Direct Marketing Association, The v. Huber
Filing
50
RESPONSE to 15 MOTION for Preliminary Injunction with Incorporated Memorandum of Law filed by Defendant Roxy Huber. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, Part 1, # 8 Exhibit 7, Part 2, # 9 Exhibit 7, Part 3, # 10 Exhibit 7, Part 4, # 11 Exhibit 7, Part 5, # 12 Exhibit 7, Part 6, # 13 Exhibit 7, Part 7, # 14 Exhibit 8, # 15 Exhibit 9, # 16 Exhibit 10, # 17 Exhibit 11, # 18 Exhibit 12, # 19 Exhibit 13, # 20 Exhibit 14, # 21 Exhibit 15, # 22 Exhibit 16, # 23 Exhibit 17)(Scoville, Stephanie)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 10–CV–01546–REB–CBS
The Direct Marketing Association,
Plaintiff,
v.
Roxy Huber, in her capacity as Executive
Director, Colorado Department of Revenue,
Defendant.
______________________________________________________________________
EXPERT REPORT OF F. CURTIS BARRY
______________________________________________________________________
I am F. Curtis Barry, the Founder and President of F. Curtis Barry & Company,
with offices in Richmond, Virginia. I have been retained by the law firm of Brann &
Isaacson, counsel to the Direct Marketing Association (“DMA”), to offer my expert
opinions regarding the costs of compliance with certain requirements of a new Colorado
statute (House Bill 10-1193) and regulation that will be incurred by retailers located
outside of Colorado who are subject to the law.
My compensation is on a per consulting day used at $1,850 (or $231.25 on an
hourly basis). We are paid regardless of the outcome.
I.
STATEMENT OF OPINIONS
After reviewing and considering the data and information described in Section II,
I offer the following opinions:
Exh.10
Each of the three broad requirements of the law (Transactional Notice, Annual
Purchase Summary, and Annual Disclosure Report) will require retailers affected
by the statue and regulation to incur costs of compliance. In many cases, those
costs will be significant, particularly given the relative size of the Colorado market
as a percentage of the national market.
o The Transactional Notice has estimated first year costs of $10,000 to
$28,000 and ongoing annual compliance costs of $1,500 to $2,000
(Exhibit A.1);
o The Annual Purchase Summary has estimated first year costs of $8,000 to
$20,000; in addition this requirement has variable costs of $2.00 to $3.00
per customer mailed (Exhibit B.1);
o The Customer Disclosure Report has estimated annual costs $8,500 to
$13,000 (Exhibit C.1).
The Colorado statute and regulation thus dictate changes in systems and
practices for out-of-state retailers to implement that will result in substantial
expense. The required level of initial investment is particularly high, especially if
one considers the relatively small number of purchasers spending over $500
annually who must receive Annual Purchase Summaries.
The Colorado statute and the regulation will require that a considerable effort be
spent on Information Technology (IT) systems.
IT costs will vary between
retailers and software vendors depending on the age of the order processing and
website technologies; the flexibility of the development technology; and the
internal IT cost structure.
In my view, there are various categories of costs for each statutory/regulatory
requirement:
o Costs incurred to satisfy basic statutory/regulatory requirements
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Exh.10
o Costs that are necessary but not discretionary
o Costs that are discretionary but good business practice
Colorado in–state retailers will have a competitive advantage over out-of-state
retailers as a result of the substantial costs of compliance with the new law.
We anticipate that this regulation will cause out-of-state retailers to lose
customers and sales.
There are a number of potential expenses that simply cannot be estimated at this
time, that affected out-of-state retailers may well incur (Exhibit D).
II.
DATA AND INFORMATION CONSIDERED IN FORMING OPINIONS
The data or other information I considered in forming my opinions includes:
A.
Documents Detailing Legal Requirements of the Statute and
Regulation
1.
2.
Colorado Regulation 39-21-112.3.5
3.
B.
House Bill 10-1193
DMA Amended First Complaint
Data/Information Supporting Cost Estimates
Over the course of 25 years, F. Curtis Barry & Co. has worked with hundreds of
customers, software companies and marketing service bureaus.
