“Most customers just understand it as another recycling fee, so there’s no arguing about it,” Dan Pedersen of Al’s Furniture in Fresno, Calif., says.
“Most customers just understand it as another recycling fee, so there’s no arguing about it,” Dan Pedersen of Al’s Furniture in Fresno, Calif., says.

HFA Government Advocacy Update for September 2019

HFA members turn recycling obligation into opportunity

As Kevin Matthews sees it, California’s mattress recycling program adds a little more to the cost of doing business in a high-cost state. It increases the workload, according to Dan Pedersen. Yet, both try to manage the program effectively or even turn it into an opportunity.

California launched Bye Bye Mattress in 2016 to stem the flow of the bulky items into landfills and to reduce illegal dumping. The program, operated by the Mattress Recycling Council (MRC) in Alexandria, Va., puts significant responsibility on retailers who sell sleep products. They must:

  • Register to participate in the program.
  • Sell only mattresses made by manufacturers that are registered.
  • Charge customers a fee of $10.50 for each mattress and box spring sold.
  • Send the fees monthly to the MRC.
  • When delivering new mattresses to customers, remove used mattresses upon request at no charge. But they are not required to handle “contaminated” mattresses.
  • Send used mattresses to recycling centers and keep paperwork on everything.

 

Al’s Furniture displays signs in its showroom that explain the recycling program.

 

Matthews owns Home Furnishings Association member Matthews Mattress, which operates 12 stores in northern California, stretching 90 miles from Napa to Roseville, including one in Sacramento. The company is based in Vacaville. Its main warehouse is in Dixon, and that’s where the used mattresses are taken and placed in a truck trailer.

Although the warehouse isn’t a public collection point, Matthews said, people are welcome to drop off used mattresses. Usually twice a week, a recycler comes with an empty trailer, leaves that and hauls away the trailer filled with old mattresses. There’s no exchange of money for the service, Matthews said.

Evans serves as collection point

HFA member Evans Furniture Galleries serves as an official MRC collection point at its warehouse in Yuba City. The arrangement has worked well after a few initial bumps were resolved, Chief Financial Officer Marian Jackson said.

“We had an issue with people illegally dumping mattresses,” she said. The MRC paid to have a security camera installed and the offender – someone from another business – was identified and discouraged from continuing that practice.

Matthews picked up customers’ old mattresses before the law mandated that service, so the recycling program adds a minimum cost. For some other retailers, like Al’s Furniture in Modesto, the expense is higher. Al’s carries used mattresses 40 miles to the nearest recycling facility, where the driver often must wait in line to drop them off, according to Pedersen, the general manager for Al’s Furniture. The volume is higher than it was before the requirement to remove customers’ used mattresses, he added.

“If they asked, we’d always do it,” he said. “It’s pretty much increased tenfold.”

To minimize the cost, Pedersen said, Al’s waits until it has a full load, which is only a few times a year, so it stores the old mattresses in the meantime.

Evans Furniture Galleries does even better. MRC pays Evans $2.25 per unit for the old mattresses it collects, Jackson said. Once it fills its trailer, which holds 80 to 90 mattresses, it calls a company that hauls away the full trailer and leaves an empty one, at no charge. The only expense to Evans is the labor it uses to load the trailer. Before the recycling program, the company paid a fee to dump used mattresses at the landfill, so it’s saving money.

Violators risk large fines

Matthews Mattress, Evans Furniture Galleries and Al’s Furniture, also an HFA member, are among the best participants in Bye Bye Mattress. Not every retailer belongs in that category. Some have been unaware of their obligations under the law or have chosen not to comply. Although California’s recycling agency lists only seven enforcement officers, who are also responsible for other programs in addition to mattresses, violators can face fines rising to $5,000 for every day they fail to comply. One store owner, who sells Murphy beds, told the Home Furnishings Association he didn’t know he was required to charge the recycling fee. He is. Now that he knows, he plans to register and begin to comply, he said.

Enforcement isn’t a priority for the MRC, according to Lori Barnes, its manager of industry communications.

“We really try to give everybody the benefit of the doubt,” she said. “At the end of the day, we want to recycle mattresses.” To date, more than 4 million mattresses have been recycled in California, she added, with the program achieving an 80 percent compliance rate.

