Cause and effect

These headlines have fun in recent days:

Sport Chalet closing all stores

The California-based retailer is also stopping all online sales

and

Sports Authority closing all stores, liquidating

The sprawling chain has abandoned efforts to reorganize

The burning question is why.  Increased competition is part of it.  Dick's Sporting Goods has positioned itself as the go to big-box sporting goods store.  REI has its niche, obtained by focusing on the relationship with the customer.  Big 5 has honed in on specific product groups and lines and lower pricing.  Still not the entire story.  WalMart and Target, along with other discount retailers have increased their sporting goods lines.  Some retailers of apparel have added more athletic attires to their stores.  Then there's the online competition.  

Phil Lempert is a Santa Monica-based analyst of marketing trends and he told The Daily Breeze that brick and mortar retailers are being victimized by what he called "showrooming."  That is where "...customers will walk into a store, take a look at electronics, try on a shirt or jacket they like and then order it online."    One shopper the Breeze talked to mentioned using eBay to save on shipping costs and sales tax.

Makes sense except for one thing.  Shoppers like the aforementioned Corey Hamilton aren't avoiding the sales tax.  They are evading it.  The difference is what is and isn't legal.  Tax avoidance, where one follows the law to pay the lowest possible amount of tax is legal.  Tax evasion is where someone ignores the law to avoid paying tax they legally owe.  California is one of the 45 states that have a sales/use tax.  In CA, if you buy from an out of state retailer, or an online retailer and that seller does not collect sales tax, then you owe use tax.  You can file a use tax return with the State Board of Equalization, or simply calculate your annual use tax bill and pay it on your state income tax return.

Most people are either unaware of the use tax law, or just ignore it entirely.  This gives online retailers an unfair advantage over brick and mortar stores.

That's a big reason why two sporting goods retailers are closing their doors forever.  They won't be the last ones forced to close.  Just part of a trend.

Reverse loopholes and other nonsense

"On April 13th, 2016, I wrote the federal government a check for $170,000 for the overage on my taxes. The reason for the overage? A “reverse loophole” that makes it harder for businesses to manage cash flow during tax time."

This was the first paragraph of an opinion piece I just read, by an entrepreneur I'm not familiar with.  He says much of the same stuff in a Youtube video you can view in that first paragraph if you follow the link to the written version.

I want to address some misnomers and misinterpretations in his piece.  

"At the end of 2015, we placed a major purchase order for inventory of our products. If you sell physical products in your business, the government does not allow you to write it off until it is sold, because it considers that purchase to be an asset, rather than an expense.
As a result, we drained the bank account to pay off the inventory, and then were hit with a larger than expected tax bill. In other words, the business was fully invested in inventory and people, and then we had to pay tax on money that was not yet earned."

This is not an accurate statement.  Yes, the Internal Revenue Code does not allow a business to claim an expense for inventory that is in the year end inventory.  But to claim the balance due on income taxes (not an "overage") was unexpected means that someone involved in the accounting of this business does not understand the basics of a simple tax calculation.  That being the Cost Of Goods Sold (GOGS).  Stated simply it is this:

Opening inventory + purchases - items withdrawn for personal use - ending inventory = COGS.

An example would be a big screen TV business.  It opens for business in 2015.  It buys $100,000 in TVs.  The owner takes a $5,000 TV home for personal use.  At the end of 2015, there are $45,000 worth of TVs in inventory.

$0 + $100,000 - $5,000 -$45,000 = $50,000.  The COGS for the year is $50,000.  The numbers work.

The remaining $45,000 in the store's inventory are an asset.  The expense of purchasing them is not recognized until they are actually sold.

This leads us to another simple equation.

Gross revenues - allowable expenses = net income.  Another label might be taxable income, although we're oversimplifying here.  Again, the rules regarding how inventory purchases are expensed are very well known.  To claim one was caught by surprise by these rules indicates one is unaware of the reality of business and taxes.

Let's move on to these specious claims from this opinion piece: 

"For one thing, the rhetoric which assumes that “the rich don’t pay taxes” is oversold and needs to stop."

