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• 2007 Sales Tax Holiday—August 3-4-5
• Energy Star Sales Tax Holiday—October 5-6-7-8, 2007
• 2008 - Hurricane Preparedness Sales Tax Holiday

2007 Sales Tax Holiday—August 3-4-5, 2007

Are you ready? Now is the time to plan how you will participate in the 2007 Sales Tax Holiday!

Do you need to purchase additional inventory for the three day event?

Have you planned your advertising for the event? Virginia law provides you the opportunity to advertise fourteen days prior to the event? Surveys conducted after the 2006 sales tax holiday concluded that the most success in sales came to those retailers who advertised.

Remember, there are two opportunities to participate: you sell items that are exempt by law and/or you may absorb the tax on any product you sell (you pay the tax for your customer). Absorbing the tax (you paying the tax) is in essence giving your customer a 5% discount on all, or specific products purchased.

The Department of Taxation will provide additional information at a later date; however, your pre sale planning should be done now.

Energy Star Sales Tax Holiday—October 5-6-7-8, 2007

Energy Star qualified products with a sales price of $2,500 or less per product purchased for noncommercial home or personal use. The exemption provided by this subdivision shall apply, beginning in 2007, only to sales occurring during the four-day period that begins each year on the Friday before the second Monday in October and ends at midnight on the second Monday in October.

For the purposes of this exemption, an Energy Star qualified product is any dishwasher, clothes washer, air conditioner, ceiling fan, compact fluorescent light bulb, dehumidifier, programmable thermostat, or refrigerator, the energy efficiency of which has been designated by the United States Environmental Protection Agency and the United States Department of Energy as meeting or exceeding each such agency's requirements such requirements under the Energy Star program.

The RMA will attend a series of meetings hosted by the Department of Taxation to develop guidelines for this October sales event.

2008 - Hurricane Preparedness Sales Tax Holiday

Beginning in 2008, for a seven-day period that begins each year on May 25 and ends at 11:59 p.m.on May 31, the tax imposed by this chapter or pursuant to the authority granted in § 58.1-605 or 58.1-606 shall not apply to (i) portable generators used to provide light or communications or preserve food in the event of a power outage and (ii) certain other hurricane preparedness equipment, including, but not limited to, blue ice, carbon monoxide detectors, cell phone batteries, cell phone chargers, gas or diesel fuel tanks, non-electric food storage coolers, portable self-powered light sources, portable self-powered radios, two-way radios, weather band radios, storm shutter devices, tarpaulins or other flexible waterproof sheeting, ground anchor systems or tie down kits, and packages of AAA cell, AA cell, C cell, D cell, 6 volt, or 9 volt batteries, excluding automobile and boat batteries. As used in this section, "storm shutter" means materials and products manufactured, rated, and marketed specifically for the purpose of preventing window damage from storms. The tax exemption shall apply to each portable generator with a selling price of $1,000 or less, and each article of other hurricane preparedness equipment with a selling price of $60 or less. Any discount, coupon, or other credit offered either by the retailer or by a vendor of the retailer to reduce the final price to the customer shall be taken into account in determining the selling price for purposes of this exemption.

The Department of Taxation will develop guidelines that describe the items of merchandise that qualify for the exemption and make such guidelines available, both electronically and in hard copy, no later than May 15 of each year beginning in 2008.

FEDERAL Issues*

© 2007. NRF Enterprises, Inc. used with permission.*

• States Take Action on Credit Card Interchange
• NRF Urges State Efforts on $36 Billion Credit Card Fee
• Visa Raises Credit Card Interchange Rates Again
• Sales Tax Simplification Legislation Coming Soon
• House and Senate OK $4.8 Billion Minimum Wage Tax Relief
• ID Theft Report Calls for National Notification Standard
• NRF Concerned Over Senate ID Theft Bill
• NRF Says Transparency Could Drive Down Credit Card Interchange
• RFID tech raises privacy concerns

States Take Action on Credit Card Interchange

Nine states have introduced a total of 15 bills concerning hidden credit card interchange fees that cost U.S. consumers $36 billion last year, according to a survey of state legislative activity released this week. Pending legislation ranges from proposals to prohibit card-issuing banks from charging interchange fees on the sales tax portion of a retail transaction to requiring credit card companies to fully disclose their rules and policies to merchants and consumers.