Our experience
provides a wealth of expertise in estimating the costs associated with the redesign of
the systems and processes of direct marketers. We cite in this section the data and
assumptions that we have used to develop these estimates.
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Exh.10
1. Systems Development Costs
The cost to develop computer systems, whether designed and programmed
internally or done using commercial software vendors, is typically substantial. We feel it
is important to consider such systems costs in several contexts:
Professional programming rates
Systems development process and tasks involved to make the required/desired
change
Complexity of evaluating, programming
statutory/regulatory requirements
and
implementing
Colorado’s
a. Professional Programming Rates
i. Commercial Systems Development Rates
We assist our clients with Requests For Proposals for commercial systems from
software vendors, third-party fulfillment providers and marketing service bureaus on a
continual basis. We look at dozens of vendor responses each year for proposed work.
From
external
vendors,
commercial
programming
rates
for
evaluating,
programming and implementing programs in today’s marketplace vary from $140 per
hour ($1,120 per day) for less-skilled trainers and programmers to $225 per hour (or
$1,800 per day) for project managers.
ii. Internal IT Systems Development Costs
Internal IT programming rates can vary widely depending on the skill level,
company and regional marketplace. Much like the commercial rates cited above for
varying skill sets/levels and positions, the labor costs (salaries) can vary from $50,000
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Exh.10
per year ($24.00 per hour) to $100,000 ($48.00 per hour) for experienced programmers.
Project managers can earn more than $100,000 per year.
In addition, company benefit rates often add 20% to 30% to the cost of employing
professionals. A 25% benefit rate added to these hourly costs brings the labor rate to
$31 and $62 per hour when work is performed internally. (The costs of performing
changes using internal resources are not simply “absorbed” within existing company
cost structures. Well-run companies carefully budget internal IT projects. Taking on a
project necessitated by new regulatory requirements has real cost – other projects must
either be deferred or abandoned, or IT staff increased/compensated through overtime to
handle the additional work.)
b. The Systems Development Process
In reviewing the costs of implementing the changes necessitated by the Colorado
regulation, it is important to take into account the types of work required to develop and
implement the changes.
System development is a multi-phased process which is
governed by industry best practices and company IT standards to ensure the best
solution for the company.
i. Cost to Evaluate Requested Systems Changes
IT industry best practice – for both internal IT departments and commercial
systems providers – is to conduct an evaluation of proposed changes and secure
mutual approval of the provider and management alike. In most cases, the customer or
requesting department has to pay for (or cover through its budget) a detailed evaluation
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Exh.10
of the programming requested, which can be $1,000 to $5,000 on the low end, to much
higher costs for complex changes and new subsystems.
These evaluation tasks include:
how the proposed changes will impact the
system or services; how many hours are required and for what skill levels; the
availability of programming resources; IT’s opinion of the change; a schedule that can
be met; and a requested sign off between the parties. In addition, the customer or
vendor may choose not to proceed with the evaluated change.
ii.
Program Development Costs
There are costs associated with developing user requirements; designing
program changes; developing program specifications; programming the changes; and
testing at the program, subsystem and total system level. At various control points in
the process, management signs off on the work.
iii.
Implementation Costs
The cited costs include all the costs to implement the system within the company
departments. These include the IT department training the company trainer on the new
system; program documentation for the change, and operational production tasks.
iv.
Complexity of Evaluating, Programming and Implementing
Colorado’s Regulation
F. Curtis Barry & Co. reviews and negotiates software contracts and
modifications for clients with vendors on a regular basis. We have used our knowledge
and experience to make a judgment about the complexity of changes necessitated by
the Colorado statute and regulation, and to provide an estimate of some of these order
management systems and e-commerce costs.
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Exh.10
How difficult the changes will be for companies to make will vary based on how
flexible the company’s system application and technology is.
Users of commercial
systems of newer design will have an easier time of implementing the regulation, but all
companies will incur meaningful systems costs.
We believe we have provided a conservative range of cost estimates.
2.
Cost For Marketing Service Bureaus
For the costs we have cited, we have knowledge of a number of marketing
service bureaus’ pricing models for building, updating and analyzing customer
purchases.
