System Beatdown

My Thanks to Rebecca MacKinnon and Ethan Zuckerman of Global Voices Online for picking up another one of My posts.


Haven't done My "Jenius on the Street" (or "Jenius in the Mall") bit for a while. Decided to do it again because (a) I get a kick out of asking people questions that make their eyes go blank for several seconds and (b) the sales tax issue looms large.

So I went to several different places over a two-week period and asked owners of small businesses what they thought would happen with the sales tax. Of course, the initial reaction was negative, but I waited that out to uncover some interesting points:

---Compliance with reporting and paying the tax is already a bugaboo and will simply grow into a monster. Most of the business folks I spoke with operate with 1-4 persons, maxed out as it is. Toss into the mix a potential $5,000 fine for missing a report/payment deadline and you have the makings of major stress.

---Accountants will either have to lower their rates or face fierce competition in the form of software. One CPA butted into a group conversation on the subject and said that he didn't see why people were avoiding the use of accountants. The idiot (hang on: you'll see why) told us he had more clients now than before (at $120 an hour) and revealed he'd raised his rates because...of the sales tax. To business people, that was spitting in their coffee. The guy slunk away as the group turned against him.

And the competition? Software and either a computer or a mid-line cash register, to keep track of the taxes and print out a daily, weekly or monthly report. Oh, with automatic on-site or online backup. Put a package together like that for under $500 and you have thousands of clients ready to buy. Internet, anyone?

---From a former government auditor and retired CPA: The claims for inventory losses will reach near-record or record proportions in 2007. Simple: Buy 50 units of some expensive item, like PCs. Claim 4 were damaged. Sell the four PCs through "the back door," for cash. Take the deduction, take the cash...pure profit. Works very well with electronic items, furniture and some appliances. Another hint this is happening? Insurance claims will rise for a limited range of businesses and drop for the others. Why? Insurance companies investigate almost every claim, unlike the local Treasury Department, so people would rather pretend to take a loss on insurance while gaining in gray-market activities. I keep telling you, the sales tax is going to perfect the underground economy of Puerto Rico.

---Internet, anyone? I buy books like I have incipient bibliomania. I get a 20% discount at Borders, so a $10 book comes out (will come out) to $8.56. That's a 14.4% discount rate. But if I buy the book over the Web, I pay $7.88, with shipping, for the same book. (Your mileage may vary.) That's a 22.2% discount. Internet purchases are not taxable and if I switched to buying as much as I could over the Web and simply use local businesses for service, I'd save about $347-$378 a month.

But note:

1) I am not an avid consumer. The estimate above is based only on books, non-perishable household goods and office supplies.

2) The average family could save closer to $1,000 if they factor in clothing, toys, bulk food purchases, music and entertainment (DVDs). Oh, wait, many already factor in DVDs...on the gray market.

3) If We don't find ways to beat the system, the system will certainly beat Us. That is not hyperbole: it is fact. It is tragic and repulsive, but it is fact. A 7% sales tax on a $12,750 income (local average) is like a 14.5% sales tax on a $26,300 income, a general average for the States. Do you see any State slamming its people at 14.5%? Of course not. We're Number One!

---Bottom line: When small businesses get hammered, have more obstacles thrown in their way and are threatened by local forces rather than "global" ones, you can bet dollars to doughnuts that they will make themselves heard. Whether they can be organized into an effective tool for change remains to be seen, because the local Retailers Union (Centro Unido de Detallistas) has the leadership ability of slimy moss.

And the rest of Us? We'd better start cracking on kicking The Fools out. If We don't, We can expect more hammering between 2008 and 2012.


The Jenius Has Spoken.