"This attention at the state level shows growing concern over the practices of the credit card companies," NRF Senior Vice President and General Counsel Mallory Duncan said Thursday. "In fact, the number of states considering legislation this year has doubled since last year."

"This is an important issue at both the state and federal level because interchange is the biggest credit card fee most consumers have never heard of," Duncan said. "For years, Visa, MasterCard and their banks have gotten together to fix interchange fees in secret in violation of federal antitrust law, and their non-negotiable rules make it virtually impossible for merchants to tell customers just how much they are actually paying. These efforts at the state level can help focus attention on this issue."

The survey was conducted by the Merchants Payments Coalition, which is chaired by Duncan and made up of NRF and other trade associations that represent businesses that accept credit cards.

Bills to ban interchange fees on the sales tax portion of transactions have been introduced in Florida, Kansas, Nevada, New York and Washington, according to the survey. Kentucky, Nebraska and Texas have introduced bills requiring credit card companies and issuing banks to be more transparent in disclosing rules and fees. A bill in Tennessee would cap interchange rates at 0.75 percent. Some states have multiple bills pending addressing various aspects of interchange.

MPC consists primarily of national trade associations. But state associations in 47 states have joined the coalition in recent months, showing further evidence of state-level concern over the issue.

Unknown to most consumers, interchange is a percentage of each transaction that Visa and MasterCard collect from retailers every time a credit or signature debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent for most transactions. Visa and MasterCard interchange totaled $36 billion in 2006, up 17 percent over 2005 and up 117 percent since 2001, according to MPC estimates. Visa and MasterCard do not disclose interchange on consumers' monthly statements, and their operating rules prohibit retailers from enumerating the charge on sales receipts.

The U.S. Senate Judiciary Committee last year held a hearing on whether interchange practices violate federal antitrust law. The Senate Banking, Housing and Urban Affairs Committee plans to hold a hearing on interchange this year, and the Senate Homeland Security and Government Affairs Committee may include the issue in its investigation of abusive credit card industry practices and fees.

NRF Urges State Efforts on $36 Billion Credit Card Fee

NRF this week urged state legislators from across the nation to continue efforts to control the $36 billion in credit card interchange fees paid by consumers each year, saying state legislation will help focus public attention on the little-known charges.

"The activities you are doing in the states to shine a light on these fees and make consumers aware of them is an important step in the right direction," NRF Senior Vice President and General Counsel Mallory Duncan said. "When Visa and MasterCard take their cut, they don't take it on just the retail sale, they take it on the entire transaction including the sales tax. That's not their money. The sales tax is the people's money, and they shouldn't be trying to take a piece of it. That drives up prices even higher, and everybody ends up paying a tax on a tax."

Duncan spoke Thursday at the National Conference of State Legislatures' Spring Conference in Washington as part of a panel discussion on credit card interchange.

Duncan told legislators interchange is of particular concern in regard to sales tax because it is added to the transaction after sales tax has been applied to purchases, resulting in a larger fee than if it applied only to merchandise. Retailers are required to remit the entire sales tax amount to state treasuries, so merchandise must be priced high enough to compensate for the interchange charged on the sales tax, he said.

Nine states have introduced at least 15 bills on interchange this year, including measures to ban interchange fees on the sales tax portion of transactions in Florida, Kansas, Nevada, New York and Washington. Kentucky, Nebraska and Texas have introduced bills requiring credit card companies to be more transparent in disclosing rules and fees. A bill in Tennessee would cap interchange rates at 0.75 percent. Some states have multiple bills pending addressing various aspects of interchange.

Interchange is a percentage of each transaction that Visa and MasterCard collect from retailers each time a credit or signature debit card is used to pay for a purchase. The amount varies with type of card, transaction and merchant, but averages close to 2 percent. Most consumers do not know that they are paying the fee because Visa and MasterCard do not disclose the charge on monthly statements and prohibit retailers from showing it on receipts. Visa and MasterCard collected approximately $36 billion in interchange during 2006, up 17 percent from the year before and an increase of 117.5 percent since 2001.

