National Retail Federation

July 2006

Senate Kills Minimum Wage/WOTC/Estate Tax Package

Prior to adjourning late last week for the August recess, the Senate rejected legislation that would combine permanent estate tax relief with a minimum wage hike and an extension of popular tax credits including the Work Opportunity Tax Credit and Welfare-to-Work Tax Credit (WOTC/WWTC), but supporters said they would try again when Congress returns after Labor Day.

The House passed the bill the week before, using minimum wage as a sweetener to win support from Senate Democrats, who have pushed a $2.10 hourly increase while criticizing the estate tax relief sought by Republicans as a tax break for the wealthy. Democrats, however, blasted the measure as "political blackmail," and it was blocked on a Senate procedural vote. Senators voted 56-42 in favor of the bill, but 60 votes were required to move forward.

Senate Majority Leader Bill Frist (R-TN) urged opponents to reconsider when Congress returns in September, vowing not to separate the two issues and insisting that they will be "addressed as a package, all or nothing."

"If he is serious about that threat, I hope he knows he has a fight on his hands," Senate Minority Leader Harry Reid (D-NV) said. Reid reportedly may try to block the popular tax extenders from moving on other bills in order to force a vote on minimum wage alone.

The bill, H.R. 5970, the Estate Tax and Extension of Tax Relief Act, sponsored by House Ways and Means Committee Chairman Bill Thomas (R-CA) would exempt estates up to $5 million per spouse from taxation. Those up to $25 million would be taxed at the capital gains rate (currently 15 percent but set to rise to 20 percent in 2011), and larger amounts at 40 percent, phased down to 30 percent by 2015. Without congressional action, the phase-out enacted five years ago would expire in 2011, returning the rate to its 2001 level of 55 percent.

Most importantly for NCCR, the bill would raise the $5.15 minimum wage to $7.25, the same amount long sought by Senate Health, Education, Labor and Pensions Committee Ranking Member Edward Kennedy (D-MA). The higher wage would be phased in over a period of three years. NCCR has long opposed minimum wage increases because of the negative impact on job creation.

The WOTC/WWTC credits are extremely important to the chain restaurant community, and NCCR will continue to urge lawmakers to extend these provisions, which expired at the end of 2005, without raising the minimum wage. However, it remains to be seen whether that avenue is possible, as legislators in the House seem intent on moving the items together as a package. Prior to the House passing the bill, by a vote of 230-180, more than two dozen moderate Republicans signed a letter supporting an increase in the federal minimum wage, an indication that Democrats are moving closer to the point of being able to force an increase through Congress despite its threat to job creation and the economy.

"It has been nearly 10 years since the last increase in the minimum wage," the moderate's letter to House Majority Leader John Boehner (R-OH) said, noting that the current $5.15 an hour minimum amounts to $10,700 a year at 40 hours a week. "For a single parent with two children, that amount is thousands of dollars below the federal poverty line. Nobody working full time should have to live in poverty. We believe it is time for Congress to take responsible action to raise the minimum wage and ensure our hard working constituents can provide for their families," the letter said.

In addition, House Democrats demonstrated the strength of their position earlier in the month when they won a non-binding procedural motion in support of a minimum wage increase. Sixty-four House Republicans voted for the measure, which indicated that a minimum wage hike has the support of a majority in the House. Many Republicans believe minimum wage increases are popular with voters, and view themselves as vulnerable on the issue for the November elections.

For more information, contact Scott Vinson, NCCR Vice President of Government Relations, at vinsons@nccr.net , or (202) 661-3059.
House and Senate Hold Dueling Immigration Hearings

In a public display of the increasing acrimony between the House and Senate regarding their respective approaches to immigration reform, lawmakers from each chamber staged hearings in and out of Washington during July to highlight the differences between House and Senate reform bills. The House bill, passed last December, takes an enforcement-only approach, while the business community-supported Senate bill, passed in May, includes a temporary worker program and an earned legalization component for illegal workers.

House leaders have stalled on convening a conference committee to work out differences between the two bills, in favor of holding public hearings intended to criticize and ridicule the Senate's comprehensive approach. House Majority Leader John Boehner (R-OH) said the purpose of the House hearings was to point out what they view as flaws – including the temporary worker program and the earned legalization component -- in the Senate bill and to “strengthen the hand” of House negotiators in an eventual conference committee. One House Immigration Subcommittee hearing was entitled “Should We Embrace the Senate's Grant of Amnesty to Millions of Illegal Aliens and Repeat the Mistakes of the Immigration Reform and Control Act of 1986?”

