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2013: State Legislative Challenges and Opportunities

Once upon a time there was a man who had a dog, a dog that he just couldn’t seem to keep to himself. One day the dog would get into a neighbor’s garden; the next day it would attack a nearby farmer’s sheep; the day after that, it would bite a child walking home from school.

Finally, the neighbors took the matter to the town council. So the council passed a law that anyone who failed to control their dog would be fined. The next time the man’s dog was caught, he denied it was his. So the council enacted a law that everyone should register their dogs. Soon after, the first man’s dog was mistaken for a dog it resembled.  So the council passed a law that every dog should have a license on its collar.

The council realized that the town would need a new employee to hand out the licenses.  So the council charged a fee per license to pay the employee’s salary. The fees were so high that many people secretly avoided paying them. So the council lowered the fees and put a tax on haircuts to make up for the difference.  People started wearing their hair longer and two barbers went out of business.

Meanwhile, it had occurred to some bright soul that if it was a good idea to license dogs, it might be a good idea to license dog owners as well.  And so it goes on and on.

Danger of Regulation

This is the danger of regulation.  There is hardly a law in America, however objectionable, that cannot trace its ancestry back to somebody’s good intentions.  The result of many good intentions accumulated over time is our current vast, onerous, expansive–and still expanding–administrative state.

Such is the environment in which the franchise industry often finds itself. Each year, thousands upon thousands of state legislative bills are introduced and the vast majority of them are introduced with the best of intentions. However, with apologies to Mr. Spock, many pieces of legislation are concerned with the “needs of a few over the needs of the many.”

The International Franchise Association has always taken the position that the occasional disagreements that arise between franchisees and franchisors should be resolved between the parties and not through legislation that will have the likely result of encompassing other franchisees and franchisors uninvolved with the original dispute.  Proponents often come armed with numerous pages of “laundry lists” to resolve their immediate issues. When asked by legislators what legislative outcome is sought by IFA, the best answer often is simply that no legislation is needed.

Budget Difficulties and Revenue Targets

The 2012 elections are over. The dust from them has all but settled. In a few weeks, state legislatures will convene their 2013 sessions.  There will be many new faces in state capitols and this will result in numerous fresh pieces of legislation–some good and some not so good.

States continue to face historic budget difficulties.  According to the State Budget Crisis Task Force, co-chaired by former New York Lt. Gov. Richard Ravitch and former Federal Reserve Chairman Paul Volcker, “[w]hile the study states (California, Illinois, New Jersey, New York, Texas and Virginia) differ along many dimensions, including politics, policies, economies, and demographics, they share many problems, including these six major fiscal threats:

  • Medicaid Spending Growth Is Crowding Out Other Needs
  • Federal Deficit Reduction Threatens State Economies and Budgets
  • Underfunded Retirement Promises Create Risks for Future Budgets
  • Narrow, Eroding Tax Bases and Volatile Tax Revenues Undermine State Finances
  • Local Government Fiscal Stress Poses Challenges for States
  • State Budget Laws and Practices Hinder Fiscal Stability and Mask Imbalances”

Until the states get their fiscal houses in order, businesses, including franchises, will be viewed as revenue targets.  IFA will continue to fight the attempts of states to expand the tax nexus standard to that of a mere “economic presence.”

IFA, however, is not simply on the defensive in opposition to franchising bills, we plan an ambitious proactive legislative agenda as well.  This year, due to IFA’s efforts, Georgia enacted a law clarifying franchisees as independent contractors.  The association will be seeking similar legislation in Delaware, Indiana, Massachusetts and Nebraska.  Much of the groundwork for these efforts has already been completed.

Whether IFA is opposing or promoting legislation, it has the chance to promote the franchise industry by educating elected officials and staff on the incredible economic impact we have in their states. Further, each time we visit a state capitol, it is an opportunity to showcase programs such as VetFran and MinorityFran.  IFA and the franchise industry have great stories to tell, we must tell them at every turn. ⎯

Dean Heyl is director, state government relations, public policy and tax counsel for the International Franchise Association. He can be reached at dheyl@franchise.org or 202-662-0792.

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