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2012 legislative action pack: an educational guide to how upcoming legislation could affect your operation.

Let's face it: It's easy to become apathetic to the fickle cadence of legislative chatter, especially with the political overexposure of the primaries in full swing. But educating and preparing yourself for potential legislative action is a key defense for ensuring the longevity of your operation.

JUST ASK CALIFORNIA HOME improvement retailers who found themselves face to face with lead abatement regulation just last year. Retailers who buried their heads in the sand and did not take proper precautions to phase out qualifying merchandise found themselves facing potential unsellable inventory and logistical nightmares, while proactive retailers had plans in place to comply with the new rule. While this particular piece of legislation was a state-enforced mandate, national legislation can have just as dramatic effects on your business and is particularly important to analyze as we enter election season, when you can voice your concerns and opinions through your vote.

Whether you swing left or right, activity in Washington will likely affect you and your operation, but running your business doesn't leave a whole lot of time to weed through the convoluted lingo of federal code. On the following pages, the editors at Hardware Retailing offer you a primer for navigating your way through 2012. Using interviews with retail and political analysts as well as surveys conducted with retailers like yourself, we'll boil down the legislative conversation into a straightforward guide, including a detailed overview of the issues, explanations of supporting and opposing positions and what it means for your store.

Halt on Incandescent Light Bulb Phase Out What: Energy Independence and Security Act of 2007


With a game-changing vote in midDecember, the much-anticipated incandescent light bulb phase out requirements of the Energy Independence and Security Act came to a screeching halt as Republicans appealed and successfully overturned funding of the phase out. According to a rider attached to the $915 billion spending bill decision at the end of 2011, signed to avoid a federal government shutdown, the Department of Energy won't be able to enforce compliance of the phase out until at least Oct. 1.

According to the original act, retailers would be forced to phase out 100-watt bulbs this year, followed in January 2013 with the 75-watt bulb and, finally, in January 2014 with the 40-watt and 60-watt bulbs. Additionally, the legislation called for a second tier of restrictions for 2020, which requires all general-purpose bulbs to produce at least 45 lumens per watt.


Many lighting experts explain that a halt in the phase out shouldn't have a great effect on any manufacturers, distributors and retailers who have proactively spent the past four years and millions of dollars preparing for the regulation by investing in electrical technology and progressive lighting solutions. Supporters of the original bill say the mandate will save the country massive amounts of energy each year, reducing the amount of fossil fuels consumed. Although the energy-efficient bulbs tend to come accompanied by a higher sticker price, proponents of the mandate believe the change will encourage better products, more utility savings and an immediate influx in bottom lines.

"I think initially [the phase out] will help retailers; it's going to open a whole new market and let us sell light bulbs that presumably will have a higher margin," says Dave Warren, owner of Dave's Ace Hardware with two locations in Wisconsin.


Opponents to the mandate worry that the higher price tags of the bulbs will create backlash from consumers.

In surveys our editors received, retailers appeared less moved by political agenda and more by the tangible fear of lost revenues that accompanies the long lifespan of newer bulbs.

"The first, and probably most significant, change for independent retailers will be the long-term reduction in the sales and margin volume that this category represents for many retailers," says Greg Gold, owner of Miller's Ace Hardware with two locations in Pennsylvania. "The short term will provide a comparable replacement for revenue with the current conversion to CFLs and the future conversion to LEDs, but over the long term these longer-lasting bulbs will require much less frequent replacement and therefore lower revenues for retailers."


Education is key with this legislation; it's important to stay up to date on when and if the incandescent bulb phase out will be enforced. While it is true that retailers can sell out their merchandise, if the act goes through, business owners will want to have already worked out logistics of compliance.

Talk to your distributors and manufacturers and be prepared to offer customers information on the phase out, so when they can't find the bulbs on your shelf, they know why.

"The changes will be confusing at first and they will have an impact on customers, but over time customers and retailers will be able to accommodate the changes," says David French, vice president of government relations at the National Retail Federation (NRF).

