The Day I Debated Grover Norquist (And Whipped His Ass).

It’s true. In 2000, I debated Grover Norquist,  The Lord of Darkness, himself,  and   got the better of him, thank you very much. The subject of the debate was whether Internet companies should collect sales tax.

It was a big legal and economic issue back then. Remember that America was smitten with Internet – mania driven by the irrational exuberance of stock speculation.  Internet gurus were getting interviewed on TV and saying in all seriousness that the Internet was the most important invention since the wheel.

The  Supreme Court had weighed in on this issue in Quill v. North Dakota (1992) before the Internet even existed  and had ruled that under the Commerce Clause of the Constitution a state couldn’t require an out of state business to collect state sales tax.  But  back in 2000 there were a lot of brick and mortar businesses that had  created related Internet sites but were still not collecting sales tax for online sales. Barnes and Noble had the chutzpah to argue that their Internet subsidiary, barnesandnoble.com,  had no real relation to the physical stores. (They were  totally separate  entities, the BN spokesman said, that just happened to be owned by the same family, run by the same executives, and shared the same offices and warehouses. Sure.)

Of course the big enchilada, then as now,  was Amazon.com. Amazon didn’t have physical stores . And they made sure to put their warehouses in states that didn’t collect sales tax. But they did have hundreds of thousands of affiliate programs in every state. Pretty much every PTA and church group signed up as affiliates and   were actively soliciting orders for and receiving generous commissions from Amazon.

Amazon was putting out  a lot of  grandiose pronouncements to justify its practice, which in reality  was simply a strategy  to undercut competition. Sometimes Amazon  described the Internet as a juggernaut that was “driving the new economy”  and  taxes would kill the goose that laid the golden egg. At other times they said that the Internet was a sort of frail bird that could be crushed if  Internet commerce had to collect  sales tax. I pondered how the Internet could be both a juggernaut and a frail bird simultaneously. Amazon  also seemed utterly flummoxed about how they could possibly calculate  the various sales tax rates that existed in different districts. This,  from a company that knew the individual  reading habits of 20,000,000 customers.

I got involved in the issue because I thought Cody’s was getting a raw deal. But as is often the case with me, I very quickly lost perspective and became obsessed with the issue. I pretty much   came to know more about the subject than anyone in California. Leslie got very concerned that I was alienating all our friends by  droning on about the details of tax policy till they were stupefied with boredom.

A number of businesses and trade associations got together to form The e-Fairness Coalition. The mission statement  said that it represented small businesses nationwide.  The American Booksellers Association was a member in good standing. But the real money for this operation was coming from the International Council of Shopping Centers and Walmart.  Normally not my favorite people. But as they say in the Middle East, “The enemy of my enemy is my friend.”

They needed a spokesman and felt that probably the vice president of Walmart for tax issues would not be an effective voice. So they enlisted me. My first job was to show up at a debate before a large business group in Walnut Creek. I would be speaking in support of the principle of  Internet   sales tax collection. And the spokesman for the other side would be Grover Norquist.

Norquist was a pretty formidable figure even then.  He was a little too intense for my taste. He hated all taxes and loved the Cayman Islands.  And he was an early and passionate advocate for Internet sales tax evasion. I knew what his arguments were. The usual stuff that Amazon put out, the juggernaut driving the new economy, etc.  He also ranted about  how whenever liberals discover something cool, they just want to tax it.

It was pretty easy for me to refute   these arguments. All I had to do was lay out the classic conservative economic nostrum that government should not be picking winners and losers. The free market should be picking winners and losers. I also pointed out the corollary,  that tax policy should be based on the principle of a level playing field. It was an irrefutable argument politically, economically, morally.

I’d been listening to Norquist going around the country laying out  his talking points. He said that people in California shouldn’t have to be subject to decisions by tax administrators in Alabama. I still  have no idea what that meant except that it had something to do with states rights. But when I heard it, I sensed opportunity.