Senate Judiciary Committee Chairman Arlen Specter (R-PA), for his part, held hearings to defend the Senate bill and counter attacks from the hearings held by various House committee chairmen.

Bush Administration witnesses testifying at some of the hearings, including Secretary of Labor Elaine Chao and Commerce Secretary Carlos Gutierrez, have insisted that, to be successful in stanching the flow of illegal aliens across the borders, any immigration legislation passed by Congress must be comprehensive and include a temporary worker program and a process for legalizing the estimated 11-12 million unauthorized workers currently in the U.S. At one of the Senate's hearings on the subject, Secretary Gutierrez said “The best thing we could do for our borders . . . is a guest worker program.”

Leading Conservatives Introduce Immigration Reform Bill

Two leading conservative legislators added their voices to the immigration reform debate by introducing new legislation intended to break the impasse between the House and Senate over the difficult issue. Sen. Kay Bailey Hutchison (R-TX) and Rep. Mike Pence (R-IN) unveiled their proposal at a press conference in late July. The Hutchison-Pence Plan, as it is being called, is styled not as a compromise between the vastly different House and Senate immigration reform bills, but as the Congressman called it, a "contribution to the debate on border security and immigration reform."

Although details are still unavailable, the lawmakers did provide some broad outlines of their plan. The centerpiece of Hutchison-Pence is border security, and it provides new resources for surveillance, fences and vehicle barriers, checkpoints, detention facilities, and more border patrol agents, much like the bills already passed by the House and Senate. However, Hutchison-Pence requires the passage of two year's time and an affirmative certification from the Secretary of Homeland Security to the President and Congress that operational control over the borders has been achieved before the other component of the bill – a temporary worker program – can commence.

After two years, and after certification that the border is secure, the proposal would allow foreign workers from outside the U.S., as well as illegal workers currently working in the U.S., to petition for a Secured Authorized Foreign Employee (SAFE) temporary visa. Illegal workers in the U.S. must leave the U.S. and apply for the program at a privately-run “ Ellis Island Center ” from their own country. Employers could only hire SAFE visa holders if the employer, after an exhaustive search, is unable to find a U.S. citizen to fill the job, and the applicant must pass a criminal background check, a health screening, and learn English. The initial period of the visa is for two years, and it would be renewable every two years after that for a total of twelve years. After that time, the visa holder could apply for a new “X-change” visa that would allow them to remain and work in the U.S. indefinitely, or begin the years-long process of earning U.S. citizenship.

Reaction to the plan from lawmakers has thus far been muted, although it has received a positive reception from Senate Majority Leader Bill Frist (R-TN). NCCR is still reviewing the Hutchison-Pence proposal and discussing it among our members to determine whether it would meet the workforce needs of the chain restaurant industry. We welcome your feedback and comments.

For more information, contact Scott Vinson, NCCR Vice President of Government Relations, at vinsons@nccr.net or (202) 661-3059.

$600 Million Distributed in Visa/MasterCard Settlement

Nearly half a million checks totaling more than $600 million were distributed to retailers across the country over the past several weeks as merchants began to receive payments from the $3.1 billion settlement of NRF's landmark lawsuit against Visa and MasterCard debit card rules.

The 494,000 checks mailed beginning June 28 -- ranging from less than $1,000 to well over $1 million depending on the volume of card transactions handled during the 1992-2003 period covered by the suit -- represented the second round of payments in the case. Approximately 23,000 checks totaling $52.7 million were mailed in December 2005 to retailers who filed their claims early.

The latest round of checks covered most merchants with simple, uncontested claims who had met a March 31 filing deadline. Payments are still being calculated for retailers with more complicated claims -- including some consolidations of checks for multiple stores and those not included in the database used for distribution -- but the vast majority of checks due are expected to be mailed by the end of the year.

Payments currently being made cover merchants who were overcharged for credit card and signature debit card transactions. An additional round of payments will be made in 2007 for merchants overcharged for PIN debit transactions.

