LB583 has the Best of Intentions, but You Know What They Say About Intentions…

Senator Priester of Omaha is hoping that a new committee will help him get his E-Waste recycling bill (LB583) on the floor for debate and a vote.

The bill has been introduced several times in previous sessions, but has always been bottled up in committee. In my opinion LB583 is an unenforceable bill that will directly harm the sales tax engine of Nebraska – its small businesses. We will all be better off if this bill gets bottled up again.

First, a fair introduction. LB583 is intended to stop electronic waste from entering solid waste landfills. If the bill passes, all manufacturers both inside and outside the state of Nebraska would be required to pay a fee (a tax) to Nebraska to be listed on the State’s list of compliant manufacturers. Then the manufacturer would have to pay the state another tax based on the tonnage of listed equipment that is shipped into the state. This includes computers, televisions, and just about any device with a screen that is 4″ or larger.

As a consumer under this bill, when you are finished using your television or computer you would take your e-waste to a state-authorized recycler rather than throwing it in the trash. The recycler would take your waste, recycle it, and then submit a claim for payment to the state – you would not have to pay anything to recycle your equipment.

The bill’s first line of enforcement would fall to the retailers (like Best Buy and Schrock Innovations). Before a retailer could sell any listed item (like a television, computer, or automotive component) that retailer would be required to check the state’s list of compliant manufacturers. If the manufacturer has not paid the state’s tax, then the retailer may not sell that manufacturer’s goods in the state.

Why This is a BAD Bill

This bill would be a disaster for Nebraska’s already-struggling manufacturing sector as well as most small businesses because:

• This bill is unenforceable
• Manufacturers outside of Nebraska (and outside the US) will not comply
• The Bill is Vague Regarding Who a Manufacturer is
• It will drive up the prices of electronic goods
• It will decrease selection of electronic goods in Nebraska
• It will result in a net loss of sales tax revenue for the state

There is a lot to hash out about why this bill is bad, so I will address each item one at a time.

1) The Bill is Unenforceable

This bill requires that manufacturers who do not have a physical presence in Nebraska register and pay a tax in order to sell their goods in Nebraska. The state has no way to directly compel these businesses to pay Nebraska a dime, so the bill relies on retailers to police the goods they sell.

The trouble is that most manufactured goods are not directly sold to retailers – the goods typically pass through a wholesaler first. Many of the electronic goods Schrock Innovations sells do not have a U.S. brand name (i.e. the brand name is written in Chinese on a microchip). In many cases it is simply impossible to know if a specific device was manufactured by a company in compliance with the proposed state registry.

If the retailers can not find that information, then the state probably can not find it either without significant effort. This means than many electronic items could go unidentified and therefore a purchase by a Nebraska retailer could not be identified as allowed or disallowed, and therefore can not be consistently enforced.

2) Manufacturers Outside Nebraska Will Not Comply

As much as I love my home state of Nebraska, we all have to admit that when it comes to manufacturing electronic goods we are not a “high demand” state. So for example, a manufacturer of computer memory in China could really care less how much of their memory ends up in Nebraska as compared to a “high-demand” state like California. They do not have the means or desire to track that information in a cost-effective way.

Manufacturers outside Nebraska and outside the United States for that matter will continue making their goods and shipping them to wholesale houses just as they have always done in the past.

Senator Priester’s bill depends on Nebraska retailers to once again save the day. The argument goes that if a retailer can not sell a popular good because the manufacturer is not listed in the state’s registry the retailer will pressure the manufacturer to register and pay the tax. Perhaps the manufacturer will comply and perhaps not.

But I can say with near certainty that a manufacturer of a commodity like computer memory that is based overseas could give a rat’s rear about how many Nebraskans buy from them. They might care if we consumed their products on a level like California or New York State, but lets face it – we don’t.

3) The Bill is Vague About its Definition of a Manufacturer

The bill defines a manufacturer as:

Manufacturer means any person who or which, regardless of the selling technique used, including remote sale, manufactures covered electronic devices, supplies them to any person or persons within a distribution network that includes wholesalers or retailers in this state, and benefits from the sale in this state of those covered electronic devices through that distribution network.