I knew he was going to bring it up in our debate. And I was ready for it.  And of course he played right into my diabolical plan. As soon as he said it,  I looked down at the podium, shaking my head with an expression more of sadness than anger. Then I looked up at the audience and very slowly said: “You know….that’s old argument…and not a pretty one…. In 1860…they said that to justify slavery…. A hundred years later….they said it again to defend segregation…. And now my friend here is using it to justify this discriminatory tax policy…

I have to say my timing and the cadence of my voice were perfect. Norquist went wild. He started screaming.  It was terrifying to behold. I tried to breathe slowly and evenly to quiet my heart, to find my center. Norquist’s face turned red. Beads of perspiration started dripping down his cheek. A stench came off his body like the carcass of a rabid dog rotting at the gates of Hell. — Hmm. Maybe not quite.

He finally recovered and started on the next sound byte, the one about the Internet being the most important invention since the wheel. I was ready for that one too. I responded by asking the audience a simple question: “When your toilet overflows, what would you rather do, call a plumber or surf the Web?”

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Northern California Independent Booksellers Score Big Victory Over Amazon

the Winners

Yesterday California Governor Jerry Brown signed a bill      into law that requires Amazon.com to collect sales tax on all sales made to California customers. The state stands to collect $200,000,000 owed by Amazon for unpaid back taxes. Amazon countered by cutting off all their  California affiliates (people with those nifty click -throughs on their websites that funnel sales to Amazon).

This was a long fight, and it was pretty much carried by the Northern California Booksellers Association. Although paradoxically, they did have some –uh– bigger allies. Like, for instance, Walmart, and later Barnes and Noble.

California followed some other states in this: notably New York and Illinois.

I’ll try not to bore you too much with legal theory, but here’s the somewhat simplified back story. The controlling Supreme Court decision on Internet sales tax collection is a case called Quill v. North Dakota, decided in 1992 before there was such a thing as Internet commerce. The court ruled that under the Commerce Clause of the Constitution states could not require out of state corporations to collect state sales tax. Of course, the devil is always in the details, and the big question is what exactly is an out of state corporation. All tax experts agree that if there is some sort of substantial presence by an out of state corporation in the state, that is enough to trigger the sales tax collection requirement. Sometimes it can be as simple as teachers selling books to students from the Scholastic Book catalogue or even a commissioned sales rep wandering into the state periodically to collect some orders.

The Losers

I think this all started with a meeting of Northern California booksellers in 1999. The meeting was attended by Hut Landon, Bill Petrocelli, myself, and George Kiskadden. Also attending was a particularly supercilious lawyer from the California State Tax Board. Bill had done some pretty intense legal research and laid out his theory about “affiliate nexus”. It was pretty much the theory that New York, Illinois, North Caralina, and now California have used to justify Amazon’s tax collection requirement. The supercilious lawyer responded superciliously that tax policy is extremely complicated and should be left to the tax policy experts.  He looked at us, more in sadness than in anger, and told us it was a pity, because he agreed with our sentiments.

At the same time on the federal level, an unholy alliance of small business people, huge commercial real estate corporations, and big box stores were at work attempting to get federal enabling legislation that would accomplish the same goal. This has never happened.  But there was a national debate raging at the time, and Internet-mania was dominating public discourse.  I remember being on the same talk shows as Internet gurus who were saying that the Internet was the most important invention since the wheel (I’m  not kidding!).

Amazon had 3 or 4 arguments about why they shouldn’t be required to collect sales tax. The 2 most cited arguments were: 1)Internet commerce was a frail bird that needed to be protected from the crushing weight of sales taxes  and 2) Internet commerce was the economic juggernaut that was driving the “New Economy” and creating jobs and wealth. I liked to point out how puzzled I was about how Internet commerce could at the same time be both a frail bird and an economic juggernaut.  I never received a satisfactory answer.

The national alliance of big and small businesses needed a public spokesman who could engender warm and fuzzy feelings. This excluded the vice president of Walmart who was the key figure financing this endeavor. They decided that they needed a colorful small shop keeper and so chose me.  I remember they sent  me off to Washington to debate Grover Norquist, a truly despicable person and anti-tax nut, at the Federal Society. I had no difficulty dispatching Norquist’s shabby arguments by showing that government tax policy should not be picking winners and losers in the marketplace by allowing some favored businesses to sell tax free. It was a perfectly respectable conservative position and it was true and fair. My dirty little secret that I have never admitted until now was that my expenses for that trip were paid for with a check from Walmart.  Strange bedfellows, yes?