Debit Card Swipe Fees

What: Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010


The Federal Reserve capped debit card swipe fee regulation to about 21 cents per transaction. Previously, unregulated fees averaged around 44 cents. The cap, which took effect Oct. 1, 2011, was initially proposed at 12 cents. Despite the Durbin Amendment commonly emphasized in debit card activity, the amendment also provides requirements for credit cards including the ability for merchants to impose a $10 minimum on credit card transactions, which was previously banned by Visa and MasterCard and merchants to give discounts at the register for those who pay with cash or debit, again previously banned.


While the fee as a percentage of a single transaction is minuscule, when multiplied by millions of transactions, it can make a significant impact in overhead business costs, so proponents applaud the decrease and continue to push for even lower fees.

"I think it's good for independent businesses because it's going to reduce the amount of money they are paying for swipe fees. I would like it to be lower than 21 cents per transaction but it's far better than it was," says Warren.


Those who oppose the cap say banks will be forced to increase other fees to make up for the lost revenue--most likely costs to consumers. For example, Bank of America blamed its decision to start charging its customers $5 a month to use their debit cards for purchases due in part to the reduction. Other banks have ceased free or rewards checking in order to recover lost revenue. One particular fear for many independent retailers is the reality that many local and regional banks that they choose to do business with are struggling to budget for the revenue lost from the fees.

"This is a victory for independent retailers and anyone who takes debit cards," says Mitch Haase, owner of Mitch's Incredible Ace Hardware in Plainfield, Ind. "Problems will come when banks will try to make up that money for their shareholders. They may issue more credit cards, which have a higher fee than debit cards for larger purchases or they will charge businesses a higher service charge. The money will be made up somewhere; it doesn't just go away, but this will have a slightly positive effect for retailers."


Retailers should see some immediate savings on payment processing expenses because the charge per debit card transaction. In addition, there is a chance this amount can be lowered even further because retail trade organizations throughout the country served the Federal Reserve with a lawsuit claiming the reform hasn't done enough.

"The Fed surveyed financial institutions and asked them what it cost them to process a debit card swipe ... out of that data the Fed found that each swipe cost about 4 cents. When calculating profit and other factors into the cost, originally the Fed said a fair debit card swipe fee would be in the range of 7 to 12 cents--we think they should change the law back to this standard," says French. The NRF is one of the organizations filing the lawsuit, which was filed in late 2011, and is expected to make some headway by spring of this year.

Health Insurance

What: Patient Protection and Affordable Care Act


The Patient Protection and Affordable Care Act, (commonly known as the Affordable Care Act), officially became a law in 2010, and each year implements new regulations.

The most noteworthy effect of the act in 2012 involves an "individual mandate," which would require individuals to purchase their own health insurance. The Supreme Court is currently set to determine the constitutionality of the mandate sometime in June and will have the ability to strike the individual regulation or the law in its entirety. In other news, small business employers can welcome a tax credit in 2012 (offered 2010-2013)--to help offset the cost of the health premium costs. Small business employers will receive a 35 percent credit while small tax-exempt employers receive a 25 percent credit. The tax credit offered positive news to small business that can couple the credit with deductions offered on premiums in excess of the credit.

Even if you are a small business employer who did not owe tax during the year, you can carry the credit backward or forward within the established timeframe. Another provision to pay attention to involves a rule covering a summary of benefits coverage currently in debate. If passed, the regulation would eventually require employers to provide employees with a document describing the benefits and coverage levels offered under the employer's plans.


Those who support health care reform insist that the overall amount of money America will spend on health care under the reform will differ only slightly compared with the rise that's expected to happen anyway. They argue that the mandate should stand, suggesting that more Americans can get health insurance without adding to federal budget deficits.


Opponents to current health care reform legislation contend that the legislation won't fundamentally change U.S. health spending--including both public- and private-sector dollars, costing the country, employers and the end-consumer more money in the long run. Many who oppose the bill believe that the current bill simply extends coverage without clear cost-control measures. Retailers specifically express their concern about being able to afford continually rising costs, but they risk facing a penalty for dropping the benefit. To be exact, a business with 50 or more full-time employees must generally pay a penalty for not offering its employees' health insurance. This affordability penalty is capped at the total penalty the company would pay if it did not offer insurance at all.