Kirby Garrett, a supervisor for CalRecycle’s enforcement staff, echoed Barnes’ sentiment. “We really want to get them into compliance,” he said. “We don’t want to go down the road of penalty.”

When inspectors find a business not following requirements, they issue a notice of violation. The retailer is given 30 days to correct deficiencies. If there’s still a problem, the business gets a second notice of compliance and 30 more days. “Really, a majority of the businesses do come into compliance before we get into the penalty phase,” Garrett said. If not, fines begin at $500 a day and can reach $5,000 a day for willful violations.

That can add up to a lot in a hurry. California’s Department of Resources Recycling and Recovery sought penalties of more than $600,000 against Mission Mattress and Furniture Warehouse – not an HFA member – in Oceanside for multiple violations over two years. A settlement was reached in August when the business agreed to a penalty of $57,200 – with $50,000 of that held in obeyance for three years. The full amount will be due immediately if the business fails to meet the terms of the agreement, but the $50,000 will be dropped if Mission Mattress remains in compliance for the next three years.

It’s fair if all participate

In addition to the risk of penalties, noncompliant retailers are taking an unfair advantage over competitors that meet their obligations. They neither charge the fee nor incur the expense of collecting and transporting old mattresses, unless they choose to do so. And, of course, they aren’t contributing to a program that, despite its costs, does accomplish a positive purpose.

That’s the primary reason Evans Furniture Galleries offered to serve as a collection point in the first place, Jackson said. “We wanted to do something to help the earth.”

Crews can decline to pick up used mattresses if they appear to pose a health risk or in other extreme cases. “We’ve seen some that looked like they were part of a crime scene,” Jackson said.

Matthews supports recycling. No one in his business likes seeing mattresses dumped along the sides of roads or clogging up landfills. He just wishes California wouldn’t keep adding fees on top of taxes on top of more fees. This is one that he and his salespeople try to explain to customers.

“A lot of it comes down to the customers’ education,” he said. “When they understand it’s for recycling, it’s easy.”

Use the program to advantage

At the top of its website, Matthews Mattress promotes “mattress removal and recycling” as another service along with “expert same-day delivery” and “complete mattress and bed setup.” That’s how a retailer can turn an obligation into an opportunity to connect with customers who support recycling.

And, if customers balk at the recycling fee, it can become “part of the negotiating process,” Matthews said. “I’ll pay your sales tax and MRC fee.” That’s another opportunity to make the customer feel that he’s getting something back rather than giving more. And it’s practical.

“We’re not going to lose a $3,000 sale for $21,” Matthews said. “We’ll pay for it ourselves.”

On the other hand, a $21 fee for a $169 children’s twin mattress and bed frame is a lot for the customer and for the retailer. Then there are customers who insist they shouldn’t pay a recycling fee if they’re not turning in an old mattress to be recycled. While there’s some logic to that argument, Matthews asks them to think of it like the state’s beverage container fee, which is collected at purchase, not when the bottle or can is returned.

Pedersen, with Al’s Furniture, has found that customers are reasonable and supportive, if they’re made aware of the fee before the sale is rung up.

“In our mattress area, we have two or three signs explaining the program,” he said. “And our sales rep mentions it, so it’s not just a surprise. Then it’s real smooth. Most customers just understand it as another recycling fee, so there’s no arguing about it. As long as you do it upfront, they move on.”

The recycling program is improving, too, Pedersen said. At first, the nearest recycling facility was even farther away – a 90-minute drive each way. It was cheaper to pay the fee to dispose of mattresses at the local landfill.

Unfortunately, some Fresno-area residents still dump their mattresses in the wrong places, Pedersen has observed.

“Any program you start, you’ve got to give it time and see it move forward year over year,” he said.

No penalty for starting late

Connecticut and Rhode Island have similar programs, and more states are sure to follow.  Mattress retailers across the country can get started anytime they want.

So far, when a retailer who has not participated comes forward to register for the program, California has not assessed penalties or required payment of past-due fees, Garrett said. So, it’s not too late to start with a clean slate. Retailers should not wait another day.