"Meanwhile, 45% of the country pays no taxes at all, while telling me that I should pay more"

No one I know of is claiming the rich pay no taxes at all.  There are many people claiming the wealthy don't pay enough taxes, Bernie Sanders being most vocal on this point at the moment.  There is also no truth to the assertion that 45% (the author of that opinion piece) or 47% (Mitt Romney) pay no taxes at all.  President and Secretary Clinton paid over 35% in federal taxes in 2014.  Nearly one-tenth of their total tax bill was over $1 million in self-employment and added Medicare taxes on their nearly $28 million in income.

But there's a much similar way to look at this reverse loophole.  Let's suppose for a moment the author of the opinion piece were allowed to have claimed the year end inventory as an expense.  This would mean that when it was sold in 2016, the expense for COGS would have been zero.  You can't claim the expense of buying something for resale in one year and then claim it again the following year when it is sold.  So the sale of this inventory would have been almost pure profit in 2016 and the tax bill would have come due at the end of that year.  So there wouldn't have been $170,000 freed up for hiring three new people.  It would have to be used for paying taxes in the following year.

Firing Byron Scott is the answer not

It is sad that Byron Scott will be remembered in the record books as the Lakers' coach with the second worst winning percentage ever, only one point ahead of Hall of Fame player George Mikan.  Mikan was coach of the Lakers for part of one season, with a dismal record of 9 wins and 30 losses.  As a player who spent 11 seasons with the Lakers, he deserved better.

The die was cast well before Byron Scott signed a contract on July 28, 2014, to become the head coach of the Lakers.  It was cast when Kobe Bryant signed a two year, $48.5 million contract extension that would keep him with the Lakers until his recent retirement.  A feel-good, emotional decision that made many fans happy.  A horrible decision from the perspective of the team's future championship prospects.  A decision that meant Coach Scott would fail, utterly.

The team's roster is now completely devoid of superstars.  Or any player even approaching that status.  While it is true that they now have some serious salary cap room to sign a major star in this off-season, what NBA franchise player would want to come to Los Angeles?  It will take at least two full seasons of careful and smart moves by Mitch Kupchak and the front office in order to assemble a squad that can compete to make the playoffs, let alone advance beyond the first round.  Even if there was a franchise player available during this off-season (and there isn't), they wouldn't have any reason to come to Los Angeles.

Byron Scott did the best he could with what he had to work with.  It wasn't his fault.

A big decision after 36 years

Bank of America
Lowe's
VF Corporation
Extended Stay America
Snyder's-Lance
Krispy Kreme Donuts

Six large corporations who seem to have nothing in common.  But they are all headquartered in North Carolina and that's now a problem for me.  It is true that I no longer use Extended Stay America, but now I will not use them again under any circumstance as long as they are headquartered in a state that is legalizing discrimination against the LGBT community.

I do love the pretzels from Snyder's of Hanover, now part of Snyder's-Lance but I can give them up.  There are other pretzels out there.  Lots of alternatives to Lowe's and I don't buy much outdoor gear these days so VF isn't a problem.  I rarely eat donuts so no sweat about Krispy Kreme. 

But I've been a customer of Bank America for nearly four decades.  I don't want to have to deal with the major nightmare it would be to move my accounts to another bank.  To change all of my auto-pay debits and direct deposits.  However I can't help but consider it now that North Carolina has passed this law.

To be fair it has to be noted that Bank of America made a public statement denouncing the anti-LGBT law in NC.  But they have made large campaign contributions to the politicians who are behind this law.  They won't comment on whether or not they will continue to support these politicians.

So I am going to wait.  But if they give more money to these people, I'll be moving my accounts elsewhere.  In spite of the inconveniences it will cause.

Lessons learned and releared

I spent the entire day on April 19th decompressing following a very busy tax season.  I'm going to spend another day doing that on Wednesday.  But I have spent some time reflecting on the days from January 2nd through yesterday and hope I've learned (and re-learned) a few things.

There is a need to say no, although moderation is required.

My desire to make those above me in my chain of command happy has me raising my hand to volunteer when it would be a better choice to remain silent.  To say yes when asked to do things I know will require me pushing beyond my limits.  I hate the limits my physical infirmities place on me.  I like that my ability to will myself to exceed those limits on occasion.  However, doing it too often is not a smart choice.

* * *

No good deed goes unpunished.

I wrote about this a bit in a previous blog.  I thought I was doing a favor for someone who is a friend of a long-time client.  I quoted him a price range.  Bad idea.  Always a bad idea.  I wanted to be nice.  It was a bad decision.  Be professional, be courteous but don't put yourself into a bad position by not trusting your instincts.