With the 2 percent average rate roughly equal to the retail industry's average profit margin, Duncan explained to legislators that retailers cannot absorb the charge and are effectively required to pass it on to consumers. Since Visa and MasterCard require the advertised price of merchandise to be the credit card price and make cash discounts difficult, the fee drives up prices even for consumers who pay by cash or check, he said.

The state action follows growing interest on Capitol Hill in the past year. No federal legislation has been introduced, but the Senate Judiciary Committee last year held a hearing on whether interchange practices violate federal antitrust law. The Senate Banking, Housing and Urban Affairs Committee plans to hold a hearing on interchange this year, and the Senate Homeland Security and Government Affairs Committee may include the issue in its investigation of abusive credit card industry practices and fees. Meanwhile, 50 antitrust lawsuits on the issue are pending in U.S. District Court in New York.

NRF is leading the retail industry's efforts to address interchange, and Duncan serves as chairman of the Merchants Trade Coalition, a group of trade associations representing merchants who accept credit cards. Made up primarily of national associations, the coalition has been joined by state associations in 47 states in the past several months, showing further evidence of state-level concern over the issue.

Visa Raises Credit Card Interchange Rates Again

Increases in credit card interchange rates implemented by Visa this week averaged only 0.6 percent, but the $36 billion in total interchange fees retailers and consumers paid in 2006 will probably increase close to 20 percent this year.

"The average increase in interchange rates doesn't tell the full story because it doesn't reflect credit card companies' efforts to move consumers to premium cards, the growing use of plastic, or the automatic raises Visa and MasterCard receive through inflation and increases in consumer spending," NRF Vice President and General Counsel Mallory Duncan said. "Interchange fees are already taking too much money out of consumers' pockets. Visa and MasterCard should be lowering interchange rates, not raising them."

New Visa rates that went into effect April 14 average 1.77 percent, up 0.6 percent from last year's average 1.76 percent. Increases in previous years have been similarly small, typically amounting to only a few basis points on each of the scores of rates offered for different combination of cards, transactions and type of merchant. But Visa has been shifting many customers to premium cards that carry significantly higher rates and adding expensive new cards, and the new list showed at least a third of the 94 rates were above the average, with some as high as 2.7 percent.

While the increases in rates may look small, overall interchange collections have soared in the past half-decade. Visa and MasterCard collected approximately $36 billion in 2006, up 17 percent from 2005 and 117.5 percent since 2001. Annual increases since 2001 have ranged from 15.8 percent to 17.3 percent.

"Visa and MasterCard would like consumers to believe that interchange is only going up a tiny fraction of a percentage when it's really going up in double-digit numbers and far faster than the rate of inflation or consumer spending," Duncan said. "These fees are ultimately paid by consumers, but working families can't afford these kinds of increases."

Given interchange's nature as a percentage of each transaction, increases in inflation and consumer spending give Visa and MasterCard automatic increases in revenues even without raising rates, Duncan noted.

Sales Tax Simplification Legislation Coming Soon

Lawmakers are close to introducing sales tax simplification legislation in Congress that would make it easier to require Internet merchants, mail order houses and other "remote sellers" to collect sales tax across state lines.

"This will be a major step forward in leveling the playing field so that all retailers will play by the same tax rules," NRF Vice President and Government and Industry Relations Counsel Maureen Riehl said.

Riehl spoke Thursday at the National Conference of State Legislatures' spring conference in Washington, where she updated legislators from across the country during a panel discussion on the issue. Other panel members included representatives of the Council on State Taxation and the Streamlined Sales Tax Governing Board.

Riehl told the group that supporters are currently working on language to exempt small businesses. Once that issue is resolved, legislation is expected to be introduced soon by longtime simplification supporters Senators Byron Dorgan, D-N.D., and Michael Enzi, R-Wyo., and Representative William Delahunt, D-Mass.

"With nearly two dozen states having adopted the simplification agreement to alter their state sales tax codes and more expected to do so during current state legislative sessions, the time to move this system nationwide with mandatory collection for all taxable sales is now," Riehl said. "NRF hopes to see Senate and House bills introduced before Memorial Day, and action on simplification as soon as possible."