For this opinion we have also used knowledge of the mailing service costs to
print, insert, and send First-Class mail pieces.
III.
EXHIBITS
The Exhibits are used to summarize or support my opinions are:
Exhibit A.
The Transactional Notice – Requirements and Costs
Exhibit A.1.
The Transactional Notice – Total Costs
Exhibit B.
The Annual Purchase Summary – Requirements and
Costs
Exhibit B.1.
The Annual Purchase Summary – Total Costs
Exhibit C.
The Customer Information Report – Requirements and
Costs Exhibit
Exhibit C.1.
The Customer Information Report – Total Costs
Exhibit D.
Other Potential Costs Not Estimated
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Exh.10
In Exhibits A – C, we have organized costs into three categories:
o Costs incurred to satisfy basic statutory/regulatory requirements
o Costs that are necessary but not discretionary
o Costs that are discretionary but good business practice
IV.
QUALIFICATIONS AND PUBLICATIONS
Attached hereto is a copy of my current curriculum vitae. In the last ten years, I
have published hundreds of articles and other works, but I do not maintain a listing of all
of my publications going back ten years. My CV includes a list of publications I have
authored in the previous four years.
V.
RECENT TESTIMONY
I have testified as an expert at trial or at deposition during the past four years in
the following matter:
Deposition in 2007 in: Casual Male Retail Group, Inc. and Casual Male RBT, LLC
vs. Robert H. Yarbrough, RKC Mail LLC, d/b/a Mile Post Four and Westport Big
& Tall, LLC, United States District Court, District Court of Massachusetts, Civil
Action No. 1:05-cv-12049-NMG.
VI.
STATEMENT OF COMPENSATION
My compensation, as noted above, is $1,850 per day.
s/ F. Curtis Barry______________
F. Curtis Barry
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Exh.10
Exhibit A. The Transactional Notice – Requirements and Costs
Legal Requirement: The regulation requires that the customer be notified that they are
responsible for self-reporting Colorado sales/use tax when purchasing from out-of-state
retailers. This is required on every purchase, either on the purchase invoice or, for
Internet orders, on the retailer’s website.
1.
Costs incurred to satisfy basic statutory/regulatory requirements.
a. Change web order path
We believe that companies’ e-commerce system will need to be modified by
Information Technology (IT) personnel to notify the customer of the Colorado
requirements while s/he is in the order path but has not completed the transaction. I
assume that most affected retailers will use a “linking notice” in the e-commerce
shopping system / order path to alert a Colorado purchaser to the fact that they will be
required to pay Colorado sales tax on merchandise purchased from the out-of-state
retailer. We would expect that the customer would then be referred to the e-commerce
site’s Frequently Asked Questions (FAQs and answers) to provide the text of the
required notice. The customer would have the option to abort (cancel) the shopping
cart or basket and void the transaction.
Companies strive to make the checkout process in e-commerce streamlined and
with as few “clicks” or steps as possible. A complicated checkout process is one of
online shoppers’ leading reasons for abandoning the sale.
We believe that most affected retailers will take great care in making the change
for that reason. Based on the assumption that companies adopt a “linking notice,”
rather than some form of “work around,” the cost to modify the order path for the
message is conservatively estimated at $5,000; for older technologies and companies
using outside vendors, the estimated cost is up to $10,000.
b. Print statement on invoice / packing slip
Changing how the computerized order prints can be a significant change
because of the comprehensiveness of the program logic that creates the form, the
limited amount of space on some printed forms for additional messaging, and other
factors. A message about sales tax payment will need to print on the order or pack slip.
Unless printed on every form regardless of whether the order is destined for a Colorado
location, the message will be triggered by the Colorado state abbreviation “CO” in the
customer or ship to address record.
The cost to modify the computerized order or pack slip is on the same order of
magnitude as the website order path change discussed above, and is conservatively
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Exh.10
estimated at $5,000, or, for older technologies and companies using outside vendors,
the estimated cost is up to $10,000.
2.
Costs that are necessary but not discretionary.
a. Call center training and procedures.