* * *

Patton was right about war.  Paraphrased, he's right about business.

General George S. Patton was quoted as saying, "a good plan violently executed now is better than a perfect plan executed next week."  Right on the money.  Timing is critical.  That's why a good plan, executed well now is better than a perfect plan executed in the future.

* * *

Buzzwords and catchphrases are nice, but client focus wins the game.

We've had a lot of those.  Make the client feel connected, confident and championed.  Serve the client as the client wants to be served.  Be your client's advocate.  They are all useful and yet the primary message is simple.  Focus on the client's needs.  Be client-focused.  I've found this to be a key to giving clients that legendary service experience that will keep them coming back.

* * *

Knowing what you don't know is key.

I stress this in the classes I teach.  No one can know every aspect of a profession.  But you can and must know how to find out the answer to a client question.  If there is part of the task you don't know how to do, ask for help.  Ask someone with more experience.  Research the answer on the web.  You could just say to the client "geez, I don't know either."  Or you can say "I think I know the answer, but let me double-check to make sure I'm right."  You show the client you care enough to be certain you are correct.  That builds rather than reduces confidence.

 

A new face on the $20 bill

The currency of the United States has almost exclusively featured portraits of former presidents.  George Washington on the dollar bill.  Thomas Jefferson on the two dollar bill. Abraham  Lincoln on the five dollar bill.  And so on. 

The exceptions are notable.  Alexander Hamilton on the ten.  Benjamin Franklin on the hundred.  Dewitt Clinton on the $1,000 bill that no longer circulates and Salmon P. Chase on the $10,000 bill that also no longer circulates.  For some time now, it appeared that the first of the currently circulating bills to have a new portrait would be the $10, and that it would be a woman who would replace Hamilton, or share the honor of being pictured on this bill.  Now an official of the U. S. Treasury Department says it will be a different image being replaced.

President Andrew Jackson has been the face of the $20 bill since 1928.  While that was the 100th anniversary of his election to the White House there is no proof that the anniversary was the reason for choosing to commemorate his presidency.  It must be admitted that he was a war hero.  But he was not a perfect man.  He built his fortune through the plantation named The Hermitage, on the backs of the labor of the more than 100 slaves he owned.  Estimates of just how many people he "owned" during his life rise above the 300 plateau.

Now we've learned that Harriet Tubman will be the one to take his place on that bill.  Harriet Tubman, born a slave.  Harriet Tubman, abolitionist who was involved with more than one dozen missions to free slaves through the famed Underground Railroad.  Harriet Tubman, who helped to recruit men for John Brown.  Harriet Tubman, who fought for the Union Army.  Harriet Tubman, who later in life worked for the woman's suffrage movement.

In short, she is everything that Andrew Jackson despised.  Delicious irony indeed.

Random Ponderings on a Friday

Went out for breakfast this past week.  When I saw more than half-a-dozen motorcycle police officers come into the restaurant where I was eating, I wondered just who was watching the streets of the local area for traffic violators.  Then I remembered that President Obama was in the area and these guys were probably getting ready to be his escort from Westwood to LAX.  Guess the streets were covered after all.

* * *

Sometimes breaking a rule can come back to bite you in the ass even though you did it with good intentions.  Where I work we don't quote prices over the phone.  But when someone called and said that one of my best clients had referred him, I attempted to give him a price range.  I knew at the time it was a bad idea but he was insistent.  Now the work is done, the price was above the discussed range and the new client isn't happy.  I'm not happy either.  With myself for not simply refusing to quote a price.  Won't make that error again.  I hope.  But I need to release this and not stress over it.  Easier said than done.

* * *

Was discussing performance evaluations with a friend the other day.  When I was in the Air Force, enlisted personnel were given an Annual Performance Report at least once a year, and anytime they changed to a new direct supervisor.  The various categories and overall ratings were on a scale from 0 through 9.  So why was is that 92% of all APRs had an overall rating of 9 and 98% had an overall rating of 8 or better?  Because most performance evaluation systems get skewed.

Where I work now we get rated on five categories and every client is afforded the opportunity to do the survey.  Not all do.  I've done over 300 returns this year and only 121 clients have done the surveys.  Even though my ratings in four of the five categories after that amount of surveys is above 90% and the fifth category is over 85%, all I see are the negative surveys.  I feel like I've failed those people that gave me negative ratings. 

