You may have seen the commercial. It's shot in the crudely effective style of ads for bankruptcy lawyers and credit counseling services: a lone spokeswoman locks her gaze on the camera and, while print scrolls across the bottom of the screen, encourages every paranoid thought you might have had about participating in the bold new world of E-commerce. She speaks of hackers who've broken into computer files at the FBI and the Pentagon and asks if your privacy is destined to be invaded next. "Over half a billion dollars is lost in Internet sales fraud each year," she intones, as the accompanying scroll credits the statistic to the U.S. Secret Service.
The commercial has aired regularly on local cable, showing up during CNN's Crossfire and even during MSNBC's coverage of the summer Olympics. Its real purpose--and that of a sister ad spotlighting the joys of shopping at the Golf Mill mall in suburban Niles--is to focus Chicago viewers' attention on the brewing national debate over Internet sales taxes.
The ads, which cost only $1,000 each to produce, are the brainchild of Niles mayor Nicholas Blase, who has paid to produce and air them using $35,000 of his village's $15 million annual budget. If he has his way, glossier commercials with a more powerful punch will fill the nation's airwaves between now and next spring.
The ads are part of the developing war between traditional brick-and-mortar retail stores and dot-com retailers such as Amazon, eBags, and eToys--which are at the center of a rapidly growing virtual marketplace that raked in $61 billion in sales in 1999. Proponents of an Internet sales tax fear that shoppers will drift away from traditional stores, depleting the sales tax base of cities and towns and eventually crippling their ability to provide services. And they believe that a sales tax on all Internet purchases would help level the playing field.
So far most Internet sales are not taxed; on-line shoppers pay taxes only if they live in a state where the retailer has a physical presence. If Chicagoans make a purchase on-line from the Eddie Bauer Web site, they'll wind up paying sales tax because Eddie Bauer has stores here. But if they buy from Priceline, which has no stores in the state, they'll pay no taxes.
The U.S. House of Representatives recently voted to keep a moratorium on Internet taxes for five years. The Senate has yet to make up its mind--and that's why Blase is building a consortium he hopes will persuade senators to vote to impose the taxes.
It's a huge, quixotic quest for a 72-year-old small-town mayor. "The biggest problem we normally deal with," he says, "is people showing up at city hall complaining about their homes flooding after a rainstorm." Blase, who's been mayor of Niles for 39 years, running unopposed for the last 12, was born to Greek immigrant parents and raised on Chicago's south side, in the same neighborhood, near 31st and Wentworth, that produced the Daley dynasty. He went to De La Salle High School, where Richard M. Daley and countless other politicos spent their formative years. "Maybe there was something in the water there," he jokes.
After graduating from Notre Dame, he went on to law school there. "You could say my dad inspired me to enter law," he recalls. "In Greek culture the oldest son is the lead guy, and my dad thought law school was the way to go to be a success in this country. He pounded it into me, but once I got there I enjoyed it."
He was first elected mayor in 1961, but despite having become Niles's mayor for life, he doesn't appear to have much of an ego. His office has the homey atmosphere of your grandmother's living room, and the carpeting and paneling don't seem to have changed in four decades. An honorary fireman's helmet hangs on one wall near a cartoon that shows a judge looking warily at two shark fins coming toward him, captioned, "Counsels approaching the bench."
However low-tech his style, Blase, backed by local businesses, is ready to take on the high-tech industry. "When a village like Niles has a $15 million annual budget but only a fraction of that comes from property taxes, it means we are dependent on the revenue brought in by our stores and malls," he says. "People might marvel at the technology of Internet shopping now. But if it continues to grow it'll hurt our stores' sales, and eventually people will wake up and wonder why their city services have had to undergo cuts. Eventually it will affect daily life."
Of course not everyone believes that. Bob Smith, executive director of shop.org, a Maryland-based national coalition of E-tailers that tracks trends and provides its members with up-to-date industry statistics, is adamantly opposed to taxing Internet sales. "On-line retailing is no different than shopping via phone from catalogs," he says. "As long as that common form of shopping goes without taxation, so should E-marketing. Whether it be catalog shipping or E-tailing, there's the added expense of shipping. Shipping is not a cost for in-store sales. Having these sales not taxed evens out the cost." He adds that the Internet should be seen as just another sales tool. "We feel this campaign is misguided because retailing today is evolving into a multichannel business environment where retailers are just trying to offer a full range of options to the consumer. Those companies which have stores are using their Web traffic to drive activity to the stores. They can all coexist and support each other."
Dan Good, assistant vice president of global securities research and equities for Merrill Lynch Capital Investments in New York City, agrees. He thinks Blase's concerns follow a pattern in retail history. "Every time some new form of sales avenue comes along," he says, "people fear the changes that come with it." Instead, he says, they ought to see the Internet market as a place where consumers can research their purchases at home before heading out to the stores. "The reality is, anything that helps the consumer ultimately helps sales--and the Internet can certainly build on retail sales the way that catalogs do."
The shop.org people also decry Blase's claims about the risk of Internet fraud. "There has never been a case of a credit-card number being stolen on-line when using a secure server," says Sherry Syence, director of marketing and communications. "The majority of instances of Internet fraud are instances that occur in the real world, using cards that don't have authorization. The real effects of fraud therefore are on the merchants themselves."
Despite such arguments, Blase is pushing ahead with his plan, hoping to get city and village leaders around the country to join in the effort to pressure the Senate to vote their way. In August he held a breakfast where he formally introduced the issue to more than 150 local town and village leaders and started fund-raising--he hopes to eventually see a $6 million national budget.
According to Blase, most of the leaders applauded his plan. "I support the campaign wholeheartedly," says Skokie mayor George Van Dusen. "It's a question of equity, among other things. The Main Street businesses are at a disadvantage. I did support the original moratorium [on Internet sales taxes]. They were start-up companies and needed time to get the whole thing going. But they've had that time." Schaumburg's mayor, Al Larson, also supports the campaign. "Clicks and bricks should get the same treatment," he says.
Now Blase is pushing to get mayors from other states on board. "We will produce another inexpensive spot--probably using the same woman, since it was so successful--and offer it free of charge to municipal associations and cities all over the country and then let them utilize their own city or town funds to put the commercial on the air," he says. "At least 40 states have picked up on our story in their news outlets. Now it's up to their leaders to decide whether to pick up on it."
Art accompanying story in printed newspaper (not available in this archive): photo/Lloyd DeGrane.