Washington Retail Insight - April 7, 2006

Volume 11, Number 8
April 7, 2006

In Today's Edition:

• NRF Urges Caution on Employment Verification Provisions of Immigration Bill

• Senators Seek Hearing on Sales Tax Simplification Bills

• Ports Operating Smoothly as Volume Returns

• Retailers to Meet with Minnesota Congressman

• Congressional Outlook

• NRF Events

NRF Urges Caution on Employment Verification Provisions of Immigration Bill
     NRF today urged Congress to use caution in establishing a new employment verification system under immigration reform legislation being debated in the Senate, saying proposals to expand a troubled pilot program could cause multiple problems for employers.

     "We are gravely concerned about proposals ... that impose a mandate on business to participate, but not a mandate on the government to provide a functioning system," NRF, NRF's National Council of Chain Restaurants division and 15 other trade associations said in a letter to House and Senate lawmakers.

     NRF and NCCR are members of the Essential Worker Immigration Coalition, which drafted the letter. Coalition members said any new employment verification system should give employers clear guidance of their responsibilities, provide for effective but fair penalties for non-compliance, and provide safe harbors for employers in compliance.

     The program should also have a series of "benchmarks of efficiency" that must be met by the government at each step as additional employers are added to the system, the letter said. The program should be limited to new hires, and the government should provide resources to pay for "this expensive new mandate on business," the letter said.

     The Senate has been at work on the politically charged issue of immigration reform since early last month, but Senators Chuck Hagel, R-Neb., and Mel Martinez, R-Fla., announced yesterday that a compromise had finally been reached that would strengthen U.S. borders while providing most illegal immigrants a path toward legal status.

     Under the Hagel-Martinez compromise, illegal immigrants who have lived in the United States for five years could work for six years and then apply for legal permanent residency without leaving the country. Those here two to five years would have to go to border entry points within three years but could immediately return with temporary work visas. Those here less than two years would have to return home and apply for temporary visas to return, but with no guarantee that visas would be available.

     Despite yesterday's announcement, the compromise began to hit snags last night as Democrats opposed Republicans' attempts to offer amendments to the bill. A procedural vote that would have allowed the measure to move ahead toward final passage was defeated 60-38 this morning, and the Senate later adjourned for its annual Easter/Passover break, leaving further action on the bill until Congress returns the week of April 24.

     Of key interest to retailers and restaurants is a proposal that would expand the 10-year-old "Basic Pilot Program" for employment verification, making it mandatory for all U.S. employers. The program allows employers to either go on-line or place a telephone call to check whether a would-be worker is a U.S. citizen or has the proper legal documentation to work in the United States. The program has been in operation on a pilot basis since 1996, but only 3,600 of the nation's estimated 8.4 million employers have participated, and those that have joined have reported numerous delays, errors, inconveniences and other problems.

     Under the House version of the proposal passed in December, employers would be required to use the new program for new hires and also would be required to re-verify the status of existing employees, with fines of up to $25,000 for violations. A version sponsored late last month by Senate Judiciary Committee Chairman Arlen Specter, R-Pa., would limit the program to new hires and set fines of up to $4,000. A third version is included in legislation sponsored by Senate Majority Leader Bill Frist, R-Tenn., that formed the basis of this week's debate.

     For more information, contact NCCR Vice President for Government Relations Scott Vinson or NRF Senior Director and Government Relations Counsel Elizabeth Treanor Oesterle at (202) 783-7971.

Senators Seek Hearing on Sales Tax Simplification Bills

     Two Senate sponsors of legislation allowing states to require Internet sellers and mail-order merchants to collect sales tax the same as other retailers have asked a key committee chairman to hold a hearing on their bills.

     "This legislative matter deserves the immediate attention of Congress," Senators Michael Enzi, R-Wyo., and Byron Dorgan, D-N.D., wrote in a letter to Senate Finance Committee Chairman Charles Grassley, R-Iowa. "The continued growth in Internet sales is resulting in fewer tax dollars being collected on traditional purchases that pay for even the most basic government services. Failure to act will also add to the growing competitive pressures faced by Main Street retailers from remote sellers that do not collect sales tax rightfully owed by their customers."

     S. 2152, the Sales Tax Fairness and Simplification Act, sponsored by Enzi, and S. 2153, the Streamlined Sales Tax Simplification Act, sponsored by Dorgan, were introduced on the same day in December 2005. Both bills would allow states that have implemented the Streamlined Sales and Use Tax Agreement to require that out-of-state "remote seller" merchants collect sales tax on merchandise sold to residents of their states.

     The key difference between the two bills is that the Enzi measure would exempt retailers with less than $5 million in annual gross remote sales while the Dorgan measure sets out a 10-page process under which the Small Business Administration would develop guidelines for the exemption of small businesses and submit those guidelines for congressional approval. NRF supports the Enzi bill because of its less-complicated approach.

     Despite the request for a hearing, election-year politics make it unlikely that the legislation will see passage this year. NRF and other supporters are continuing to work to educate lawmakers on the issue, but action is more likely in 2007.