Overall, the overriding theme of health care reform is prevention-changing the focus from treatment of disease to prevention, so many companies are focusing on wellness programs and preventative treatment.

However, even wellness programs can't always negate skyrocketing insurance rates, forcing many businesses to charge higher employee contributions (typically in the form of dependent coverage). Many companies are even toying with dropping retiree accounts or getting rid of the benefit entirely. Nineteen percent of small business employers say they are either "likely" or "very likely" to terminate employee health coverage plans after state insurance exchanges go online in 2014, according to a November survey by Mercer, a consulting firm in New York.

19% of small employers say they are either "likely" or "very likely" to TERMINATE employee health coverage plans after state insurance exchanges go online in 2014, according to a November survey by Mercer, a consulting firm in New York.

Payroll Relief *

What: 2011 Payroll Tax Holiday


The payroll tax "holiday," which reduces employees' FICA tax by 2 percentage points to 5.65 percent, and was set to expire at the end of 2011, has been pushed back to the end of February. The policy was planned as a temporary relief to economic turmoil and an encouragement to stimulate sales.

The president proposed the holiday. The Senate supports it. The House is game. The majority of Republicans support it and the majority of Democrats support it. All's well and good, but now they face the issue: Who is going to pay for it? That question appears to be the root of the answer as to how long the holiday will remain.


The payroll tax has put a little extra money in consumers' pockets, and some retailers believe this extra spending cash has helped boost their bottom lines. In addition, because the economy is still in a fragile state, and proponents insist that ending the payroll tax holiday may be detrimental to its continued stability.

"Although the NRF would like to see the payroll tax holiday extended through 2012, we would rather see a iong-term tax policy that is consistent and predictable. These temporary tax holidays set the precedent for a sudden tax hike later," French says. "This kind of uncertainty in these changes is not the best idea in the long run, but we recognize that the economy is very fragile. This is worth approximately $120 billion to the economy so it's a meaningful amount of money and it will help stimulate consumer demand and will help to keep the economy going."


Opponents argue that the true expiration of the payroll tax holiday will take a little away from consumers' paychecks, but they say the real damage to the economy is where the long-lasting funding of the holiday would take the country. Respondents in our survey indicate some retailers are apathetic to this legislation entirely, arguing that whether or not it is extended, its impact will be minimal if at all.

"My opinion on these short-term government initiatives to 'boost' job creation with credits, rebates, tax reductions, etc., is that they are just that: short-term patches that don't address the actual core issues that need to be resolved and therefore don't work very well," says Gold. "I don't think this 'tax holiday' has shown itself to have created jobs and I do not think it should be extended."


More money in more consumers' pockets is theoretically never a bad thing for retail. Trends prove that consumers have been more ambitious with spending since 2011, with retail sales on the rise but arguably still hyper-cautious. Despite debates on how well this particular mandate works, retailers must fight for whatever discretionary money is out there for the taking. Make sure you are taking every effort to ramp up your core business principles including promotions, offerings, training and advertising to make sure you are landing any extra dollars consumers have, no matter if it comes from a tax holiday.

* Before making any decisions talk to your tax professional.

Estate and Gift Tax*

What: Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010


After a short reprieve from paying estate tax in 2010, a result of the Bush-era tax cut phase out, Americans wondered whether the estate tax would bounce back to historic highs. The Feds, however, ordered a full repeal of the estate tax in 2010, which issued every American citizen a tax credit to pass a certain amount of their estate to heirs tax-free. In 2011, the estate exemption was $5 million for estate tax and gifts. For 2012, the Feds increased the exemption to $5.12 million for inflation.


Proponents of the estate tax argue that the legislatior serves to prevent the "perpetuation of wealth, void of tax," and point out that the tax affects only largescale estates. Proponents of the legislation argue that abolishing the estate tax will result in billions of dollars being lost annually from the federal budget and defend the tax citing that many of the earnings subject to the estate tax were never taxed in the first place because they were in actuality "unrealized" gains.