Why I focus so much on the few negatives and gloss over the few positives is hard to pin down.

* * *

Bruce Springsteen took a stand against the action by North Carolina to pass a law to discriminate against the LGBT community.  Some are critical of his choice to cancel a concert that was scheduled for April 10th.  I applaud the decision.

Lawmakers who want to appease their constituencies that are made up of religious zealots cannot be reached by any other way that through the coffers of government.  When businesses make choices that tell these lawmakers that they will take their business to locations that will not support such discrimination, lawmakers may well listen. 

* * *

Sam Rockwell, best known for his role as Security Officer Guy Fleegman in the 1999 film "Galaxy Quest" now says that the death of Alan Rickman ended the chance of a sequel to that film.  That's sad news.  I'd have loved to see a sequel to Galaxy Quest, whose brilliant satirical take on the sci-fi genre was just awesome.

* * *

Steven Bren is the son of the richest man in Orange County.  He's also #5 of the most recent list published by California's Franchise Tax Board of the top tax delinquent taxpayers, with a balance due of $4.6 million.

The list says a lien was recorded against Bren in 2009.  So how is it that he was able to sell a home last year for $5.4 million without that lien being paid off?

* * *

The fact that the billionaires and political operatives behind the "secret movement" to draft a retired Marine Corps general named James Mattis to run for President are people that we cannot trust tells me it is an idea that is not good for America.

* * *

Someone needs to tell Steve Wynn that poor people don't like being around him.

* * *

Opinions

Danny Cevallos is an attorney and a legal analyst for CNN.  In an opinion piece posted on CNN.com, he uses the arrest of soccer star Abby Wambach for DUI to claim the crime of DUI "makes no sense." 

I disagree.  There are a lot of reasons why.  Many can be found in a Centers for Disease Control fact sheet on the topic of impaired driving accidents.

9,967 - the number of people who died during 2014 as the result of an accident involving an alcohol-impaired driver.

28 - the number of people who die every day in the U.S. due to an alcohol-impaired driver (that's the CDC's number, a more accurate number is 27.3).

44 - The monetary cost of alcohol-impaired driving accidents, in billions of dollars annually.

59% - The percentage of alcohol-impaired driving accidents involving drivers between the ages of 21 and 34.

There are other reasons besides those in the CDC Factsheet.

16 - The number of times that Clarke Morse had been arrested for DUI prior to the night he ran his truck into the car of Cynthia Brennan.  Police estimate that Morse's truck was traveling in excess of 50 MPH on a city street.  The impact killed Brennan's sister Lela and left Cynthia Brennan paralyzed from the chest down.  This case gained notoriety due to the fact that Ms Brennan had recently won a $35 million MegaBucks jackpot on a slot machine.

51 - The first number in the prison sentence Andrew Gallo received for a DUI incident where he killed Los Angeles Angels of Anaheim pitcher Nick Adenhart and two others.  Gallo was more than three times over the legal BAC limit when the borrowed van he was driving rammed into the car that Adenhart and friends were in.  The estimate is that the van was going at least 65 MPH when the collision took place.  Gallo fled the scene on foot.  When sentence was pronounced in court, Gallo said, "I want you to know I never intended to hurt anyone. I am not a bad guy. I'm not a horrible person. ... I pray that one day you can forgive me and accept my apology."  How could he have not intended to put lives at risk when he got behind the wheel with a drivers license that was already suspended for 2006 DUI conviction?

27 and 34.  The number of those who died and who were injured in what many consider the worst DUI accident in U. S. history. 

10 and 11.  The number of years and months that Larry Mahoney spent in prison for the above crime.  He was sentenced to 16 years but got out more than five years early for "good behavior."  He was driving a pickup truck the wrong way on an interstate highway when he crashed into a former school bus now in use by a church. 

* * *

I could list a ton of these tragedies and still the point apparently hasn't been driven home to Mr. Cevallos.  The crime of DUI makes perfect sense because every time an impaired driver gets behind the wheel they put the lives of others at risk.  Any traffic accident (and I use that term loosely) where alcohol was involved is something that is almost entirely preventable.

Donald Trump - It just isn't fair to me

Now that it appears that the Toupee won't accumulate enough delegates to capture the Republican presidential nomination on the first ballot, he is whining that it isn't fair to him to allow Ohio Governor John Kasich to continue with his campaign.  Why?  Because the votes that Kasich gets are coming from potential Trump voters.

