Postal Rates and Internet Sales Tax Present Perfect Storm of Marketing Woes

Note: This week I'm turning the blog over to some old friends at the American Catalog Mailers Association (ACMA). For anyone who uses direct mail, there's a good chance postage will be going up dramatically soon. Whether you're aware of that or not, this week ACMA's Hamilton Davison and Paul Miller (former editor of our sister magazine "Catalog Success") will bring you up to speed on the issues and how you can get involved in protecting your postal rates. A Perfect Storm Headed Our Way By Hamilton Davison & Paul Miller Had enough snow-sleet-rain-wind-fire this past winter? Spring and summer could see even far worse storms in Washington, DC, that will affect all remote sellers — catalogers, publishers and e-commerce companies — for decades. Unless a strong industry push back is made, the resulting consequences will undermine your company’s profitability and add new complexity for both you and your customers. These two major industry issues should have everyone’s attention: A potentially significant change (not for the better) in how future postal rates are to be set; The ramifications of a forthcoming Supreme Court ruling on the future of remote/internet sales taxes that could overturn over 50 years of precedent businesses nationwide have relied upon. Our industry must mobilize to take action to respond to these industry-wide threats! The time to do so is right now. Inattention will be costly. Without a concerted, coordinated response, the outcome for both will be dire. In each matter, it will remain with Congress to provide a solution. Moving bills through Congress is a challenge even in the best of times, but at this point in our political history, with charges and counter charges, with facts and fiction being obscured, even more effort is necessary. There are 535 different members of the federal legislature. Members of Congress respond best to the people that vote for them. So we need immediate constituent pressure on every member of Congress to let them know an important sector of the economy in their home jurisdiction is at risk. ACMA is calling on every company with interests in remote selling, including all industry suppliers and other service providers, trade media to get engaged and help mitigate these very real threats facing our industry today. Whether with ACMA or some other trade group, history shows that professional associations are the best means to coordinate an industry response. Moreover, whether you are an AMCA member or not, ACMA will help you get connected to Congress. It is that important! Let’s now examine these issues, explore where and how we go from here, and what must be done. Postal Rates Going Up A big change is in store for the postal rates-making process that may well lead to enormous rate hikes very soon. Here is how it happened: The Postal Accountability and Enhancement Act, passed in 2006, called for postal rate increases to be capped annually at the consumer price index rate. The system has worked well for most types of mailers since; postage rises only with inflationary pressure, something widely available and understood. But the law called for the USPS’s oversight body (the Postal Regulatory Commission - PRC) to conduct a comprehensive review of the rate-setting system after 10 years. Released this past December, the PRC review determined the price cap system hasn’t quite worked out as well as originally hoped. Medium- and long-term financial stability is allegedly not being achieved. In fact, the PRC proposed a significant change in which catalog postage rates will increase approximately 7% for Marketing Mail Flats and 5% for Carrier Route each year over the next five years. All mail will face significant increases. The following five years, the PRC may elect to continue above-CPI increases or return to a CPI-capped maximum. Assuming a level 2% CPI rate, this amounts to a cumulative 40% increase over the first five years (28% for carrier route) and upwards of 56% over the next decade (42% for carrier route). If inflation rises above 2% annually, total postage increases will be even higher. The estimated percentage increases listed above primarily apply to mailers of catalogs and periodicals, because portions of these parts the postal system are considered to be “underwater.” Based on questionable data, some claim the Postal Service loses money in delivering such mail. But without question, the reported costs for flat shaped mail have risen rapidly since the purchase of the colossal Flats Sequencing System and now represents an existential threat to catalog and periodical mailers. The PRC’s December review was termed a “proposal” and requested suggestions for alternatives. More than 100 commenters stepped up; the ACMA submitted four comments — one on its own, and three other joint comments with other industry groups. No time frame for a decision has been released, but the case is expected to be litigated. Internet Sales Tax Meanwhile, on April 17 the Supreme Court of the U.S. (SCOTUS) will deliberate for an overturn of its 1992 decision in Quill v. North Dakota, which held that businesses lacking a substantial nexus (or physical presence) in a state cannot be forced to adhere to their sales tax collection and remittance requirements. The case involves South Dakota’s 2017 suit against three online retailers: Wayfair, Newegg and Overstock. Beyond the SCOTUS case in South Dakota, the ACMA has sued several rogue states seeking to sidestep the Quill precedent. (SCOTUS’s ruling in the Quill decision upheld a 1967 ruling in National Bellas Hess v. Department of Revenue of Illinois.) Through our True Simplification of Taxation (TruST) coalition, in concert with NetChoice, the Data & Marketing Association and Electronic Retailing Association, we’ve fended off several bills that would have submarined the catalog and e-commerce sectors as of 2013. That year, the Marketplace Fairness Act passed out of the Senate by an overwhelming 69-27 vote. At the time, we were urged to give up any hope of maintaining the Quill precedent. Yet, against all odds, we’ve “won” at every juncture since. Ultimately this issue will be resolved in Congress, but we need more companies working with elected officials if we are to prevail in the end. Beyond the anticipated SCOTUS decision, Congressional action is required to ultimately resolve the issue including when, or if, remote sellers must collect and remit sales taxes, or be required to do something else, such as report on customer purchases as is currently the case in Colorado and several other states. If the High Court overturns Quill, direct marketers and e-commerce merchants across the land will have to deal with more than 12,000 separate taxing jurisdictions both prospectively, and if states/municipalities choose, retroactively from the beginning of time. This leaves open many questions: What are the bounds of regulation acceptable on companies without political connections or a physical presence in a state? What level of sales tax compliance complexity is acceptable for remote marketers? What past liability will be foisted on marketers? How many audits can be imposed? Without access to more neutral Federal courts, how much “objectivity” might marketers expect from local Tax Tribunals and Sales Tax Administrators in overturning their own punishing new demands, or even how responsive can out of state companies expect local officials to be in responding to them on intricacies of their varying laws, rates, definitions, sales tax holidays and remission requirements? The Supreme Court’s abandonment of the Quill standard would portend chaos for nearly every business across the land as local authorities use their newfound power to regulate and tax companies well outside their physical jurisdictions. A Call to Action & How You Can Help Your Cause As both postal and sales tax issues move toward some eventual resolution soon, the questions are how painful the outcome will ultimately be and how long will it take. Both can be influenced by direct marketers, catalogers, publishers, online retailers and their suppliers — but only with steady attention, participation in the process, and a consistent message. To be a successful lobby in Washington requires experts, researchers and highly knowledgeable outside consultants to support our policy objectives through the legislative, regulatory or agency processes. The ACMA is working both of these “perfect storms” hard. In some cases, we partner with other organizations. Companies can take on these battles on their own, but would be wiser to get involved with one or more of the associations in Washington. It takes your attention and some money, but without either, our industry could be sunk. Hamilton Davison and Paul Miller are, respectively, the president & executive director and vice president & deputy director of the American Catalog Mailers Association. Founded in 2007, the American Catalog Mailers Association is the only organization that advocates on behalf of the interests of catalogers and other remote sellers, and their suppliers. For more information, contact Paul Miller at pmiller@catalogmailers.org or 800-509-9814.

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Postal Rates and Internet Sales Tax Present Perfect Storm of Marketing Woes

A Perfect Storm Headed Our Way

Thorin McGee

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