Taxation of Chain Stores

August 28, 1934

Report Outline
Development of Anti-Chain Store Segislation
Growth of Chain-Store Taxes in States and Cities
Chain-Store Tax Laws in State and Federal Courts
Record of Chain Stores During the Depression”
Special Focus

Development of Anti-Chain Store Segislation

A Phenomenal growth of the chain-store method of distribution during the ten years following the war, to the detriment of competing, independent retailers, gave rise toward the end of the decade to a wide spread campaign to curb the expansion of chains by subjecting them to special taxation. Bills to this end were offered in two state legislatures in 1925. Two years later, laws directed against chain stores were enacted in Delaware, Georgia, Maryland, North Carolina, and Pennsylvania. The movement gathered strength rapidly thereafter, until in the year 1933 alone no fewer than 12 new or revised statutes of this nature became law, and bills were considered in most of the other state legislatures in session that year. Chain-store taxes are now levied by 20 states and at least five municipalities. Invalidation by the courts of the first half-dozen of these statutes caused some hesitancy among legislators who would otherwise have been ready to penalize the chains. On May 18, 1931, however, the United States Supreme Court upheld the constitutionality of an Indiana law imposing license fees on retail stores graduated in accordance with the number of stores under the same general ownership and management. Buttressed by this decision, legislatures in nearly one-third of the states proceeded in the next two years to add chain-store levies to their tax systems or to raise the rates of such taxes already in force. There will be regular legislative sessions next winter in 42 states, in 25 of which there are now no special chain-store taxes. In view of continued agitation against chain-store competition and in view of the pressing need of revenue felt by most states, it is probable that the 1935 legislative season will produce a new crop of such levies.

Independents, Chain Stores, and the N. R. A.

The competitive situation between independents and chains has lately been improved, from the standpoint of the former, by inclusion in all codes governing retail trade of a provision proscribing use of so-called loss-leaders as an “unfair trade practice.” Featuring of articles for special sale at prices below cost, as a means of attracting customers and boosting sales of other goods, was a method widely followed by chains but one which independent retailers, lacking a volume of sales sufficient to compensate for such losses, found it difficult to employ. Prohibition of loss-leaders by the N. R. A. has thus removed a source of bitter complaint on the part of in dependents. The mass buying capacity of chains and other advantages accruing to them from sheer bigness still enable them, however, to under sell small retailers without violating code provisions forbidding sales below cost.

Independents have been handicapped, moreover, by code rules prohibiting the grouping of purchases by individual retailers through a single buying agency, in order to obtain discounts approaching those granted on the mass purchases of chains. The National Retail Drv Goods Association and independent merchants have strongly protested these and other code pro visions creating price differentials favoring chains and mail-order houses. A movement to bring such rules up for hearing before the Federal Trade Commission is reported to be under way.

ISSUE TRACKER for Related Reports
Chain Stores
Sep. 10, 2004  Big-Box Stores
Mar. 22, 1938  Equalization of Chain Store Competition
Aug. 28, 1934  Taxation of Chain Stores
Apr. 24, 1930  The Chain Store Problem in 1930
May 21, 1928  Development of Chain Store Merchandising
BROWSE RELATED TOPICS:
Retail Trade
State and Local Taxes