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Online Shopping


When my iPod portable music player was swiped on the N train one evening last month, I was left with a need to replace one of my more valued possessions.

There was a choice: I could go to the Apple Store on Prince Street, spend $399 and walk out of the store with my purchase in my hands, or I could go online from my apartment in Astoria, spend $394, and wait for PC Connection, an online computer store, to ship it from New Hampshire.

At first blush, the decision seemed to be that I could wait a week or spend $5 extra. But since PC Connection doesn’t charge New York residents sales tax, the difference in price was actually closer to $40.

I decided not to go downtown.

For various reasons, an increasing number of people are buying their iPods - and their dress shirts, their laptops, and their paperback novels - online. According to Jupiter Research, Americans will spend $65 billion on online retail purchases nationwide in 2004, four percent of the total retail sales for the country. They will spend $10 billion on personal computers, $7.5 billion on clothing and accessories, and $3.6 billion on personal electronics.

By 2008, the total will be $110 billion.

New York’s businesses are finding that online shopping poses advantages and challenges; it has also begun to raise some real policy issues.

SHOPPING AS AN "EXPERIENCE"

If online retailers have the advantage of convenience and, often, lower overhead, New York's "brick-and-mortar" stores have not lost their special appeal. There's cachet even in a shopping bag from a New York store.

“Any tourist coming into New York, they like to shop, but they also like to carry a nice bag, knowing that they actually have completed a purchase in New York City,” said Ivan Cardona, president of professional shopping service Lush Life Concierge. “That says a lot about vanity, and a lot about image, the need for fulfillment: the fact that we went in there, we purchased something, and we walked out with a bag.”

Perhaps in part as a response to the rise in online shopping, new stores like the Apple Store and NBC Experience are more like theme parks than traditional shops, so that the purchase is only one part of the whole experience. (Indeed, in the new Times Warner Center mall, "the Samsung Experience" is all experience and no purchase; their cell phones, MP3 players, video cameras, flat-screen TVs and other high-tech gizmos are all on display, but not for sale). But at the same time, even the best-known New York stores are going online, offering their New York image to shoppers far away. Tiffany’s and other luxury Manhattan businesses are reportedly doing an increasing amount of business through their Web sites.

Most online vendors nationwide have at least some presence in New York. But many of New York’s brick-and-mortar retailers believe that those that do not – like Amazon.com – have one unfair advantage: the ability to get around collecting sales tax. This amounts to a price difference that many see as a de facto subsidy, and some retailers are looking to the government for help:

“It’s only right that if you buy something on the Internet or through a catalog you pay the same sales tax that you do if you buy something on the street,” said Ted Potrikus, executive vice president of the Retail Council of New York State, a trade organization.

LOSING TAX REVENUE ON ONLINE PURCHASES

While customers may find online shopping more convenient and cheaper, state and local governments have discovered at least one major drawback: the loss of tax revenue. According to a recent study (in pdf format) by two professors at the University of Tennessee, New York lost $1.1 billion in state and local tax revenues in 2003 by failing to collect sales tax for online purchases; the study estimates that the state’s annual loss will rise to $1.6 billion by 2008.

New York is legally entitled to this money, but does not have the power to force certain Internet businesses to collect sales tax from their customers. This is the result of a 1992 Supreme Court decision on whether states could force mail-order retailers to collect local sales tax when selling to out-of-state customers. These businesses argued that it was too burdensome to calculate the sales taxes for the thousands of different jurisdictions where their customers lived, and the Supreme Court agreed. It ruled that unless a business had a physical presence in a state, it did not have to collect that state’s taxes.

So the burden of collection falls on the purchasers themselves. Technically, New Yorkers are required to pay a "use tax" on items purchased online but used in New York State, just as they are supposed to write a check to the state for the taxes they owe on furniture that they drive back from the Ikea in New Jersey.

This is not the most widely respected of responsibilities

"The only people I know who [pay this tax] are people who have had jobs as tax commissioners or something like that," said Marcia Van Wagner, the chief economist at the Citizens Budget Commission. "For the most part, normal people don’t do it, and how do you enforce it?"

HOW DO YOU MAKE PEOPLE PAY THE SALES TAX?

