Legislative and Regulatory Issues
In addition to legislative issues being proposed by the Obama administration and lawmakers in both houses of Congress, there are several regulatory issues that hardware/home improvement retailers should be aware of. Brief descriptions of legislative and regulatory matters that could directly affect retailers follow.
Business Taxes
Higher Tax Rates
President Obama’s FY 2010 budget proposal would raise the top two tax rates to pre-2001 levels of 36 percent and 39.6 percent on incomes over $250,000. It would also raise the rate on capital gains and dividends to 20 percent and reinstate the personal exemption phase-out and limitation on itemized deductions incomes above $250,000. That could affect proprietorships, partnerships, S corporations and other pass-through entities whose taxes are reported on their owners’ individual tax returns.
Estate Tax Relief
In 2009, the estate tax exemption is $3.5 million per person and the top tax rate is 45 percent. In 2010 the estate tax would be repealed, but in 2011 it would be reinstated and the exemption would revert to $1 million per person with a top tax rate of 55 percent. The president’s budget would freeze the estate tax at 2009 levels before the 2010 repeal. There was no mention of indexing for inflation.
LIFO Inventory Accounting
Obama proposed repealing last-in first-out (LIFO) inventory accounting in 2012. Companies who use LIFO build up reserves on which taxes are deferred until the accounting method is changed. Repealing LIFO would make those reserves taxable. Tax payments are usually spread over several years. Although the proposal seems to be aimed at big oil and gas companies, it could have a major impact on retailers, especially if the LIFO reserve has built up over many years.
Sales Tax Fairness
Online, catalog and direct mail retailers cannot be required to collect sales taxes on purchases sent into states in which they do not have a physical presence. The Streamlined Sales & Use Tax Agreement (SSUTA) simplifies tax rates and collection procedures. At least 23 states have enacted legislation to comply with SSUTA. The Streamlined Sales Tax Governing Board is ramping up efforts to have a Sales Tax Fairness & Simplification Act passed this year.
Employee Mandates
Employee Free Choice Act
The Employee Free Choice Act would require certification of union representation if organizers get signed preference cards from just over half the employees at any worksite. It would eliminate the secret ballot vote on organizing that is currently required. It could also change the definition of organizing unit to go as small as a single department. Republicans have a counter proposal, the Secret Ballot Protection Act, which would, in effect, require a secret ballot.
Minimum Wage
President Obama supports increasing the federal minimum wage to $9.50 an hour and indexing it for inflation.
Paid Sick Leave
One of President Obama’s campaign pledges was to require employers to give employees
at least seven days a year of paid sick leave. The idea has support in Congress.
Overtime Pay Eligibility
Organized labor does not like current rules defining supervisors for eligibility for overtime pay; they say too many employees who should receive overtime are classified as supervisors under these rules. They want them changed.
Mandatory Retirement Savings Plans
Obama’s budget outline contains a proposal to require automatic enrollment in company-sponsored retirement savings plans. Employers who do not offer company plans would be required to enroll employees in direct-deposit IRA-style savings plans through existing payroll systems unless the employee opted out.
Paycheck Fairness Act
The Paycheck Fairness Act would require employers to base wage differences on factors such as education, training or experience – not gender – that are consistent with business necessity. It would also lift caps on punitive and compensatory damages in lawsuits.
Employment Verification
The federal government wants employers to use its E-Verify system to check work eligibility of prospective employees and to re-verify eligibility of existing employees and would hold them responsible if they do not check questionable eligibility.
Worker Classification
The major issues are whether workers are classified as employees or independent contractors and how to collect income and employment taxes from independent contractors. Requiring employers to withhold tax from payments to independent contractors has been suggested.
Last year’s proposed Independent Contractor Proper Classification Act would have eliminated a current practice of allowing employers to classify workers as independent contractors if that is common practice in a specific industry. It would have given the IRS authority to write rules and regulations on how to classify employees and would have required cooperation between the IRS and the Department of Labor. There has also been talk of legislation to clarify the definition of an independent contractor.
Ergonomics Standard
Improved workplace safety is frequently mentioned as a goal by the Obama administration. This could lead to renewed interest in an ergonomics standard. About 10 years ago, OSHA published an ergonomics standard which was repealed by Congress in 2001. Subsequent attempts in Congress to pass legislation to force OSHA to write a new standard failed.
Health Care Programs
Universal Care
When Congress begins considering specific proposals for comprehensive health care reform, it will likely be some form of universal care. The Obama administration and Congressional Democrats have said they want to build on employer-provided insurance and add a public program option in which the government would offer insurance coverage through private insurers. Obama said during the campaign that he wanted incentives to help small businesses provide insurance for employees. He proposed a $630 billion reserve fund for health care reform in his 2010 budget.
Regulatory Compliance
Lead in Paint
The legal limit of lead in paint sold to consumers drops to 0.009 percent in August 2009. A Consumer Product Safety Commission rule says that as of Aug. 14, paint with a higher lead content will be considered a banned hazardous substance and cannot be sold. This includes existing inventory.
Lilly Ledbetter Fair Pay Act of 2009
The Lilly Ledbetter Fair Pay Act ends the statute of limitations on pay discrimination claims and allows each paycheck to be considered a discriminatory action. It applies to pay discrimination on the basis of religion, race, age, disabilities and national origin in addition to gender and includes compensation such as pension payments and vacation pay. Language in the law could be interpreted to allow family members to sue for pay discrimination.
FTC “Red Flag” Rule
The Fair & Accurate Credit Transactions (FACT) Act requires “creditors” to develop programs to prevent identity theft, including identifying “red flags” that could point to possible identity theft. According to the Federal Trade Commission (FTC), creditors are businesses providing a product or service “for which the consumer pays after delivery.”
The “red flag” rule was supposed to go into effect Jan.1, 2008, with a compliance date of Nov.1, 2008. Because so many businesses were confused about what they were supposed to do, the FTC delayed enforcement until May 1, 2009, so it could figure out who is covered and what is required. Although accepting credit/debit cards probably would not cause retailers to be covered, offering house credit and keeping personal information on customers could.
ADA Amendments
Last year’s amendments to the employment title of the Americans with Disabilities Act (ADA) clarify that “mitigating measures” such as taking medication cannot be considered in establishing eligibility for ADA protection but do allow courts and the Equal Employment Opportunity Commission to consider “assistive devices” such as eyeglasses or contact lenses.
Although the amendments retain the ADA’s “substantially limits a major life activity” language, they make clear that courts should use a less demanding standard in deciding what is “substantially limiting.”
Most recent update: March 2009