The legislation being drafted would allow states that have implemented the Streamlined Sales and Use Tax Agreement (SSUTA) to require that out-of-state "remote seller" merchants collect sales tax on merchandise sold to residents of their states. The bill would compensate retailers for the cost of sales tax collection and would allow sales tax collection to be outsourced to certified service providers. Small business would be exempted, but the details of the exemption are still being determined.

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 simplifies many aspects of sales tax law and creates a mechanism for collection and distribution. The agreement went into effect on a voluntary basis in 2005 but passage of federal legislation is needed before sales tax collection can become mandatory.

NRF helped draft the agreement, and has long argued that out-of-state sellers who don't collect sales tax enjoy an unfair price advantage over local merchants who do.

House and Senate OK $4.8 Billion Minimum Wage Tax Relief

Key lawmakers this week vowed to fight for a change in depreciation rules that could save retailers as much as $1.6 billion even though it was left out of a package of minimum wage tax relief measures approved as part of a veto-bound bill to fund the war in Iraq.

The $4.8 billion tax package sent to President Bush would extend the Work Opportunity Tax Credit by three and a half years, and increase the Section 179 small business expensing limit to $125,000 through the end of 2008, among other provisions. But it leaves out a provision previously approved by the Senate that would let retailers who own their stores depreciate improvements over the same 15 years as those who lease their stores.

The package was included in H.R. 1591, the U.S. Troop Readiness, Veterans' Health and Iraq Accountability Act of 2007, which was approved 218-208 by the House on Wednesday and 51-46 by the Senate on Thursday. Bush has vowed to veto the funding bill because it includes a deadline for troop withdrawal, leaving the future of the tax provisions -- with or without depreciation -- still in play.

Even though the depreciation provision was left out, top supporters said they would continue to seek its enactment.

"Owners and renters should receive the same tax treatment," Finance Committee Chairman Max Baucus, D-Mont., said on the Senate floor. "I will continue to work with my colleagues to find additional opportunities to address this important provision."

"The current tax treatment of improvements to retail property results in an inequity," Senator John Kerry, D-Mass., said. "We need to provide equal treatment to depreciated property regardless of whether it is owned or rented."

Senator Olympia Snowe, R-Maine, said the proposal would "conform the tax code to the realities that retailers on Main Street face" and promised that it will receive "full and fair consideration."

Kerry cited the testimony of Dave Ratner, a Massachusetts pet store owner who appeared before Congress earlier this year on behalf of NRF to support the proposal. Baucus and Snowe said they had heard similar comments from retailers in their states.

The package was a compromise between the $1.8 billion in tax relief previously approved by the House and $12 billion approved by the Senate, and is intended to offset a $2.10 increase in the current $5.15 federal hourly minimum wage approved by both chambers.

"This package provides common sense, responsible tax relief so our small businesses can continue to hire new workers and promote economic growth in their communities," House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said.

But Senate Finance Committee Ranking Member Charles Grassley, R-Iowa, sharply disagreed.

"The Senate package was barely adequate," Grassley said. "I called it peanuts. The House package was puny. I called it a peanut shell. Now we have a single, shriveled peanut. This package is stripped of a lot of meaningful tax relief."

Lawmakers sent the bill to Bush knowing that it would be vetoed, and are expected to re-pass the measure soon in a version that leaves out the troop withdrawal provisions. The key question for retailers is whether the tax relief/minimum wage language will be included in the second version, and whether the depreciation provision can be put back in. Congress could include the tax package in the second Iraq bill, strip it out and pass it as standalone legislation, or attach the package to some other vehicle.

Regardless of which option lawmakers choose, NRF is continuing to push for passage of the full $12 billion Senate package, including the depreciation provisions.

Under the Senate package, all retailers would be allowed to depreciate remodeling and other improvements over 15 years rather than 39 years. Retailers whose stores are leased can already do so, but the depreciation period will revert to 39 years at the end of 2007 if Congress does not act. The Senate proposal would extend the deadline for one year, allowing improvements made through December 31, 2008, to be depreciated over 15 years. The proposal would also apply the 15-year period to improvements at owned stores for the first time, ending unfair tax discrimination against retailers who own their stores. The change would save retailers about $1.6 billion over 10 years for improvements made by the end of 2008.