New York loses more from uncollected Internet taxes than almost anywhere else - last year only California and Texas lost more. But as a percentage of its tax base, it loses less than any other state. This is partially because New York’s economy is less reliant on sales tax than many smaller states, and partially because so many Internet retailers are located within the state itself.

Until recently, New York State has not made a big effort to collect this lost revenue, but the amount of money involved in the rise of Internet retail has sparked new attempts to do so. As part of the 2003 budget, the state legislature added a line to the income tax return form asking New Yorkers to estimate their online purchases and pay the appropriate amount of sales tax.

The state does not yet know how much money this will bring in, but there is a wide consensus that it alone will not do nearly enough.

A recent report by the Citizens Budget Commission (in pdf format) described better enforcement of the use tax as "the least harmful and most sensible tax measure" available to the state, and estimated that it would mean between $40 million and $590 million in annual tax revenue for New York.

"However, implementation of this change depends on cooperation with other states and development of interstate enforcement capacity," read the report. "Significant new revenues are unlikely for a few years."

To deal with this problem on a national level, a group of over 20 states have formed the Streamlined Sales Tax Project, which would coordinate state and local sales taxes, making them easier to navigate and thus removing retailers’ arguments that collecting sales taxes for so many jurisdictions is too complicated. This would pave the way to overturning the 1992 Supreme Court decision.

New York has agreed in principle to join the project, but the legislature has not yet officially approved it. Potrikus hopes that the state’s worsening fiscal standing will provide the inspiration to do so.

"Budget deficits," he said, "are the mother of invention."

 

 

 

Create Conditions for Business to Thrive



Mayor Michael Bloomberg's development plan will remake neighborhoods like Long Island City, Throgs Neck, and downtown Jamaica.

Articles in this Feature:
• Developing Affordable Housing and Jobs by Brad Lander
• Create Conditions for Business to Thrive by Sandy Hornick
• Reform the Building Code by Julia Vitullo-Martin

New York has the most extensive housing program of any city in the nation. If you add up what all the other municipalities in the nation do on housing, it does not even come close to what New York City does. In addition the Bloomberg administration has set out a five-year plan to build 65,000 homes.

Building on these things, the New York City Department of City Planning is implementing redevelopment strategies across the city that will create new commercial office and housing development.

Our first priority is to restore and enhance lower Manhattan and to create the kind of amenities that will transform the third largest business district, that was devastated in the terrorist attacks of 2001, into a desirable place to live and work.

We will also implement the Hudson Yards plan. This will transform an underused area on the west side of Manhattan characterized by rail yards, parking, and one-story buildings into a new central business district with 26 million square feet of office space. In addition, we will build 14,000 new apartments, 3,000 of which will be affordable, as well as parkland and an extension of the 7-subway line. A key aspect of this is the expansion of the Jacob Javits convention center and stadium for convention events as well as New York Jets football games.

We will strengthen regional business districts like Downtown Brooklyn, Long Island City, Downtown Flushing, and Jamaica, Queens.

We are facilitating housing production. We are doing this in part through a series of rezonings throughout the city in places like Greenpoint/Williamsburg, West Chelsea, East Harlem, Harlem, Park Slope, and North Corona.

We also must work to protect New York's neighborhood character. As the city's population has grown, housing production has surged. In many ways that is a good thing, but in some places, it is not because the new housing being built dramatically changes the neighborhoods landscape. When you build further from mass transit, car ownership increases which creates traffic and parking problems. So we are doing rezoning to help ensure that neighborhoods do not have a density of housing that they cannot handle.

Finally, we are working to retrain jobs and create an environment to attract new jobs.

Sandy Hornick is the director of strategic planning at the Department of City Planning

 

A New Stadium Authority Will Add to City Budget Woes


Mayor Michael Bloomberg faces a $3 billion deficit for the next fiscal year and Governor George Pataki a $6 billion deficit. Both men are also faced with the problem of how to fund the additional $5.6 billion a yearthat a state court panel in the Campaign for Fiscal Equity case says must go to city schools. In spite of Mayor Bloombergs claim that the city should not share the new expense with the state, a common assumption is that the city will need to take on a substantial share, at least 25 percent of the new funds.