Arguers against the tax contend the pending estate taxes have the ability to create a disincentive to invest and to a more extreme, a disadvantage to owning a business entirely. Many people who argue the tax believe the rights to assets belong to deceased persons who have been paying taxes their entire lives. Moreover, arguers of the legislation contend the estate tax has also been found to impose a large compliance burden on the U.S. economy.


While the issue of estate/gift tax will conceivably be an ongoing concern for Americans, the yo-yoing of the law has forced retailers to plan for extremes. Fortunately, Gary Pittsfurd, president and CEO of Castle Wealth Advisors in Indianapolis, reassures retailers that there are several avenues they can opt for to take charge of their planning. One step is for retailers to look for discounts that can be applied to their assets. Pittsford says he always looks for the minority stock discount for small business owners. This discount, which can range between 25 and 30 percent, can be applied to the assets of someone who owns less than 49 percent stock of the voting stock. This means the business owner would only be taxed on his stock in the business, less than the 25-30 percent for estate or gifting. Another potential discount retailers can take advantage of is a lack of marketability discount, which involves the appeal of the stock on the publicly traded market. If you're trading a private stock, its marketability is low; take advantage of that fact with the estate discount. Finally, Pittsford encourages retailers to allocate assets differently between a married couple because the exemption point is issued per individual. Thus, each couple in an ownership can give up to $5 million of his or her assets for flee.

"Really, what I always try to emphasize to my clients is the importance of acting today," explains Pittsford. "We don't know where the estate and gift tax could move to 2013, and if I could bet it will be less favorable in the future, so if (you) are thinking about doing something in the next few years, it would be advantageous to speed up the process today."

* Before making any decisions talk to your tax professional.

Online Sales Tax

What: Marketplace Freedom Act and Streamlined Sales and Use Tax Agreement


Several years ago, the Feds issued the Streamlined Sales and Use Tax Agreement (SSUTA) in an effort to create a simplified sales tax system applicable across all states, with the primary concern of how to issue fair sales taxes to retailers who service customers across state lines. Today, if your business has a physical presence in a state, such as a store, office or warehouse, you are currently required to collect applicable state and local sales tax from your customers. If you do not have a presence in a particular state, however, you are currently not required to collect sales taxes. According to the Small Business Administration, forcing retailers to comply with thousands of tax jurisdictions placed too great a strain on interstate commerce. The Marketplace Freedom Act gives states the authority to collect from online merchants with $500,000 or more in annual remote sales in any one state. While there may be few home improvement retailers currently offering this kind of ecommerce, the main concern for the independent retailer revolves around a competitive pricing issue.


Supporters of the tax contend that the new online sales tax regulation would level the playing field between online stores and brick-and-mortar retailers. Supporters say not hayhag online businesses pay tax disadvantages local businesses. Arguers for the tax also claim the exemption is fundamentally unfair to consumers because only those with Internet access, a credit card and a home or workplace where they can accept daytime deliveries are able to take advantage of the tax benefit.


People against the online sales tax say the tax results in a loss of sales for online retailers and would raise overall prices for consumers. Arguers say the tax creates more costs for retailers in the form of increased compliance costs, meaning they'll have to jack up prices to keep up with the new sales tax regulations.


If you don't currently do more than $500,000 of annual online business, the act would not add any direct overhead to your operation costs. In fact, there is a general consensus that if passed, the act would improve local patronizing. However, if you are a retailer who currently offers a large deal of ecommerce or is thinking about getting involved more heavily in ecommerce, the sales tax could potentially add significant new costs to your processes. If the legislation stays the same way, independents will need to start thinking of ways to add incentives to shopping in their stores versus the online competition. Also, keep in mind that even before a decision is made, determining which sales tax to charge can be a challenge. Many online retailers use online shopping-cart software services programmed to calculate sales tax rates for you.


Be sure to check with your local and state legislative authorities, as well as a trusted legal professional for details about how legislation may specifically affect your business.

By Jaime Koch,, and Emily Groen,
COPYRIGHT 2012 National Retail Hardware Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2012 Gale, Cengage Learning. All rights reserved.

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Author:Koch, Jaime; Emily, Groen
Publication:Hardware Retailing
Article Type:Survey
Date:Feb 1, 2012
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