Do No Harm

I was at a business hearing yesterday sponsored by the North Country-Plattsburgh Chamber of Commerce and Unshackle Upstate. At this hearing, business owners were able to share their perspectives on challenges their businesses have been facing over the past year. Listening were State Senator Betty Little, Assemblywoman Janet Duprey and Meg Wood, representing Assemblywoman Teresa Sayward.

It was interesting that none of the businesses complained about "the economy" or the challenges of dealing with a recession. None of them asked their State representatives for bailouts to help them through these troubling times. Instead, every speaker talked about the new fees, taxes and regulations that the State imposed over the past year that are crippling their businesses.

Included in the list is:

- Requirement to renew the Certificate of Authority to collect sales tax (that for the first time, includes a fee)
- Increase in the LLC filing fees for companies that have achieved a certain gross sales figure
- Increase in tobacco license fees
- Increase in liquor license fees
- Increase in motor vehicle fees

One of the more compelling stories related to the changing of the Empire Zone tax credits. A few businesses that made huge capital investments into their business under an Empire Zone program that provided tax credits now have to reapply for those tax credits. One company present completed the application six months ago and they still have not received their credit refunds. These amount to tens of thousands dollars of operating capital owed to them. If you are just one month late in paying NY State Sales taxes, you will be assessed penalties and interest that can exceed 20% of the tax owed, yet the State can withhold monies owed to a small business for six months without any penalties and interest?

Most of the States operating revenue comes from the income and sales taxes generated by private enterprise. Small businesses owned and operated by NY State residents provide even more of an economic impact, as they cycle more of their profits into the State economy. Not only are these fees and regulations creating a burden on businesses, they are also providing an inequitable burden on small businesses.

According to an SBA study in 2005, the average regulatory cost per employee of a firm of less than 20 employees is $7,647. The average regulatory cost for a firm of greater than 20 employees is $5,411. No doubt the amount of time small business owners have in completing new Certificates of Authority, Empire Zone re-certifications and the costs of new fees is going to a much more significant impact on small businesses than the larger businesses.

For example, the license to sell tobacco was increased from $100 to $1,000 this year for small retailers generating revenues under $1,000,000 in annual revenues (note, this is combined revenues, not just tobacco sales). Those businesses that do up to $10,000,000 in gross revenues pay $2,500. Let's do a little math.

I have a convenience store that does $500,000 in gross sales. I sell about $50,000 of cigarettes per year. My gross profit on cigarettes is about 15%, so I clear about $7,500. My cost of licensing is 13% of my gross profit.

A few blocks away is a supermarket(which happens to be owned by a company in Maine). They do $5,000,000 in gross revenues and sell $500,000 in cigarettes. They clear $75,000 on cigarette sales. Their license fees are 3% of their gross profit.

I decide it is not worth my while to sell cigarettes anymore for $1,000/year. In a perfect world, we would assume all my cigarette customers would kick this habit. The reality is that most are just going to the supermarket to buy cigarettes and that profit is going to leak to that larger, out-of-state competitor. The significant amount of that $7,500 that would have cycled into the NY State economy with my spending most of my income in NY will now go to Maine.

Most of these fee increases will most likely have an economic impact of unintended consequences to the State, but that is often the case when government increases fees and taxes. There are only so many slices of pie in a particular pan, if you keep going after a bigger slice, eventually there will be no pie left. The fact that quite a few of our pie pans are smaller in these difficult economic times compounds the problem.

Quite a few of the speakers at the hearing noted that "we are preaching to the choir," as all of the government officials were opposed to the budget that proposed all these fee increases. Needless to say, we have to get our choir to sing louder.

This is not an endorsement or critique of any particular government official. When it comes to developing a State budget that makes sense, it should not be a party line issue. We need all government officials to think of the consequences of their actions. The livelihood of some small businesses are at stake here and that is an issue that every legislature should take seriously. Certainly this small business counselor takes these issues seriously, as I am often working with the business owner that is deciding whether this new fee or paperwork requirements are the proverbial straws that will break the camel's back. There are some businesses that are struggling to survive and these fees and to many, the State isn't putting straws, but rather shoveling lead weights on their backs.

In his introduction, Garry Douglas, Executive Director of the Plattsburgh-North Country Chamber of Commerce talked about the core principle of the Hippocratic Oath, which is "Do no harm." He pointed out that if our government officials were doctors and the business owners were patients, "boy, would there be a malpractice suit."

At some point, we need our leaders to develop a proactive strategy to make it easier for more small businesses to succeed in New York State. There are ways to do no harm and facilitate a more business friendly environment; the choir just has to sing a little louder and it would help if we could get more of our government officials to join us in singing the same tune when it comes to the principles that foster business development.