Anyway, this has been one of those David and Goliath stories.  In  America the Davids haven’t been having much success these days. I hope California will take Amazon’s $200,000,000 and put it back into the educational system of the state.  An educated population is a book buying population. In the long run,  it will prove a good investment for Amazon and all of us.

It’s nice to know that in this age of economic giantism, sometimes little people are still able to do big things.  Thanks, Northern California booksellers.

Amazon.com and Tax Evasion 10 Years Later

This has been getting my goat for 10 years.

According to Publisher’s Weekly today,  Amazon. com dropped all their Colorado “Associates” because the state passed legislation requiring internet retailers to collect local sales tax.

The Amazon “Associates” program is the very clever system in which anyone can post book titles  on their websites which click through to Amazon where a sale is made. The Associate will receive a very generous sales commission (5% and sometimes more) for the transaction. This program drives considerable sales to Amazon and also builds good will, strengthens the brand, and creates loyal customers. And it raises a lot of money for the  Amazon Associates with very little effort. Many of the most effective Associates are non-profits and PTA’s that raise considerable money for schools and other worthy causes through this program.

So to all those PTA’s, to all those local chorale societies, to all those homeless advocacy groups and orphanages, Amazon is saying –”if Colorado is going to make us collect sales taxes, then Colorado, FUC….,” ok I better not say it, but you get the picture.

The issue here is all about Amazon’s vigorous and consistent opposition to collecting local sales tax which allows them  to maintain a competitive advantage over local booksellers. I’ve made a number of blog posts on this subject in the past.

Let’s back up a little bit. I realize that ranting about the Supreme Court position on tax venues pursuant to the Commerce Clause of the Constitution might  deaden the senses of my blog fans who have gotten used  to my   snarky and satirical commentaries on the foibles of commercial publishing. But I’ll keep it simple. In 1992 in the decision of Quill vs. North Dakota, the Supreme Court ruled that under the Commerce Clause, absent federal legislation, a state could  not regulate the   collection of  sales tax by an out of state corporation that had no physical connection to the state in which the buyer resided.  Even though the decision was handed down before internet retailing  existed, it continues to be the law today.

I’m proud of the fact that I have been fighting this abomination for years. Back in 2000, a group of independent booksellers in the Bay Area that included myself, Bill Petrocelli of Book Passage and the local independent booksellers association, began a campaign to end these anti-competitive and illegal practices. We actually got a bill passed through the state legislature in spite of  spirited opposition from Amazon, Barnes and Noble and the entire high tech industry. Even though it received unanimous support from the Democrats in the legislature, it was later vetoed by the venal then  Governor Gray Davis (also known  as “Governor Ka..ching”) , a shameless sop to his fat cat Silicon Valley funders.

On the federal level, an organization was formed to influence similar legislation in Congress. The money for the organization mostly came from big  commercial real estate interests and mega- retailers like Wal-mart. It wouldn’t make  a lot of sense having a Wal-mart executive make the case for tax fairness for community based mom and pop businesses,  so they enlisted me as the public voice of the organization.  As the Arabs have said: “the enemy of my enemy is my friend.”  I was sent to Washington to debate the extremely evil anti-tax nut, Grover Norquist, at the Federalist Society. The check for my expenses came from Wal-mart. There. That is my dirty little secret. Tell my enemies if you must.

 I also was featured on PBS’s Crossfire where I was grilled by Mary Matalin and accused of being a liberal stalking horse who, whenever I saw something new and good (the internet),  I wanted to tax it. I’m proud I whipped the asses of these guys in debate. I even got Grover Norquist to start spitting in fury when I equated his position on tax policy with John Calhoun’s argument for nullification (ok, that was a  pretentious cheap shot and misdirected but a memorable event to tell my grandchildren).

I even got into an argument with former governor (and hopefully future governor), Jerry Brown, then mayor of Oakland. He said all I wanted to do was tax the internet. I responded in my most patronizing tone, that of course the mayor understood that the issue was not taxing but requiring collection of tax. Unlike Norquist, Brown appreciated a worthy opponent. He made me sit next to him for the rest of the event and engaged me in conversation about his passionate interest in the thought of  Jürgen Habermas and other German philosophers. After that, I decided that Brown was wrong on tax policy, but otherwise ok.