ID Theft Report Calls for National Notification Standard

A report issued this week by the President's Identity Theft Task Force recommended that a national standard be established for notifying consumers of data security breaches, but said notification should be limited to cases where "significant" risk of ID theft exists.

"The national breach notification standard should require that covered entities provide notice to consumers in the event of a data breach, but only when the risks to consumers are real," the report said. "This significant risk of identity theft trigger for notification recognizes that excessive breach notification can overwhelm consumers, causing them to take costly action when there is little risk, or conversely, to ignore the notices when the risks are real."

While some details may need refinement, NRF generally welcomed the recommendation. NRF believes a national standard is needed to preempt the conflicting and confusing collection of 36 state-level notification laws enacted in the past four years, and that excessive notification could desensitize the public to notices.

"The significant risk' standard is very important," NRF Senior Vice President and General Counsel Mallory Duncan said during a speech at a Credit Card Bank Compliance Association conference in Denver Thursday. "Without it, you end up in a cry wolf situation where notifications will be meaningless. We don't want data breach notifications to end up like the Gramm-Leach-Bliley Act privacy notifications that everyone ignores."

The 108-page report released on Monday drew a distinction between simple credit card fraud and the more complicated and serious crime of identity theft, but blurred the distinction in some of its recommendations. The report's recommendation for notification when there is a breach of "any data or combination of data that would allow someone to use, log into, or access an individual's account, or to establish a new account using the individual's identifying information" would appear to cover both. The report specified a name, address or telephone number paired with a Social Security number, driver's license number, biometric record, financial account number, and PIN or security code. But it excluded names and addresses alone without the other corresponding data.

In recommending national standards for notification, the report did not mention retailers or any other industry by name, instead specifying "any private entity that collects, maintains, sells, transfers, disposes of or otherwise handles covered data in any medium" including both electronic and paper formats.

NRF expressed concern about the inclusion of paper documents. While data breaches involving paper documents are not insignificant, they do not present the same potential for mass loss of information as electronic data. NRF believes Congress and the Administration should focus first on computerized data, where the greatest risk occurs, and only address paper once there has been an opportunity to evaluate whether there is a valid risk of broad violations.

NRF welcomed the report's emphasis on addressing data security within the federal government as a top priority, noting that government agencies are far more likely than retailers to possess Social Security numbers and other private personal information needed to commit true identity theft.

The report included a wide range of other recommendations, including national standards for data security as well as notification, limits on the use of Social Security numbers, and a new criminal charge of "aggravated identity theft" that would carry a two-year prison term. The complete report is available on-line at www.ftc.gov/opa/2007/04/idtheft.shtm.

Unlike many recent news media stories, the report did not focus on the retail industry, and instead addressed data security concerns throughout the private sector and in the federal government as well. While making recommendations on solutions, it stopped short of endorsing specific legislation.

Earlier this year, NRF submitted comments to the task force recommending that the government review existing state and federal laws passed in recent years before passing new measures to prevent identity theft. Among other recent laws, the 2003 Fair and Accurate Credit Transactions Act required free annual credit reports for consumers, the ability to place fraud alerts on credit reports, and trade-line blocking for identity theft victims, along with truncation of credit card numbers of receipts and new rules for the sharing of information among affiliates.

NRF Concerned Over Senate ID Theft Bill

A Senate committee this week approved legislation that would set a national uniform standard for data breach notification, but NRF expressed concern that the measure could lead to over-notification and also includes a problematic credit freeze provision.

S. 1178, the Identity Theft Protection Act of 2007, was approved by the Senate Commerce, Science and Transportation Committee by voice vote on Thursday. Sponsored by committee Ranking Member Ted Stevens, R-Alaska, the bill would preempt the three dozen state notification laws that have been enacted over the past four years.

"Disparate notification standards create significant compliance burdens for businesses that operate in many different states and may also lead to confusion for consumers," NRF Senior Vice President for Government Relations Steve Pfister said in a letter to committee members. "NRF supports efforts to create a clear and uniform national standard for data breach notification."