Washington update

News of interest to members from HFA lobbyist Chris Andresen of Dutko GR:

The field of 2020 Democratic presidential candidates continues to narrow, with former Vice President Joe Biden and Senators Bernie Sanders and Elizabeth Warren forming the “top tier.” The economy, climate, guns, immigration and health care are the major issues.

Most House Democrats now supports an inquiry into the possible impeachment of President Donald Trump. Even if the House moves in that direction, the Republican-controlled Senate will not vote to convict.

Tax issues

HFA has been pushing for a “technical correction” related to the 2017 Tax Cuts and Jobs Act (TCJA), which created a new depreciation schedule for “Qualified Improvement Property” or QIP. The tax law consolidated the different types of improvement property under the single definition of QIP, with intent to assign this new category a 15-year recovery period, eligible for 100 percent bonus depreciation. The wording of the final bill, however, did not provide a recovery period, and as a result unintentionally makes QIP ineligible for 100 percent bonus depreciation.

The current economic outlook only makes solving this issue more difficult. President Trump and congressional Republicans want to run on a strong economy, and this and other tax fixes could stabilize things. Politically, Democrats benefit from economic instability, but they also understand the harm that the QIP error can have by discouraging business improvement projects. There remains considerable disagreement on how to solve the impasse, which could mean delaying a correction until after the 2020 election.

Furniture stability

The House Energy and Commerce Committee approved the STURDY Act via voice vote in mid-July. The measure now heads to the House floor, although timing is unclear. There were several important amendments addressing industry concerns, but the bill would still give the Consumer Products Safety Commission unchecked rulemaking authority.

In the meantime, the CPSC is proceeding with its own rulemaking on tip-over, with details potentially coming later this year. The commission has been testing products to explore possible dangers. The ASTM revision, which lowers the minimum height of clothing storage units covered to 27 inches, will go into effect upon publication in late September or early October. There are no sell-through provisions, so products as low as 27 inches will need to meet the ASTM standard.

The CPSC recently issued a recall for two Kirkland’s chests. There were no reports of injuries associated with the units. The recall was triggered by CPSC testing, which determined that the chests posed a tip-over hazard.

CPSC nominations

Acting Chairwoman Ann Marie Buerkle will step down Sept. 30. Next, the White House must identify a new nominee and decide which of the sitting Republican commissioners, Peter Feldman or Dana Baiocco, should serve as acting chair. The White House has several high-profile Cabinet-level vacancies, and CPSC is unlikely to be on its high-priority list, so a 2-2 split between Republican- and Democratic-nominated commissioners probably will result.

Trade

Negotiations between the U.S. and China are set to resume in October, creating hope for a comprehensive trade deal. Unfortunately, tariffs are going up for now. In response to China’s actions, President Trump ordered 15 percent tariffs imposed on List 4A imports Sept. 1, an increase from 25 percent to 30 percent on Lists 1, 2 and 3 tariffs Oct. 15 and a 15 percent tariff on List 4B products set for Dec. 15.

A public comment period on the increase in List 1, 2 and 3 tariffs is open until Sept. 20. Comments may be submitted here.

EPA formaldehyde rule

The Environmental Protection Agency recently published its final technical corrections to the formaldehyde rule, bringing it more in line with the current CARB standard.

The EPA also published its intent to consider a list of 20 high-priority chemicals, including formaldehyde, for a TSCA risk evaluation. This could have further complications within the existing composite wood product rule, and we are continuing to determine next steps.

Upholstered furniture flammability

The House Energy and Commerce Committee approved the Safer Occupancy Furniture Flammability Act (SOFFA), which would create a national upholstered furniture flammability standard based on the existing California Technical Bulletin 117-2013. It was passed via voice vote and will move to the House floor for consideration. Democratic and Republican leaders on the committee discussed possible changes but did not offer specifics. The timing of floor action is also unclear.

The Senate Commerce Committee also approved SOFFA via voice vote, although Senators Mike Lee (R-Utah) and Marsha Blackburn (R-Tenn.) asked to be recorded as “no” votes. The timing of a Senate floor vote is also uncertain.