OK, so lets apply some Nebraska common sense here. I think we could all agree that Dell manufacturers computers. Some of their computers are sold through an affiliate marketing program (that’s when a business buys a Dell computer from a third party company) and some are sold direct to the consumer from the Dell website.

I don’t think it would be the bill’s intention to only recycle the computers that Dell sells through its affiliate network (a distribution network), so we would have to assume that Dell’s direct sale of computer systems to consumers would also be classified as a distribution network.

But Dell also meets the bill’s definition of a retailer. The bill defines a retailer as:

Retailer means a person who owns or operates a business that sells at retail new covered electronic devices in this state by any means to a consumer

So based on these definitions, Dell is a manufacturer and a retailer, and therefore Dell is responsible to check the State’s list of compliant manufacturers to ensure that it is operating in compliance.

But more importantly, where does a local company like Schrock Innovations fit into this picture? We custom build computers by ordering components from wholesalers and assembling them into unique designs. It is pretty obvious under the bill that we are a retailer, but are we also the manufacturer?

The definition of a manufacturer states that to be considered a manufacturer we must supply goods to a distribution network, but Dell is considered a manufacturer and the majority of their computers are directly sold to consumers. Since we directly sell to consumers, are we required to register as a manufacturer as well? Do we need to register and pay tax or not?

This single item alone could spark significant debate and legal challenges if not clarified.

The Bill Will Drive up the Prices of Electronics in Nebraska

This one is just common sense. The bill requires manufacturers who comply to pay a tax. This tax will be passed on to wholesalers who will in turn mark up that price and sell the items to retailers. Retailers must make a profit, so they will increase the price of their electronic goods to their customers.

Before you know it, a $3,000 plasma television will cost $50 more in Omaha’s Best Buy than it would in the Best Buy in Iowa. Raise your hand if you would drive 15 minutes to save $50?

This Bill Will Decrease Competition and Result in Fewer Selections for the Consumer

Again, this is some simple logic. Manufacturers who compete on a low-cost platform will simply not comply because they do not want to spend the time, money, or effort to break down how much of their product is sold in Nebraska versus other states (especially since almost ALL electronics wholesale houses are on the coasts).

Because manufacturers will not comply, Wal-Mart for example, may not be able to carry as many portable DVD players (yes they are covered by the bill too). The least expensive choices would be artificially removed from Nebraska’s marketplace and as a consequence there will be fewer brands and features for Nebraska consumers to select from.

The State Will Collect LESS Tax Revenue if This Bill is Enacted

If one looks at all of the ill effects of LB583 on the Nebraska economy, it is pretty obvious that this bill will result in fewer electronic goods being purchased from within the state. Consumers will buy the less expensive non-compliant goods in Iowa, Colorado, or via mail-order or through the Internet. Presently Nebraska has no way to reliably recoup those sales tax dollars, and would therefore see sales tax revenue from high-ticket electronics erode over time. This will only get worse as consumers in Nebraska become more and more willing to shop online rather than locally.

In addition, Senator Priester forgets that most Nebraskans have at least one old computer stored in their home right now. If this bill passes and consumers are required to dispose of these computers with a recycler, there will most likely be a strong surge in consumer recycling overnight.

This is a GOOD thing for the ecology, but no one has said anything about where the funds will be appropriated to pay the recyclers to dispose of these computers. Since they were sold before the manufacturers were taxed on their shipments, there is no money earmarked to recycle them.

The fist year this bill is in place would strain the state budget as it is forced to pay recyclers to dispose of these ancient computers.

Conclusion

In summary, The whole point of this bill is to shift the responsibility of E-waste recycling from the shoulders of the consumers back onto the shoulders of the manufacturers. The unfortunate truth is that any government imposed tax on industry eventually works its way down to the consumers in the form of higher prices. While industry is certainly not a saint when it comes to recycling, there have been significant moves to take further responsibility for E-waste in the computer industry. The problem of E-waste IS solved through recycling, however the answer is not to have government presume they know best how to run an electronics business.