Under the bill, businesses would be required to notify consumers of a data breach in cases where there would be a "reasonable" risk that the breach would lead to identity theft. The Federal Trade Commission has held that notification should only be required in cases of "significant" risk, and the President's Identity Theft Task Force said the same in a report released this week.

"The current draft of S. 1178, while effectively dealing with the issue or preemption, contains an unworkable notice trigger which we believe could lead to the ineffective and cumbersome over-notification of consumers who are not at risk of identity theft," Pfister wrote. "NRF agrees with the stated position of the Federal Trade Commission that data security legislation should cover incidents that pose a ‘significant risk' of harm to the consumer."

Other aspects of the bill's notification requirements are also problematic, including notification of credit reporting agencies. A section requiring that parties with a "direct relationship" with a consumer make notification of breaches could create confusion for both business and consumers as to who is responsible, Pfister said. Noting that retailers accept third-party credit, handle private label cards operated by outside financial institutions, and operate third-party lease departments within their stores, "determining the best party to provide notice to the consumer may require more consideration than the bill now allows for," he said.

NRF also expressed concern over a provision in the bill that would allow consumers to place a security freeze on their credit files, and urged senators to allow victim protection provisions enacted under the 2003 Fair and Accurate Transactions Act to be fully implemented before acting.

"Credit file freeze is a complicated issue with many potentially detrimental effects for consumers," Pfister said. "Credit reports are used for many purposes in a retail business, from authorizing credit for emergency purchases such as a new refrigerator or hot water heater to completing routine cell phone contracts."

Another section of the bill addressing the use of Social Security numbers could interfere with the legitimate use of those numbers in identifying employees for purposes of immigration compliance, wages and benefits, Pfister said.

NRF Says Transparency Could Drive Down Credit Card Interchange

NRF told a national conference on credit card issues this week that the $36 billion in interchange fees paid by merchants and consumers each year could decline over the next decade if greater transparency leads to increased competition.

"Once the courts and Congress force the card associations to reveal how much they're charging, competitive forces should drive the fees down," NRF Senior Vice President and General Counsel Mallory Duncan said.

Duncan spoke before more than 250 bankers, credit card executives and others Tuesday at the annual Card Forum and Expo in Boca Raton, Fla., sponsored by SourceMedia, publisher of the American Banker and other financial journals.

Duncan was part of a panel discussion debate on the future of interchange that addressed whether the current system will survive the next decade, what merchants will do to reduce interchange costs, and what banks will do to maintain the lucrative revenue stream. Merchants were represented by Duncan and K. Craig Wildfang, the lead counsel in a series of lawsuits claiming that interchange practices violate federal antitrust law. Card companies were represented by former Visa Senior Counsel Tom Brown and San Francisco antitrust attorney Robert Vizas.

Duncan said the billions in interchange collected by Visa and MasterCard last year rival the $38 billion U.S. pet owners spent on pet food, supplies, veterinarian care and related expenses. Once current efforts by merchants, state legislatures and Congress to force credit card companies to be more open about interchange succeed, consumers will be able to consider and control interchange costs as closely as they consider and control pet-care spending, he said.

"If the public has more information about interchange, they will be able to control its costs just as well as they control anything else in life," Duncan said. "Interchange will then be driven down by the competitive forces of the market."

Under current practice, interchange is largely unknown to most consumers. Visa and MasterCard collect close to 2 percent on every credit card transaction, but don't disclose the fee on monthly statements and prohibit merchants from disclosing it on receipts. Visa and MasterCard also refuse to fully disclose the operating rules that govern interchange.

RFID tech raises privacy concerns

Checkpoint Systems, Inc. introduced RFID-enabled labels with both advanced inventory control and item-tracking capabilities. Although consumer advocates worry the technology could be used to track individuals after they leave a store, Checkpoint argues that its system would require GPS capabilities if it were to track consumers beyond the store. "I don't understand many of the concerns," agreed David Hogan, CIO of the NRF, who recommended that consumers with privacy concerns use cash for purchases. Computerworld

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