The Federal Trade Commission’s (FTC) proposed rule to ban so-called ‘junk fees’ has stirred up a hornet’s nest of potential complications for businesses, particularly those operating in states like New Mexico, Alabama, Arizona, Hawaii, and possibly California. The rule, which aims to crack down on hidden and deceptive fees, requires sellers to display an all-in price that includes all charges except two: shipping charges and government charges on consumers. However, the definition of ‘government charges’ is proving problematic.
Under the proposed rule, ‘Government Charges’ are defined as all fees or charges imposed on consumers by a Federal, State, or local government agency, unit, or department. This definition does not encompass fees or charges that the government imposes on a business and that the business chooses to pass on to consumers. This narrow definition runs into issues with some states’ sales taxes.
In New Mexico, for instance, the legal incidence of the sales tax is on the business, which then either can or must pass that cost along to the consumer. This means that New Mexico’s sales tax does not qualify as a ‘government charge’ under the FTC’s definition. A New Mexico-based company would be legally required to include the New Mexico sales tax in their all-in published price if selling to an in-state consumer. However, for online transactions, they couldn’t know that the consumer was in-state before securing an address.
Similar issues could arise in Alabama, Arizona, Hawaii, and possibly California. In Alabama, state law prohibits including the sales tax in the listed price. This means that an Alabama-based company might be required by federal regulation to include the Alabama sales tax in the listed price, while simultaneously forbidden to do so by state law.
The solution to this issue could be to broaden the FTC’s definition of government charges to include taxes and fees legally imposed on businesses which they are allowed, or required, to pass along to consumers. This would prevent businesses from breaking out all the government taxes and fees they pay into hidden add-ons, while also avoiding the potential complications arising from the sales taxes of certain states.
The proposed rule is well-intentioned, aiming to protect consumers from deceptive pricing practices. However, as it stands, it could inadvertently create a significant administrative burden for businesses, particularly small remote sellers. It’s crucial that regulators consider these potential consequences and adjust the rule accordingly.
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