At the end of last week, a federal court struck down a law passed in 2010 that would have required certain online retailers to collect Colorado state sales tax for online purchases.

The court’s decision held that the law was unconstitutional, because it placed an undue burden on interstate commerce. Generally speaking, this is because Colorado cannot pass laws that restrict commerce or business that crosses state lines, because the U.S. Congress has the sole responsibility to regulate that area of the law.

Legalese aside, this means that when you buy things online you still do not have to pay sales tax, unless the online retailer is actually located within Colorado.

Some news stories have spun the issue, saying the decision “vindicated” the Republicans or that the Democrats lost.  But, the truth is that the court didn’t care who “won.” Knowing Judge Blackburn, the judge who wrote the decision, I am confident that the decision was neutral and objective, and legally the correct outcome.

However, the real issue is not which party won a fiscal battle, but what affect the decision will have going forward.  The law was originally passed with two laudable goals: 1) to generate additional tax revenue to aid an out-of-balance state budget; and 2) an attempt to even the playing field for local retailers (some called it the “Amazon Tax”).

I would be a hypocrite and liar to say that I don’t shop online, or that I don’t love seeing “$0.00” for sales tax when making a purchase. But, as a proponent of small businesses, I think it is critical to support the local economy, as well as continue to search for viable solutions for our unwieldy state budget. Regardless of whether the court was right in making its decision (which it probably was), there still exist two problems in need of solving.

Currently, online retailers have three main advantages over local brick-and-mortar retailers: 1) little or no sales tax encourages online spending; 2) low overhead (no fancy storefronts needed); and 3) a much larger potential customer base. The proposed law would have at least limited one of the three advantages that online retailers have over local stores.

Additionally, as far as the state budget is concerned, the proposed sales tax produced a new source of funding to the government that was based on consumption, rather than taking more from your paycheck every week, before you even cash it. Unless you also receive a paycheck from an online retailer, online shopping is a one-way street that siphons money out of the local economy.

So, while it’s nice to buy things for the advertised price, with no add-ons inflating the bill at check-out, it is equally important to remember where your money is going, whether to New Jersey, China, India, or anywhere else.

Several years ago, I saw a wonderful sign hanging in a leather repair shop that read as follows:

1) Fast,
2) Good,
3) Cheap.
Pick any two.

The simplicity and brilliance of that sign is undeniable.

Recently, that sign came to mind as a friend and new client discussed a situation he was facing. It suffices to say that my friend turned to an online legal service for general business advice and documentation for a project. After chastising him for not picking up the phone and giving me a call ahead of time, we discussed how I could help.

Although I have seen TV commercials, billboards, and other ads for online legal services, I have never known anyone who used them. I am an advocate of affordable legal services and I don’t think legal advice should require a second mortgage or promise to name your first born after your attorney.  So, I always considered those services to be a good alternative that filled a need for run-of-the-mill legal issues (if there is such a thing).

However, I was shocked to learn that not only are online legal services not very affordable, but they may end up costing you more than if you had gone to an attorney in the first place, because you may need to fix problems that the services create.

After reviewing my friend’s documents, I identified several issues that needed to be fixed. While all of the documents were technically sound (meaning that they were free of typos and did create legal rights), they were filled with things that could develop into critical issues for him down the road. Some of the major issues included:

1) A waiver of legal notices;

2) Relying on and referring to other entities that my friend had no idea who they were, what they did, or that they even existed; and

3) Creating an opportunity for someone to take an ownership interest in the entity without my friend’s approval.

I won’t identify the online service that was used (to avoid the libel claim against me), but I will say that I am now generally leery of online legal services.  My naïveté has faded and, not wanting to sound like a self-promoting attorney, I highly recommend avoiding such online services.  While the click of a mouse may make you feel productive and put your mind at ease today, the ripple effect of the quick fix can be disastrous.

If for nothing else, let my friend’s experience serve as an example that taking the time to understand what you need and how to get it done efficiently and affordably will payoff in the long run.  As my mother always says, “measure twice, cut once.”

_ Today, the Denver Post published an article about a local business, M&D’s Cafe, which is closing its doors after 34 years in operation because it is unable to make payments on its loans or pay its taxes. The story is important because the cafe was a major presence in its neighborhood, and it is an example of how the economic downturn continues to affect businesses - even those considered to be landmarks.

In November, I wrote an article about the City of Denver’s Office of Economic Development (OED), and the emphasis that Mayor Hancock is placing on small business development (Bureaucracy Better For Business?). The article discussed the small business lending programs that the City offers, where traditional financing through banks is unavailable. It just so turns out that M&D’s was a recipient of one of the loans through the OED, and that the City of Denver is foreclosing the loan.

While the Post maintained its journalistic neutrality and reported the case in an honest light, it is hard to read the article and not feel that the City is the bad guy in this case. But, it is important to remember the role that the OED plays in making small business loans. When you read about a foreclosure it is easy to lump the City’s lending program in with the other bad press about banks. However, what is important to remember is that the OED’s lending program gives small businesses the opportunity for financing and another chance, where traditional financing alternatives are not available.

So, while it is sad to see another business close its doors due to hard times, it is also important to keep in mind that the OED’s lending program made it possible for M&D’s to keep serving the community for a little longer that it would have otherwise.

