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Chain Store Taxes

( Originally Published 1939 )



No less than twenty-two states have put into effect laws taxing chain stores. Although the list does not include such populous states as New York, Illinois, and California, nevertheless 38 per cent of all chain stores in the country were affected by state taxes in 1935. In the rest of the country the chain store issue seethes endlessly and the bare record of twenty-two states for and twenty-six against such taxes conceals rather than registers the actual pressure behind legislative deliberations. Passage has failed in some states for a lack of a trifling few pounds of additional pressure, while in others bills have been passed but are temporarily ineffective only because of judicial interference. The various state legislatures have not seen eye to eye on how many stores constitute an economic menace. There is virtually no uniformity of taxing methods or rates; only two states have identical rates.

The number of stores at which the tax rate reaches a maximum ranges from 21 to 501. Tax rates vary widely in amount as well as in the number of stores operating within the state to which the maximum rate applies. The maximum tax rate ranges from $112.50 on each store over 20 in Alabama to $750 on each store over 50 in Texas. In Idaho the maximum rate per store is $500. In actual practice Louisiana would run up to $550 per store per year, due principally to its use as a base of all the stores in a chain wherever located. Some cities have also imposed chain store taxes which have been upheld by state supreme courts. In Oregon this judicial approval was underlined by a popular referendum.

In several states such tax laws have been passed, have been held unconstitutional, have been passed in another form and been sustained. Iowa, Minnesota, and New Mexico introduced a tax on gross receipts of chains which was eventually held invalid by the United States Supreme Court as an arbitrary discrimination in violation of the Fourteenth Amendment. Indiana graduated its tax in proportion to the number of stores within its boundaries and this method was approved. Louisiana thereupon went a step further and based its rates upon the total number of stores operated by a chain anywhere in the United States and was upheld in a new decision turning on this special innovation by a four to three vote.

Economic Effects

It is not easy to determine the economic effects of these taxes. Occasionally the number of chain units is reported to have actually increased. Sometimes the number of units has decreased while either the chains' own volume or their share of the total retail volume has increased. In some states where the rates have been high beyond any quibbling there has been drastic demobilization. Some of the petroleum distributors have been leasing their own stations to independent operators. The tax promises to rest most heavily, however, on the food and grocery chains. Some of them have intimated that they will shift to a lease or agency basis and carry on in the form of a cooperative, but so far this movement has not acquired much momentum.

The tax laws clearly do exert a pressure, however, toward reexamination of the possibilities of different types of stores, followed by abandonment of the less promising units. Another possibility is that the chains will divert some of their resources to super-markets, which some retailers seem to dread more than the mere survival of a chain store movement that may already have run its natural course. It is frequently reported that super-markets have hurt the chains, as competitive price merchandisers, more than the independents.

Naturally these taxes have to be paid by some one. They are a direct charge on distribution. But claims that such levies are entirely passed on to the consumer in the form of higher prices cannot be proved. Even if prices actually rise after the enactment of a chain store tax, there are always many other circumstances that could have been responsible. If the tax should come out of the profits of the chains the economic effects are too speculative and remote to be measured. The importance of tax receipts, moreover, lies not so much in their amount as in their effects on competing methods of distribution.

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