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MED zone unfair to small business
Thursday, March 17, 2005
I am writing in response to all the editorial
comments in favor of the Dowling Village development.
It seems that the Call has taken a very pro position
on this development using the financial benefit to Woonsocket
to justify such a position. It also seems that the complaints
by local business, that this will hurt them are being
brushed aside as the fall out of free market competition.
Oh well, apparently is the short answer to their concerns.
Unfortunately, justifying this as a consequence of
being in a free market environment is an error in reasoning.
In short, the MED zone will be providing a competitive
3.5% edge that is not available to those outside the
zone. It is there for one purpose; to drive sales at
that location. It is not an edge gained via better business
acumen. It is an edge gained by a favor. It is an artificially
created advantage. Such favoritism or advantages in
commerce are frowned upon in the laws of this state.
In fact, the language is rather powerful: It is intended
that as a result the prices of goods and services to
consumers will be fairly determined by free market competition
in activities affecting trade or commerce in this state...the
general assembly intends to exercise fully its power
to affect and regulate commerce in order to effectuate
the purpose of this chapter. (6-36-2)
I am sure some would argue that the tax is not part
of the price of goods. If that is true, then what is
the purpose of cutting the sales tax rate? That one
is trying to do something noble with the revenues generated
is not the issue at this point. One has to get past
the inequity created in the market place by the law
before one starts talking about the benefits if we are
to be “fair” as oppose to just talking “fair”.
We are not talking about a small advantage. Some simple
math using the $30 million dollars over 10 years suggests
approximately $1.65 million in sales per week that will
be generated at a 3.5% advantage. That is $85.7 million
per year in sales do to 3.5% pricing advantage not available
to those outside the zone. Put another way, for those
outside the zone to compete on price, they would have
to give up $ 3.27 in profit for every $100. Sounds small?
Not when you realize that retail runs on a 2% to 5%
profit margin. That 3.5 % advantage is a 70% difference
in the profit margin.
There are additional issues of “fairness”
with this zone such as inequity of tax burden. Those
outside the zone are now supplementing the loss in tax
revenue to the state with the reduction of their net
profit. Those in the zone are gaining revenue at the
expense of the rest of the citizens in the state. Why?
Because some one will have to make up the $60 million
in lost sales tax over the 10 years that the state would
have collected had they not given half to the store
in the zone and the other half to the host city.
The MED zone law is a very well intended law. Unfortunately,
it is a very unfair law.
Daniel J. Becker, DC
327 Eddie Dowling Hwy.
N. Smithfield, RI 02896
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