_ This week, Mayor Hancock announced the appointment of Chris Martinez as the Director of Small Business Opportunity for the city of Denver, which is a new position within the city’s bureaucracy. Mr. Martinez will join the city’s Office of Economic Development (OED) in an effort to re-focus and re-energize the department, emphasizing economic development for small businesses.

More specifically, Mr. Martinez will lead the Small Business and Start-up Advisory Group, which is also a new creation of the Mayor’s that was introduced during his first 100 days in office. The Mayor’s office has explained that the purpose of the group is to make Denver the “Start-Up and Small Business Capital of the country.” To do this, they say that the group will focus on high-growth, innovative start-ups that create new products and services, hopefully resulting in the creation of high-paying jobs.

Previously, Mr. Martinez was a board member of the Regional Transportation District (RTD), where he was partially responsible for budget oversight, and before that he worked for the Federal Reserve Bank of Kansas City for over 35 years.

Admittedly, I am a skeptic when it comes to the government announcing new groups, committees, or advisory boards, because I don’t necessarily believe that the costs of the projects are usually worth the returns. However, I am quite interested in following Mr. Martinez and the emphasis on small business development that the city has put forth as a new priority.

When I first heard about the city’s new project, the only thing I could think was “oh great, the city’s adding new salaries to the budget that won’t be worth their cost.” But, as I looked further into the issue, my perception changed. As I learned more about Denver’s OED, the skepticism lessened and I am now excited to learn more about the new programs and watch them develop.

Given Mr. Martinez’s background with the Federal Reserve Bank, the natural question I had was “how will Mr. Martinez be able to provide funding and availability to start-up capital to small businesses through the city?” Funding is generally the key to small business development. Well, I was pleasantly surprised to learn that Denver currently has two lending programs for new businesses: the Revolving Loan Fund (RLF) program, and the Neighborhood Business Revitalization (NBR) loan program.  

Each program offers lending services for businesses located in designated neighborhoods throughout the city, in an effort to develop local economies where business and financing are lacking. In a time where private lending has slowed (if not dried up altogether) it is fantastic to see the city stepping in and truly providing a public service – financing and capitalization. Given Mr. Martinez’s background in banking, I can only hope that much of his work will be to broaden and expand those programs.

It remains to be seen how effective the Small Business and Start-up Advisory Group will be. The best laid plans of mice and men often go awry. But, for the first time in a long while I can say that I support the direction the city is going, and I hope to be able to report on future successes of Mr. Martinez and his new program.

This past Tuesday, the polls were open and ballots were counted for the most recent series of Denver elections. The three main issues up for vote included Proposition 103 (tax increases supporting educational funding), the Denver public school board elections, and Referendum Initiative 300, also known as the Paid Sick Leave Initiative. 

Without a doubt, all eyes were focused on the outcome of the Paid Sick Leave vote, both here in Colorado and throughout the country. With 64.0% of the votes going against the initiative, Denver voters voiced a resounding “no thanks” to the idea of mandatory sick leave benefits for employees. 

The initiative would have required every employer to provide paid sick days to employees at a rate of one hour per every thirty hours worked. Businesses with less than 10 employees would have been capped at 5 days of sick leave per year, while businesses with more than 10 employees would be capped at 9 days.

But, in a time when protesters have set up camp across from the state capital building and there exists a major pro-“common man” movement, why did a seemingly pro-employee initiative get so utterly defeated?

A campaign spokesman for the initiative said that the defeat was a result of its opponents' spending power. It is certainly true that there was more money available for campaigning against the initiative, with opponents including national figures such as the National Restaurant Association, and local figures such as Governor Hickenlooper and Mayor Hancock. Together, their efforts produced significant TV and radio air-time, as well as distribution of anti-initiative pamphlets handed out by small businesses throughout the city.

However, there was much more than mere campaign resources at play with the defeat of Initiative 300. Colorado is decidedly small-business oriented, and much more economically friendly to small businesses than many other states.  As a result, there are quite a few Colorado businesses owned by the “common man.”  And those owners showed up to vote.

The Colorado Office of Economic Development and International Trade (OEDIT) publishes an Economic Development Databook, which discusses the status of the Colorado economy. The Databook details segments of the economy and categories of businesses that make up the economic engine of the state, and identifies major trends within each of the segments and categories.

In the current 2010-2011 edition, the Databook highlights Colorado’s US News ranking, which places the state 3rd in the U.S. for the best states to start a business. According to the Databook’s own statistics, Colorado ranks 2nd in business start-ups per capita, and American Express’ OPEN Forum networking site for small businesses also ranks Colorado as the second most small-business friendly state.

What does all of this mean for you? Well, that depends on your situation. 

Without Initiative 300 employees are still only entitled to the paid sick days provided under their employment agreements. However, the efforts made to defeat Initiative 300 show strong and distinct support for small businesses in Denver, and Colorado in general. As a major source of employment in the state, the continued success of small businesses will foster better living standards and continued economic development for businesses and individuals alike.

So, while Initiative 300 seemed like a great addition to employee rights at first glance, its long-term effect could have limited employee hiring and restrained a major segment of Colorado’s economy, resulting in a continued economic lull and reduced employment opportunities. Therefore, its defeat was a major win for both employers and employees.