This effort has been supported by a coalition of industry (including HFA), firefighters, consumer and environmental groups.

Hours of service

The HFA has long supported common-sense safety regulations for motor carriers, but we disagreed with the 2013 Hours of Service regulation. Recently, the Trump administration issued proposed changes, which will allow for more flexibility within the same number of driving hours.

HFA plans to submit comments in support of the proposed changes to the Federal Motor Carrier Safety Administration.

ADA website accessibility

HFA has alerted members to the spate of lawsuits brought or threatened against retailers and other businesses for alleged violations of the Americans with Disabilities Act regarding website accessibility. Recently, HFA member Walker Furniture of Gainesville, Fla., received a demand letter from an attorney regarding its website – a problem it immediately addressed. We have worked extensively with the Florida congressional delegation to highlight this issue and to call on the U.S. Department of Justice to act. The ask is simple: DOJ must create federal guidance so that businesses can understand what they must do to serve customers with disabilities and protect themselves from unreasonable demands and lawsuits.

In 2017, then-Attorney General Jeff Sessions canceled a DOJ rulemaking on this issue, but that opened the door for plaintiffs’ lawyers to issue these demand letters. The business owner is put in a precarious position – settle for thousands of dollars or fight the case at the risk of losing more.

News of interest from Alaska, Arizona, California, Colorado, Florida, Iowa, Maryland, Massachusetts, Missouri, New Hampshire, North Carolina, North Dakota, Oregon, South Carolina and West Virginia:

Alaska

There’s no statewide sales tax in Alaska, but local jurisdictions can and do set their own levies on retail transactions. Now, the Alaska Municipal League is spearheading an effort to capitalize on the 2018 Wayfair decision. Several cities would like to require online sellers to collect and remit taxes due on sales to their residents and are working on a common approach, Niles Andreassen, executive director of the AML, told Bloomberg Tax. Nome was the first city to act when its council approved a sales-tax collection requirement Aug. 26. It took effect Sept. 1 but set a threshold of $100,000 in annual sales. Below that, online retailers are not required to charge the tax.

Arizona

The state Department of Revenue has released rules for out-of-state, online businesses with no physical presence in Arizona to collect and submit taxes to the state beginning Oct. 1. This year, the rules apply only to merchants with at least $200,000 in gross annual sales. By 2021, businesses that gross at least $100,000 will have to pay.

California

Assembly Bill 5 would codify last year’s California Supreme Court ruling in Dynamex Operations West v. Superior Court of Los Angeles, which made it harder for businesses to classify workers as independent contractors. It passed the Assembly earlier this year and appeared likely to prevail in the Senate as the 2019 legislative session nears an end. Many business groups, including newspapers and ride-sharing companies, were seeking last-minute exemptions. Gov. Gavin Newsom is likely to sign it, as a spokesman told the Los Angeles Times, “The governor is supportive of addressing the misclassification of workers, which for decades has been a driver of income inequality.” Analysts say it could impact 1 million workers in the state.

A bill that originally was intended to eliminate most paper receipts ended up in the recycle bin. Assembly Bill 161 would have directed retailers not to print paper receipts unless customers said they wanted them. The measure’s sponsor, Rep. Phil Ting (D-San Francisco), said he’s likely to reintroduce it next year.

A deadline is approaching. California’s furniture retailers should clear their inventories of products covered by Assembly Bill 2998 before the law takes effect Jan. 1, 2020. AB 2998 prohibits the sale and distribution of juvenile products, upholstered furniture, replacement components of reupholstered furniture and many mattresses if those products or materials contain certain flame-retardant chemicals at levels above 1,000 parts per million.

California’s Bureau of Household Goods and Services in the Department of Consumer Affairs recently published Frequently Asked Questions (and answers) to help manufacturers, importers, wholesalers and retailers prepare for AB 2998’s implementation. The law directs the bureau to test products and issue fines for violations after Jan. 1.

Colorado

A “ban the box” law took effect Sept. 1, making Colorado the 13th state to protect employment opportunities for ex-felons. Companies with more than 10 workers are barred from asking job candidates on an initial application whether they have been convicted of a felony. Nor can employers say in job postings that former felons will not be hired. “However, the law does not prohibit companies from performing background checks on applicants,” GovDocs says. “Also, it does not apply to jobs where the law already prohibits someone with a criminal history from holding them.”