     Under a 1992 U.S. Supreme Court ruling, remote sellers are only required to collect sales tax from customers in states where they have a physical presence such as a store, office or distribution center. With more than 7,600 state and local jurisdictions collecting sales tax, many with different rates, different lists of taxable items and different definitions, the court held that out-of-state merchants could not be expected to know what to collect.

     The SSUTA, approved by 34 states and the District of Columbia in 2002, simplifies many aspects of sales tax law and creates a mechanism for collection and distribution. The agreement officially went into effect on a voluntary basis last October, with 19 states having made the changes in state tax law necessary to participate. Passage of federal legislation is needed, however, before sales tax collection can become mandatory.

     NRF, which represents both traditional retailers and remote sellers, helped craft the SSUTA. NRF believes that remote sellers have an unfair price advantage over bricks-and-mortar stores that are required to collect sales tax from all customers. NRF supports a level playing field where all retailers compete under the same tax rules regardless of whether they sell their merchandise in a store, over the Internet or through the mail.

     Most states require their residents to pay "use" tax when sales tax is not collected on out-of-state purchases, but such sales are difficult to track and the law is difficult to enforce.

     For more information, contact NRF Vice President and Government and Industry Relations Counsel Maureen Riehl at (202) 626-8121.

Ports Operating Smoothly as Volume Returns

     The nation's major retail container ports are operating smoothly this month as volume levels build back up after the winter slow season, according to the April Port Tracker report released this week by NRF and Global Insight.

     "Heading into the buildup toward the peak season, all ports are operating without congestion," Global Insight Economist Paul Bingham said. "The outlook is for continued good performance despite challenges from continued growth in trade. We still have concerns with the condition of the rail system and challenges for the trucking industry later this year, but we expect the industry should do even better than last year, with little terminal or network congestion."

     "We were concerned last month that the Dubai Ports World issue might lead Congress to pass legislation that would impact terminal operations, but the issue appears to have been resolved and is not expected to affect port congestion at this point," NRF Vice President and International Trade Counsel Erik Autor said. "Port Tracker will continue to monitor developments that affect the cargo supply chain whether they are taking place on the docks or in Washington."

     All ports covered by Port Tracker – Los Angeles/Long Beach, Oakland, Tacoma and Seattle on the West Coast, and New York/New Jersey, Hampton Roads, Charleston and Savannah on the East Coast – are currently rated "low" for congestion, the same as March.

     Nationwide, ports surveyed handled 1.09 million Twenty-foot Equivalent Units (TEUs) of container traffic during February, the most recent month for which numbers are available. The figure – the lowest volume of the slow, post-holiday winter season – was down 11.7 percent from January and 1.6 percent from February 2005. Volume is beginning to climb again and should hit 1.45 million TEU in August, up 9.5 percent from August 2005. One TEU is a 20-foot cargo container or its equivalent.

     Port Tracker is produced each month for NRF by the economic research, forecasting and analysis firm Global Insight. Subscription information is available at www.nrf.com/porttracker.

     For more information, contact NRF Vice President and International Trade Counsel Erik Autor at (202) 626-8104.

Retailers to Meet with Minnesota Congressman

     NRF's annual series of Retail Education Events will begin next week when local merchants gather in Woodbury, Minn., for a breakfast meeting with Representative Mark Kennedy.

     International trade, health care, tax policy and other topics on the congressional agenda are expected to be discussed with the third-term Republican. Kennedy is a member of the House Financial Services Committee and the House Transportation and Infrastructure Committee.

     The meeting is scheduled for 8:30 a.m.-10 a.m. Tuesday at Salsarita's Fresh Cantina, located in the Woodbury Lakes Shopping Center, 9000 Hudson Road, Woodbury, Minn. The meeting is co-sponsored by the Minnesota Retailers Association.

     A similar session with House Republican Conference Chairwoman Deborah Pryce, R-Ohio, is scheduled for April 21 in Columbus, and a meeting with Representative Jon Porter, R-Nev., is planned for June 1 in Henderson, Nev.

     Retail education events are informational meetings – not political endorsements – held to help Congress understand the importance of the retail industry to the economy. The meetings give retailers an opportunity to meet new members of Congress and to reinforce relationships with veteran lawmakers.

     For more information or to register, contact NRF Director of Grassroots and Industry Relations Marsha Dionne at (202) 626-8152.

Congressional Outlook:

House: Returns Monday, April 24.
Senate: Returns 2 p.m., Monday, April 24.

NRF Events:

• April 11, Retail Education Event with Representative Mark Kennedy, Woodbury, Minn.
• April 21, Retail Education Event with House Republican Conference Chairwoman Deborah Pryce, Columbus, Ohio.
• April 26-28, Committee on Employment Law, Longboat Key, Fla.
• May 16-17, Washington Leadership Conference, Washington, D.C.

     For information on NRF events, contact Eileen Pryor at (202) 626-8114 or pryore@nrf.com.

     Washington Retail Insight is published each week that Congress is in session by the National Retail Federation, 325 7th St. NW, Washington, D.C. 20004.

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