Merchants who need to check the status of their claims or seeking additional information can go to www.inrevisacheckmastermoneyantitrustlitigation.com . An advisory from lead counsel Constantine Cannon explaining the payment status is available at that web site and also on the NRF web site at www.nrf.com/debit .

Retailers with questions should contact the claims administrator, Garden City Group Inc., at (888) 641-4437. NRF members who need additional assistance can also contact NRF Member Relations Manager Angelica Rodriguez at rodrigueza@nrf.com .

The 1996 class-action lawsuit brought by NRF and about 20 of the nation's largest retailers was settled in 2003, but distribution of funds could not begin until the final deadline for appeals passed in May 2005. The case alleged that the former "Honor All Cards" rule requiring retailers who accepted Visa and MasterCard credit cards to also accept their debit cards violated federal antitrust law. Merchants objected to being forced to accept signature-based debit transactions because they carried higher transaction fees, were slower and more fraud-prone than debit transactions activated by a PIN number.

Under the settlement, Visa and MasterCard lowered transaction fees for signature-based debit cards by at least one-third effective August 1, 2003. As of January 1, 2004, the Honor All Cards policy ceased to exist, freeing retailers to negotiate what rates -- if any -- at which they would be willing to continue to accept the cards.

The $3.1 billion compensatory settlement was the largest antitrust settlement ever approved by a federal court.

For more information, contact NRF Senior Vice President and General Counsel Mallory Duncan at (202) 783-7971.

Action on Business Activity Tax Delayed Until Fall

Action on legislation to limit states' ability to impose business activity taxes on out-of-state companies was delayed until at least September last month when House leaders were forced to cancel a scheduled vote. The House Rules Committee cleared H.R. 1956, the Business Activity Tax Simplification Act, for floor action and the bill was placed on the House agenda for a vote the following day. The measure was pulled at the last minute, however, after the National Governors Association flooded lawmakers' offices with state-by-state breakdowns that showed grossly inflated estimates of how much revenue states would lose under the measure. The NGA claimed that states would lose $6.6 billion annually. The number, however, included hypothetical business activity taxes that have not yet been imposed.

The Council on State Taxation presented sharply different numbers, testifying during a Senate hearing Tuesday morning that the bill would cost state treasuries only $430 million in its first year, less than one-tenth of 1 percent of BAT taxes currently collected.

A spokesman for House Majority Leader John Boehner (R-OH) told reporters the bill would not be taken up again until after Congress's August recess. There were "some misperceptions about its effect on states and it has been postponed in an effort to clear up those perceptions," the spokesman said.

NRF was disappointed by the delay but remains confident the measure will be enacted. "Clarification of the business activity tax nexus standard is important to NRF and our members," NRF Senior Vice President for Government Relations Steve Pfister said in a letter to Boehner before the vote was postponed. "Over the past several years, we have seen a dramatic increase in state efforts to collect tax revenue from non-resident businesses. As a result, our member companies have been unfairly assessed with business activity taxes in jurisdictions where they have no property or employees. Retailers have already wasted an enormous amount of resources fighting unfair and unlawful state audits and resulting litigation, and we foresee a continuation of that unfortunate trend. Enactment of H.R. 1956 would ensure fairness, minimize litigation, promote a level playing field for taxpayers by providing a bright-line standard governing taxation, and foster the kind of legally certain and stable business climate that encourages investment, expands interstate commerce, grows the economy and creates new jobs," Pfister said.

Sponsored by Rep. Bob Goodlatte (R-VA) the bill would establish a "bright line" test barring states from imposing business activity taxes on a company unless it has a physical presence in the state for at least 21 days each tax year. Physical presence would be defined as being physically located in the state or having employees there, leasing or owning tangible personal property or real estate, or using the services of another person in the state to establish or maintain a market in the state, subject to certain exceptions. Activities in connection with the purchase of goods or services and meetings with government officials for purposes other than selling goods or services would not count.

The bill also spells out specific situations that would not trigger the physical presence standard: a company Internet site being accessed by residents of the state; use of an Internet service provider physically located in the state; and use of the company's intangible property such as logos, patents or trademarks in the state.

NRF has argued that Congress should provide a standard that is fair to both government and businesses, and also "clear and simple" for government to administer and businesses to comply.