Now if it was Senator Ted Cruz who would benefit from Governor Kasich ending his campaign, Trump would probably do everything right up to and including funding the Kasich campaign to keep it going.  Whatever benefits Trump is fair to Trump.  That's rule #1 in the Trump rule book.  It's the only rule in the Trump rule book.

Mr. Trump's call for Governor Kasich to exit the primary race is yet another example of how little he actually understands our nation's political process.  The campaign trail is open to anyone who wants to seek the nomination, provided the meet the minimum legal requirements as set forth in the Constitution.  Should any of the candidates who were running earlier in the race for the 2016 Republican nomination were to decide to resurrect their campaign, they are free to do so.  The fact they could not possibly gain enough delegates to win the nomination is meaningless.  This idea that a candidate must quit the race when they are mathematically eliminated from gaining the nomination on the first ballot exists only in the hollows of the twisted pretzels of logic that roam freely in the mind of Donald Trump.

So Mr. Trump, stop whining about what isn't fair to you and campaign.

Donald Trump's reality check is about to bounce

The man who would be Trumperor (at least in his mind) said the following recently when discussing what happens if he does not have enough delegates to win the Republican presidential nomination on the first ballot at the Republican Convention that will take place this coming July in Cleveland, OH:

"If we are millions of votes ahead of everyone else and hundreds of delegates ahead of everyone else, I really think that whoever has that kind of an advantage should get it," he later added. "I think it's awfully hard to take that away."

Actually it's quite easy to have that taken away and disregarded completely.  Once again Mr. Trump is proving he is not a student of history.  History tells us that in the ten brokered Republican conventions, only three of the candidates with the delegate lead entering the convention ultimately received the nomination.  Not a very good chance for Mr. Trump if history proves to be a good predictor of the 2016 convention's outcome.

Let's review the history of brokered Republican Conventions:

1860 - New York's U.S. Senator William Seward had the delegate lead going into the convention.  But he did not prevail on the first ballot.  After three ballots, the man who had come into the convention in second place in the delegate count became the nominee.  His name was Abraham Lincoln.

1876 - Maine's U.S. Senator James Blaine was the delegate leader heading into the convention.  He had 38% of the delegates in his pocket.  In fourth place was Rutherford B. Hayes, the governor of Ohio.  Hayes became the nominee.  Thanks to the suppression of black votes in the South by the Democrats, he lost the popular vote but won the Electoral Vote and became president.

1880 - Former President Ulysses S. Grant was the front runner going into the convention.  He had 40% of the delegates.  James Garfield, a member of Congress from Ohio went into the convention without a single delegate and yet he would become the nominee.  He went on to win the presidency that November.

1884 - Senator Blaine was the front runner again and this time he got the nomination on the 4th ballot.  He lost to Grover Cleveland, the first win for a Democrat since 1856.

1888 - John Sherman, a U. S. Senator from Ohio was the delegate leader.  Benjamin Harrison, a U. S. Senator from Indiana and way behind in delegates entering the convention won the nomination and eventually the presidency.

1916 - Charles Evans Hughes was an Associate Justice of the U. S. Supreme Court and he resigned in 1915 to become a presidential candidate.  He entered the convention with the delegate lead and after several ballots became the nominee.  He lost in the general election.

1920 - Major General Leonard Wood, a Medal of Honor recipient came to the convention with 29% of the delegates.  Warren Harding, a U. S. Senator from Ohio had only 6.7% of the delegates.  It took ten ballots for Harding to become the nominee.  He won in a landslide.

 

1940 - Wendell Wilkie became the nominee after delegate leader Thomas Dewey failed to prevail on the first bllot.  He lost to FDR.

 

1948 - This time Dewey had the delegate lead and became the nominee.  Even though the newspapers said Dewey had won, he lost to Harry S Truman

 

1952 - Robert Taft, son of President William Howard Taft, led in delegates but he lost the nomination to General Dwight D. Eisenhower.

Dewey, Hughes and Blaine all earned the nomination as delegate leader.  All three lost.  Six of the seven times someone other than the delegate leader got the nomination, they won.

#DumpTrump should be the Republican motto.  Since I wasn't smart enough to copyright it, my loss.