't available by Jan. 1, Cram said the department would probably extend the relaxed enforcement period.

"Until we have that database out, it is hard for us to tell everybody that we're going to be out in force on the issue," Cram said.

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