Business activity taxes include a wide range of levies imposed on businesses, including corporate income taxes, franchise taxes, gross receipts taxes, capital stock taxes, net worth taxes, single business taxes and business and occupation taxes. States have tried to impose one or more of the taxes on companies that don't have an office or store in their state but ship products into a state, solicit orders or otherwise have a "business activity."

For more information, contact NRF Vice President and Government and Industry Relations Counsel Maureen Riehl at (202) 626-8121.

Coalition Tells Senate Visa/MasterCard Violate Antitrust Laws

A coalition chaired by NRF told the Senate Judiciary Committee in July that Visa and MasterCard's practices in setting rates for the $26 billion in credit card interchange fees charged to merchants each year violate federal antitrust laws and need to be addressed by Congress.

"To answer the question posed by the title of today's hearing, there are indeed crucial antitrust issues raised by interchange fees," nationally known antitrust attorney W. Stephen Cannon said. "The collective setting of interchange fees represents on-going antitrust violations by the two leading payment card associations -- Visa and MasterCard -- that cost merchants and American consumers tens of billions of dollars annually. Hidden from consumers, these fees are in addition to the late fees, over-limit fees and other card fees with which consumers are only too familiar."

Cannon testified Wednesday on behalf of the Merchants Payments Coalition, a group formed last year by NRF and about 20 merchant trade associations to fight rising interchange fees. The coalition is chaired by NRF Senior Vice President and General Counsel Mallory Duncan.

"We are pleased to see the Senate examining anti-competitive collusion at Visa and MasterCard that takes billions of dollars out of consumers' pockets every year," Duncan said after the hearing. "Americans pay some of the highest credit card interchange rates in the world, but most consumers don't even know these fees exist. We think the time has come to put an end to Visa and MasterCard's price fixing, their lack of openness with the public and the windfall profits they're making as a result."

The topic of the committee's hearing was "Credit Card Interchange Rates: Antitrust Concerns?" and Cannon told senators that the banks that make up the Visa and MasterCard networks engage in price fixing that violates antitrust law when each network sets its interchange rates.

In doing so, the banks effectively operate as a cartel, a practice long recognized by antitrust courts as anticompetitive regardless of prices set, Cannon said. In addition, the 1986 NaBANCO decision often claimed by Visa and MasterCard as a defense against antitrust allegations is based on factual assumptions no longer relevant to the marketplace, and the ruling's findings also have been undercut by more recent court decisions, he said.

Antitrust is one of the key issues in the interchange debate: close to 50 lawsuits claiming that interchange practices violate federal antitrust laws have been filed against Visa and MasterCard in the past year.

Visa General Counsel Joshua Floum and MasterCard Associate General Counsel Joshua Peirez both denied that interchange practices violate antitrust laws. Floum claimed that "the fight about interchange fees is not a legal issue, antitrust or otherwise" but rather "a business dispute and it should be ... resolved at the negotiating table." Peirez called interchange "a business dispute about price and not an antitrust or policy issue."

Despite the denials, committee Chairman Arlen Specter (R-PA) said the process of setting interchange fees "sounds to me like pretty anti-competitive practices." While no bill to address interchange has been introduced in Congress, Specter hinted that legislation could be expected in the future.

One key issue in the interchange debate has been Visa and MasterCard's refusal to publicly disclose credit card rules imposed on merchants. Floum agreed, however, to turn a complete set of rules over to the Judiciary Committee and Specter said he, in turn, would provide them to the Merchants Payments Coalition.

In addition to Cannon, the committee heard from two retailers who supported the position of the Merchants Payments Coalition. Bill Douglass, owner of a small chain of convenience stores in the Dallas-Fort Worth area, said interchange is his third-highest operating expense after payroll and rent, and adds nearly $2 to the cost of the average fill-up at his gasoline pumps. While Visa and MasterCard have argued that merchants unhappy with interchange have the option of refusing to accept credit cards, Douglass said 60 percent of his gas purchases are paid for with plastic, and that doing business without credit cards would be like doing business without a telephone.

Kathy Miller, the owner of a rural general store in Elmore, Vermont, broke down in tears as she described the struggle of keeping a small business solvent. Interchange fees take 23 cents of the 30-cent profit she makes on a bottle of water sold to tourists, or 46 cents out of the 49-cent profit she makes on a $10 gasoline sale. "Some days I feel like I should just turn in my keys," she said. "We are just trying to keep our doors open."