This was back in 2001 when the country was gripped with internet frenzy. The high-tech lackies were hyping the New Economy with the most shameless humbuggery imaginable. In the course of debate, I heard  more than once that the internet was the most important invention since the wheel. I responded that it was considerably less important than the invention of the plumber, particularly when your toilet was overflowing.

So why did we argue that this was illegal. After all, according to the Supreme Court in Quill, out of state companies didn’t have to collect sales tax. Well, fair enough. But the Court had also ruled in a number of cases, that even the most tenuous physical connection to a state could trigger the requirement to collect taxes. Even a commission sales rep wandering into the state occasionally was enough to create the necessary connection to the state. Well, what was different about the existence of tens of thousands of  Amazon Associates in  a state actively driving sales to  the internet retailer in exchange for  generous commissions? How was this different from a commission rep? You don’t have to be Antonin Scalia to answer that question. The was no difference.

This whole theory was devised by Bill Petrocelli. Of course, back in 2001 we were the only people arguing it. And, of course, we were just a couple of Luddite mom and pop retailers fighting the  juggernaut of the inexorable Hegelian dialectic of history with our sling shots.

Come the collapse of the economy in 2008. The states start looking for more ways to collect taxes. And Bill’s theory becomes extremely attractive. New York passed a law to begin collection and now Colorado. Of course, if Amazon dumps its affiliates, then their connection to the state disappears and Amazon doesn’t have to collect. Amazon maintains its unfair tax break. Schools and services pay for it by getting less tax dollars; and the PTA’s lose a valuable source of funds.

I end this blog by paraphrasing the unforgettable words of Joseph Welch as he destroyed what was left of Senator Joseph McCarthy’s reputation in the Army-McCarthy Hearings:

Jeff Bezos,  “have you no sense of decency, sir, at long last? Have you left no sense of decency?”

Fighting Against History Part 2

I used to do a lot of public speaking, and in some pretty big venues, too. I  also seemed to be on a lot of  media people’s rolodexes (yes, that is what they had back then). When they needed a quote about the virtue of local business or “bricks and mortar” stores, they could always get a good sound bite out of me. By the way, I  hated that term: “bricks and mortar”. I could spend a lot of time boring you by deconstructing the sub-texts associated with that expression. Not to put too fine a point on it, the term was condescending and cast us as historical curiosities.  I preferred to call   these stores  “community-based businesses.”  But “brick and mortar” seemed to catch on even with those of us who were  the object of this patronizing metaphor.

 I  spoke about how local bookstores, all local businesses in fact,  made for interesting public spaces. I was influenced then (and now) by Jane Jacobs’ The Death and Life of Great American Cities. It is a remarkable book, published in 1961,  and even more prophetic now than then. Jacobs was reacting against the then fashionable  theories of public planning  that emphasized urban renewal and public open spaces. Contrary to conventional wisdom,  Jacobs didn’t like “green spaces”.  She argued that the neighborhoods that work best were neighborhoods with interesting and diverse uses, neighborhoods with vibrant street life, neighborhoods designed for pedestrians. This meant then, and still means today, main streets and business districts dominated by independent businesses. There were no big box stores back then. Shopping malls were a novelty. Imagine what she would have said about the big box centers of  today with the mega-stores that are designed to overwhelm and exhaust the human spirit and that are oriented around vast parking lots. Imagine what she would say about internet retailers, that are oriented around the cubicle.

Maybe I became seduced by my own bombast, but I used to say that the marketplace had been the center of communal life since the time of the Greek Agora. And it was under threat by the internet. This was always a good point to make in  debates with  internet gurus who  thought of history as something that reached its apotheosis   with them. Cultural literacy was not their long suit. Most of them thought that the “Greek Agora” was the place down the street for Spanakopita and ouzo.