The law will cover employers of all sizes beginning Sept. 1, 2021. Employers with questions should call the Colorado Department of Labor and Employment at 303-318-8000.

Other states with ban the box laws are California, Connecticut, Hawaii, Illinois, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, Vermont and Washington.

Florida

With a joint meeting of three task groups Aug. 27, Florida began a process of planning three toll road projects that could add a total of 330 miles of new highway.

The initiative is called Multi-Use Corridors of Regional Economic Significance, or M-CORES, and its goals include improving hurricane evacuation routes, easing traffic congestion and promoting trade and logistics. The three routes are called the Suncoast Connector, reaching 150 miles from Citrus County to Jefferson County at the Georgia line; the Northern Turnpike Connector, extending from the northern terminus of Florida’s Turnpike 30 miles northwest to the Suncoast Parkway; and the Southwest-Central Florida Connector, adding 150 miles from Collier County to Polk County.

Cost estimates approach $20 billion, with construction expected to begin in late-2022. A task force has been assigned to plan each project, and each will hold many public hearings as plans progress.

Iowa

Iowa added $20 million in sales-tax revenues during the first half of 2019 because of its new law requiring online, remote retailers to collect tax on sales into the state, according to Iowa’s treasury department.

Maryland

Online sales-tax collections contributed to state revenue that’s more than $200 million better than forecasts, according to state Comptroller Peter Franchot.

Massachusetts

Family and Medical Leave program deadlines, extended for three months during the summer, are now fast approaching. By Sept. 30, employers are required to display a program poster in the workplace, provide individual written notice to all workers, and retain written acknowledgement of receipt from each worker, or in the alternative written rejection of such notification.

Starting Oct. 1, employers must begin collecting required contributions to fund the paid leave program. The initial contribution rate set by the state Department of Family and Medical Leave has been increased from 0.63 percent to 0.75 percent of wages to make up for the delay. Taxable wages per employee are capped at $134,900.  Contributions collected through Dec. 31 must be remitted through the Department of Revenue’s MassTaxConnect platform. Supporting employment and wage detail reports must be added beginning in January 2020.

The starting dates for taking leave benefits are unchanged. Family leave to bond with a new child and for managing family affairs of an active-duty member of the military, as well as medical leave for a serious personal health condition, begin in January 2021. Family leave to care for a family member with a serious health condition begins in July 2021. More information can be found here.

Gov. Charlie Baker has asked the legislature to amend state labor law to exempt 100 percent commissioned employees from overtime requirements, both going forward and retroactively. The governor acted after considering concerns expressed by the Retailers Association of Massachusetts and individual businesses about a state Supreme Court ruling earlier this year that required overtime pay even for sales staff who are paid entirely through commission. The court decision contradicted previous interpretations of law.

Missouri

Missouri is losing money by failing to require remote, online vendors to collect taxes on sales into the state, the business columnist for the St. Louis Post-Dispatch wrote. And the Missouri Retailers Association doesn’t like it.

“Traditional store owners are among the loudest voices urging state officials to take advantage of the June 2018 Supreme Court ruling, David Nicklaus wrote Sept. 6. “We need fairness,” said David Overfelt, president of the Missouri Retailers Association. “We don’t see why they can’t do this like the rest of the nation and give us the equity we need.”

“Among 45 states that levy a sales tax, only Missouri and Florida have not enacted a law or regulation requiring e-commerce companies to collect from customers,” Nicklaus reported. “The cash-strapped Show-Me State is missing out on a lot of money: Officials estimated in February that taxing online shopping could bring in at least $93 million for the state next year, and as much as $142.5 million. In addition, local governments could collect between $90.7 million and $138.6 million.”

Furniture retailers should contact their state representatives and urge them to support efforts to level the playing field. Legislation enacted this year failed because of objections that it added a tax increase.