Interchange is a percentage of each transaction that Visa and MasterCard banks collect from retailers every time their credit or debit cards are used to pay for a purchase. The fee averages close to 2 percent for credit card and signature debit transactions. Total credit and debit card interchange collected by Visa and MasterCard amounted to $26.3 billion in 2004, according to the Nilson Report, a newsletter covering the credit card industry. The figure is up 59 percent from $16.6 billion in 2001.

For more information, contact NRF Senior Vice President and General Counsel Mallory Duncan at (202) 783-7971.

Court Strikes Down Maryland Health Care Mandate Law

Retailers fighting misguided state health care mandates won a major victory when a federal judge struck down the original Maryland law that prompted the introduction of legislation in more than 30 states earlier this year. U.S. District Court Judge J. Frederick Motz ruled that the Maryland Fair Share Health Care Fund Act violated the Employee Retirement Income Security Act, a federal law that preempts state laws regulating employee benefit plans.

"My finding that the act is pre-empted is in accordance with long-established Supreme Court law that state laws which impose health or welfare mandates on employers are invalid under ERISA," Motz wrote in a 32-page opinion handed down in Baltimore. "The act violates ERISA's fundamental purpose of permitting multi-state employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration." Motz issued an order granting a motion for summary judgment and blocking the law from being implemented.

The Maryland law was enacted in January after the state Legislature overrode a veto by Governor Robert Ehrlich. The measure requires that any non-government employer with more than 10,000 workers in the state spend at least 8 percent of payroll on employee health care or pay the difference into a state health care fund.

Under the measure's carefully crafted provisions, Wal-Mart Stores Inc., which has 53 stores, two distribution centers and 16,000 employees in Maryland , was the only company affected. The ruling came in a lawsuit filed in March by the Retail Industry Leaders Association, an Arlington, Va., group that represents Wal-Mart.

The Maryland law prompted the introduction of more than 30 similar bills pushed in other states by the AFL-CIO and other labor groups. So far, the legislation has died in 23 states, according to a tally kept by NRF. While no further action is expected this year, bills remain under consideration in eight states, and Massachusetts and Vermont have enacted broader measures separate from the AFL-CIO campaign.

Despite the ruling, the fight does not appear to be over. A spokesman said Maryland Attorney General J. Joseph Curran Jr. plans to appeal, and union-backed anti-Wal-Mart groups WakeUpWalMart.com and Wal-Mart Watch said they would continue their state-by-state efforts. Many of the bills introduced in other states missed legislation deadlines or hit procedural obstacles, rather than being definitively voted down, and could be reintroduced next year.

While the Maryland law affected only Wal-Mart, many of the other states' legislation was written more broadly and would have affected other retailers. NRF and NCCR responded by forming the Tax on Jobs Coalition to coordinate efforts by state retail associations, other national business, health and insurance trade associations and individual companies to fight the legislation.

NRF has argued that the Maryland-style mandate proposals would increase expenses for employers while doing nothing to address the underlying issues of rising health care costs. Given the retail and chain restaurant industries' thin profit margins, the spending mandates would force retailers to choose between raising prices for consumers and laying off existing workers.

For more information, contact NRF Vice President and Employee Benefits Counsel Neil Trautwein , Vice President and Government and Industry Relations Counsel Maureen Riehl , or Director of Government Relations Alison O'Donnell at (202) 783-7971.

NRF CEO Health Care Task Force to Begin Work

NRF's new CEO Health Care Task Force has begun work on the first stage of its two-year, four-phase plan to address the cost, quality and access issues challenging the nation's health care system. A working group made up of senior corporate benefit and human resources executives held a conference call in early August, which will be followed by an in-person meeting at NRF headquarters in Washington on September 7. A handful of NRF/NCCR's chain restaurant companies are participating in the Task Force, and others are welcomed and encouraged to join.

The group's first assignment is an in-depth evaluation of the current state of play in the retail industry, including workforce dynamics, current health care offerings and limitations, and industry best practices. The task force will later analyze potential reform options, reach consensus on the best solutions, and advocate adoption of those solutions.

The NRF Board unanimously agreed to creation of a CEO-led panel at its June meeting, saying the critical nature and complexity of the issue make it difficult to achieve success without the buy-in and active involvement of chief executives. More than a dozen companies have signed up since then.