I got a call in 1999 from a Japanese journalist. He wanted to feature me in a book with writers and social commentators from all over the world addressing the meaning of internet commerce.  My article was  the only thing I ever wrote that appeared first in Japanese. But it was published in a number of languages and was read by quite a few people worldwide.  I was just looking over this article. It was called: “Warning: E-commerce May be Dangerous to the Health of Your Community.” Some of it sounds hysterical and hasn’t survived the test of time. But I think it is still worth reading. You can probably find it on-line somewhere. Here is how I summed it all up:

The Internet industry likes to talk about “revolution” and uses the traditional language of the political left to describe the changes it is making to the way America does business.   The images which it employs are invariably hip and filled with iconoclastic visual references to the youth culture.

In fact the reality of electronic commerce is quite different.  Its growth is driven by values which are more associated with the political right, or perhaps the corporate ethos of Wal-Mart:  the fetish of commodities, the primacy of Wall Street, the desire for monopoly power  and the indifference to diversity and community values.

There, internet churl. I throw down my gauntlet!.

In 2000, one of the big news stories was whether internet commerce should be taxed or, to be more precise, required to collect sales taxes payable by consumers. If you delved into the issue  too deeply, it could get pretty arcane.   It tended to turn on some badly written US Supreme Court decisions and terms of art like “nexus”. But the real issue was pretty simple. Local businesses were forced to collect sales tax. Out of state internet businesses weren’t. This gave a significant competitive advantage to these internet companies.  It all came down to this: Shouldn’t tax policy be based on a level playing field? Should the government be picking winners and losers through discriminatory tax policies?  Shouldn’t internet customers do their part in paying taxes to support the local services that they benefit from? By the way, the issue is still very much alive. Amazon.com is the largest sales tax evader in the United States.

A lot of people who didn’t like each other very much got together to try to see that internet commerce wasn’t given favored tax treatment. The group included big box stores, commercial real estate interests, and little booksellers like me. I developed a pretty high profile as a spokesperson. I suppose I had better symbolic value as a talking head than the Vice President  for Tax Administration of Wal-Mart. I got flown around the country a lot. And my reimbursement checks seemed to be coming from  Bentonville, Arkansas. Well, I guess tax policy makes strange bedfellows.

I had a really good time going around giving speeches. I debated Grover Norquist, the satanic anti-tax nut and Washington kingmaker, twice. Once was at the ultra-right wing Federal society.  I think I got the better of him. I also made it onto Crossfire and had to stand up to a withering attack by Mary Matalin.

Internet companies strenuously opposed collecting these taxes for their own reasons that had more to do with competitive advantage than tax fairness. The most errant nonsense was coming from Amazon.com. They seemed to be making two points: 1)Internet commerce is in its infancy and is a frail bird that needs to be protected from burdensome taxes. 2) Internet commerce is the juggernaut that is driving the new economy, and it shouldn’t be throttled by unpleasant things like taxes. I liked to point out at every opportunity how puzzled I was that the internet could be both a frail bird and an economic juggernaut  at the same time.

Well, of course we were right. But we still lost the war. Since the 1980’s, independent bookstores have faced a perfect storm of problems. Competition from chain stores and big box stores, competition from internet booksellers, competition from free information available on line, and now competition from e-books. I suppose we could talk about the decline of  cultural literacy as well. We’ll rail about that on another blog post.

All this brings us back to the point where we started. That is the sad thought that bookstores are not going to be around much longer.  The market share of independent stores has really tanked since the 80’s. Indies now account for about 5% of all book sales. This is a  sad statistic. Pretty much everyone in publishing who remembers will tell you that independents represented the heart and soul of bookselling. They still do, but there aren’t that many left.

Someday soon there will be a sort of “tipping point”. The world will turn to e-books with breathtaking speed.  Community bookstores, even chain bookstores, have always excelled in offering customer service or just a place with a warm feeling to hang out.  When books become simply downloadable “digital content,” then the  bookstore will go the way of the blacksmith’s shop. The game will be over.

Sure, e-books and e-book readers will offer remarkable advances in convenience of delivery and options for display. But the romance of the bookstore will be a thing of the past. It is a little like the convenience of getting to Europe in a few hours by getting sardined into the main cabin—instead of getting there on Queen Mary. Yep. It’s convenient.  But, God,  what has been lost? It’s a pity.