New Hampshire

Gov. Chris Sununu signed a bill Sept. 3 to ban the manufacture and sale of upholstered furniture containing flame retardants, although retailers are given until January 2021 to comply. The new law also provides that manufacturers must notify retailers of products that don’t comply and that, “If a retailer takes delivery of upholstered furniture from a manufacturer that is subsequently found to contain one or more flame-retardant chemicals, the retailer is entitled to a full refund, including shipping and other related costs, from the manufacturer.”

The New Hampshire Retail Association does not support a new law intended to block other states from deriving tax revenue on sales made into their states by online vendors based in New Hampshire.

“As governor, I am going to do everything in my power to fight any attempt to force New Hampshire’s businesses to collect out-of-state taxes in violation of the United States or New Hampshire constitutions,” Gov. Sununu said when he signed a bill that lets the state Department of Justice test the legality of such collections in court.

“First of all, I need to say that we did not take a stance on this issue,” Nancy Kyle, president and CEO of the New Hampshire Retail Association, told The Center Square. She noted that other retail companies believe the requirement for online sellers to collect sales tax “lets them compete with Wayfair and Amazon. They think it levels the playing field. They’re already collecting sales taxes in other states; it’s not a big deal for them to do this.”

The New Hampshire law is expected to draw legal challenges.

North Carolina

North Carolina has enacted the Small Business Health Care Act, which allows trade associations, small businesses and self-employed individuals to form group medical insurance plans.

The law, which takes effect Oct. 1, essentially treats trade associations like large companies, letting them offer coverage to their members. The plans would be regulated by the state’s elected insurance commissioner. A minimum of 500 individuals covered would be required.

The North Carolina Chamber, N.C. Retail Merchants Association, Farm Bureau and other business groups strongly supported the bipartisan legislation, estimating that more than 100,000 people could gain medical coverage through association plans.

“Through this action, small businesses and independent contractors will now have an option for quality, affordable health insurance through association health plans,” Asa Fleming, president of NC REALTORS, said in a statement.

North Dakota

North Dakota collected more than $15 million in sales tax from out-of-state merchants from October 2018 through June of this year, according to the State Tax Department. Nearly 5,000 sales-tax permit applications had been filed by remote sellers.

The state’s 2019-21 biennium budget forecast includes just $25 million coming from remote sellers based on a 5 percent sales tax rate, the Minot Daily News reported. Local governments add their own sales tax, such as 2 percent in the city of Minot.

The projections may be conservative, however. Sales-tax revenue in July exceeded the amount forecast by 25 percent, boosted by collections from online sales, the Bismarck Tribune reported.

Oregon

Voters won’t get to decide whether to overturn a corporate activity tax enacted this year, as a key business group abandoned a petition drive to force a referendum.

Oregon Manufacturers and Commerce blamed legislators, telling supporters this summer that Democratic lawmakers “rigged the system so far in their favor that our chances of success at this point are very remote.”

Measures that legislators took to thwart the campaign included allowing petitioners to email petitions only to people who request them; requiring petitions to carry the full text of the initiative rather than a summary; and adding a provision that two separate votes would be required to overturn the tax increase.

The new law places a tax of 0.57 percent on all commercial activity over $1 million. It is a cascading tax in that it applies to transactions from supplier, to manufacturer to retailer. It takes effect in 2020. Revenue raised would support public education. Combined with personal income-tax reductions at the three lowest income levels, it is expected to gross more than $2 billion by the 2021-23 biennium.

South Carolina

“South Carolina’s sales tax collection coffers are now about $47 million fatter thanks to online companies,” The Post and Courier of Charleston reported Sept. 8. “That’s because remote sellers, or companies that don’t have a physical presence but do business in the Palmetto State, have been required for nearly a year to collect sales and remit taxes on the products they sell to South Carolina customers. The state collected $46.8 million in extra revenue from 3,089 registered remote sellers from Nov. 1 through June, according to Bonnie Swingle, spokeswoman for the state Department of Revenue.”

West Virginia

State legislative leaders told business groups recently they will try again next year to eliminate the business and inventory tax. The first task, however, would be to remove from the state constitution a requirement to assess the tax. It currently raises about $400 million a year, which is distributed to counties and school systems. An attempt to place a constitutional amendment on the ballot this year failed during the 2019 legislative session.

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