While there has been a flurry of activity at the state level in recent months, NRF is concerned that the mandate-dominated legislation proposed is unlikely to address the underlying issues of rising costs and limited access. Congress is not expected to seriously address the issue until after the 2008 presidential election, but that gives the retail industry a unique window in which to engage in a comprehensive examination of the challenges and potential solutions.

For more information, contact NRF Vice President and Employee Benefits Policy Counsel Neil Trautwein at (202) 626-8170.

NRF Launches Voter Registration Drive

NRF has launched a voter registration and get-out-the-vote campaign intended to encourage retailers and their employees to participate in November's congressional elections.

A special "Voting is Your Business" web page at www.nrf.com/Vote2006 allows would-be voters to register on-line and provides links to a wide variety of information ranging from basics of the voting process to candidates' web sites. Retailers are free to link to the page from their own web sites or provide the web address to employees.

For more information, contact NRF Director of Grassroots and Industry Relations Marsha Dionne at (202) 626-8152.

Register for NRF Members Benefits Briefing Calls
NRF members are invited to participate in the upcoming Members Benefits Briefing Calls on Friday, August 18. NRF Associate members are invited to participate at 11:30 am, EDT. Joe LaRocca, NRF's Vice President of Loss Prevention, will provide an overview of the Retail Loss Prevention Intelligence Network (RLPIN).
Now Available at the NRF Bookstore: Get Back in the Box: Innovation from the Inside Out
American enterprise is at a crossroads. Having for too long replaced innovation with acquisitions, tactics, efficiencies, and ad campaigns, many businesses have dangerously lost touch with the process—and fun—of discovery. In Get Back in the Box: Innovation from the Inside Out , Douglas Rushkoff helps innovators of this era reconnect with their own core competencies as well as the passion fueling them.

MARK YOUR CALENDARS!

McDonald's Corporation hosts NCCR at the annual meeting
Mark your calendars for the October 16-17 Fall member meeting and Food Safety Task Force meeting to be held in Oak Brook, Illinois at the headquarters of McDonald's Corporation. A variety of topics will be discussed during the 1½ day of meetings, and there will be opportunities to network and socialize with peers. More details will follow shortly.
Save the Date for the NRF Human Resources Summit
The NRF Human Resources Summit will be held October 25-27 at the Adolphus Hotel in Dallas , Texas . This is a joint meeting of the NRF's Human Resources Executives Council, Committee on Employment Law, the Health and Employee Benefits Committee, and the NCCR Employment Law/HR Group. The high-level nature of this event provides the perfect environment for the open exchange of ideas and collegial sharing of information. The agenda includes plenty of time for “white noise” round table discussions and interaction with thought leaders, recognizing that some of the best ideas occur when networking with colleagues. Several of NRF/NCCR's chain restaurant members participated in a similar meeting with the Human Resources Executives Committee in May, and we're excited to join with our retail colleagues for the much larger Summit in October. Sessions this year will focus on pandemic preparedness, retention strategies, trends in executive compensation, employment law issues and health care costs and others. For more information, contact Eileen Pryor- pryore@nrf.com or Janet Goldberg - goldbergj@nrf.com .
Register Now for NRF's 96th Annual Convention and Save Up To $350
NRF is Setting Retail in Motion at its Annual Convention and EXPO, this January 14-17, 2007 in New York City . With over 15,000 attendees from more than 42 countries, this year's event will feature an expanded EXPO floor with 170,000 sq ft of exhibit space and 400 exhibitors, an innovative education program with 50-plus sessions and a wide-range of networking opportunities. Register by October 6 and save up to $350 off the price of onsite registration.
NRF Retail Education Event for Rep. Dave Camp (R-MI) (NCCR is co-hosting this event)
August 30, 2006, Ashman Court Marriott, Midland, MI
NCCR Food Safety Task Force Meeting in conjunction with the Food Safety and Security Summit
March 6-8, 2007, DC Convention Center, Washington, DC
NRF's 72nd Annual Washington Leadership Conference
May 14-16, 2007, The National Press Club and The Capitol Hill Club, Washington, DC

For information or copies of materials regarding any of the above issues call NCCR at (202) 626-8183.