But the mayor and governor seem publicly oblivious to their budget problems, at least in their current rush to judgment on a Jets stadium in Manhattan.

New information about the financing and governance of the stadium project raises serious questions about its costs to the city and the wisdom of the city' role in creating yet another unaccountable public authority. A November report from the governor's own economic czar (in pdf format) on the project reveals how the deal-making among the Jets, the mayor and the governor will generate actual and potential costs to the city beyond the city's initial $300 million capital commitment. And a new report from the Regional Plan Association(in pdf format) shows how the city could reap much higher tax revenues from a residential and commercial development at the stadium site.

The project report comes from the mega-public authority which controls the stadium deal, the Empire State Development Corporation (ESDC) ‚ parent already to over 90 smaller authorities and run by the governor's economic czar, Charles Gargano. The report spells out in mind-numbing detail the project's financing plan and the enormously convoluted financial and governance structures that will build and control it.

The stadium deal will not just cost the $300 million promised to build the stadium platform and roof. There is also the money promised to pay the interest on the debt, which could double the cost. And then there are tax breaks given the Jets on their construction bonds and their property taxes, as well as exemptions in sales taxes. No estimate of these costs is included in the Empire State Development Corporation's report.

The city's $300 million capital promise, it turns out, is tied up with the state's own $300 million promise in a joint bonding understanding that would have the city pick up the debt service cost of the state's share should the state legislature not fund the state's share. (The state would purportedly compensate any city cost with some negotiated substitute funding.) The city share of debt service would be paid for by an unidentified revenue source.

The city will also lose two major streets to the project, and all the stores on those streets, West 30th and West 33rd Streets, between 11th and 12th Avenues, to provide the entrances to the stadium. A pedestrian bridge over the West Side highway on 33rd Street will link the project to the Hudson River Park (controlled by another public authority jointly run by city and state). And a three-block section of the High Linewould be eliminated.

The Anatomy of a Public Authority

The stadium project depends on the creation of a new public authority, called a local development corporation, which will be jointly controlled by the city and state. The local development corporation's main job will be to issue bonds to finance the stadium. This will be done outside the control of the City Council, which normally has to approve the issuing of bonds for capital improvements in the city. The local development corporation will issue $600 million of tax-exempt "Public Sector Bonds" to pay for the platform and roof. This debt, like a mortgage, will be paid off over 25 or more years by future city and state revenues. The corporation will also issue tax-exempt Jet Bonds to help the Jets pay for the stadium itself. The Jets will build the stadium, but will be exempt from city property taxes. Any payment-in-lieu-of taxes (PILOT) they might negotiate with the city would be used to help the Jets pay off the Jet Bonds. In other words, the city will now be part of a deal that issues tax-exempt bonds for the Jets share of the construction costs.

What may be most troublesome about this arrangement is not simply its unaccountability but its presumption of joint control by state and city. In state law, cities are always creatures of the state, and in politics, cities are generally at the mercy of the state. This will not, on the record, be an equal partnership.

Moreover, such an unequal partnership can further blur solutions to and accountability for much bigger problems, such as the city's deficit and the $5.6 billion education-aid problem. Both problems will require complex negotiations between state and city. The existence of a new joint public authority in which huge city/state trade-offs can be negotiated outside the normal budget processes is not a healthy prospect.

The airspace that the new authority would lease back and forth has a value ‚ ignored by the Empire State Development Corporation ‚ that should be factored into any decision about land use on the West Side. The new report (In pdf format) from the Regional Plan Association shows that over a 30 year period the city would gain $510 million from rents, development fees and property taxes from a mixed-residential-commercial development over the rail yards rather than a stadium.

The stadium deal is moving quickly and the mayor and governor are intent to break ground in the spring of 2005. A hearing will take place on December 16 on the Empire State Development Corporation's project report. Thereafter, creation of the Local Development Corporation and state funding streams would seem to require state legislative approval. Assembly Speaker Sheldon Silver then becomes, potentially, the significant city counterweight to the mayor and governor's dealing. But in a world of secretive negotiations among various private and public interests involved in the stadium deal there is no telling what will happen.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.

 

 

 

 

 

 

 

 

 

 

 

 

 



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