Call centers develop written scripts and procedures for training company
representatives to handle transactions and exception conditions. Because of the
customer impact for Colorado purchasers associated with the Transactional Notice, call
centers will need to develop procedures on how to explain the statutory requirements to
customers who have questions.
The cost for developing such procedures is estimated at $2,000 to $3,000. This
does not include the actual training time which will vary by the call center size (i.e.
number of reps), which will increase costs.
b. Customer service call center costs to answer inquiries and complaints.
We would expect that inquiries and complaints regarding the Colorado statutory
and regulatory notice and reporting requirements will result in a three to four minute call.
In our experience, the fully loaded cost per call is typically between $1.50 and $2.00. In
defining this as fully loaded costs we include call center rep direct hourly wages,
management, employee benefits, space, telecom, etc. Our estimate is that 50% of the
customers in Colorado will have questions about sales/use tax as a result of the
Transactional Notice. We did not estimate a cost as it varies with the size of the house
file and therefore the number of customers and inquires.
c. Professional assistance.
This statute will require assistance from expert legal or accounting firms to
ensure company’s compliance. Also, the systems developed will need to be highly
accurate and treated in a manner comparable to a financial system even though the
information may come from a marketing system. Companies may also need to change
their published Customer Privacy Policies in order to alert their customers to the
disclosure of personal information to the Colorado Department of Revenue. In addition,
the company’s creative department will need to create descriptions which are as
“customer friendly” as possible because of the customer sensitive nature of this
information.
Initial costs of experts to set up disclosure and reporting and assure compliance
are conservatively estimated at $3,000 to $5,000.
d. On-Going Compliance Costs.
Because of the possible affect on customer satisfaction and the need to ensure
the accuracy of reported purchases, we believe there will be the necessity for on-going
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Exh.10
compliance review. The estimated annual costs of on-going compliance are $1,500 to
$2,000.
3.
Costs that are discretionary but good business practice.
a. Modify the order processing system to calculate sales tax amount.
We expect that some retailers will want to provide information regarding the likely
amount of Colorado tax due on the sale as a service to customers
Presently, systems use zip codes or geo codes combined with merchandise
categories and dollar limits to determine if a customer is subject to sales tax. In all
cases where there is customer tax liability, the system calculates it and stores the tax
total on the ordering systems’ customer order.
In this case the retailer would not be collecting taxes. There is no “info only tax
field” in systems to store the calculated sales tax value. In order to advise the
customer, the order processing system would have to be changed either by the
software vendor or internally.
The estimated costs for this modification may be in a $5,000 to $10,000 range.
3
Exh.10
Exhibit A.1. – The Transactional Notice Total Costs
Basic statutory/regulatory requirements
Modify the e-commerce order path:
$5,000 to $10,000
or
or
Print statement on invoice / packing slip:
$5,000 to $10,000
Necessary but not discretionary
Call center training and procedures:
$2,000 to $3,000
(per call cost to address inquiries)
($1.50 to $2.00/call)
Professional assistance (Initial Compliance):
Initial Compliance:
$3,000 to $5,000
Totals for low end first year compliance costs (sums of items above)
$10,000
Discretionary but good business practice
Modify order processing to calculate sales tax amount:
$5,000 to $10,000
Totals for upper end first year compliance costs (sum of items above)
Ongoing compliance (year two forward)
$28,000
$1,500 to $2,000
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Exh.10
Exhibit B. The Annual Purchase Summary – Requirements and Costs
Legal Requirement: The statute and regulation require the production of the Annual
Disclosure Notice, as a separate, First-Class mailing listing the date, purchase amount,
and category of products purchased for each customer transaction during the prior
calendar year.
1.
Costs incurred to satisfy basic statutory/regulatory requirements.
This section identifies the estimated costs to create the tracking and reporting
system for the Annual Purchase Summary, including:
Systems costs resulting from year end disclosure requirements.
Identifying purchasers with $500+ of aggregate purchases delivered to Colorado
locations (including gifts, B2B multiple location ship tos, “house-holding” issues,
etc.). (The retailer must run the analysis on entire customer file, with the same
baseline expense, regardless of how many Colorado purchasers the retailer
ultimately identifies with purchases over $500.)
Capturing all purchase info (dates, amounts, categories).
There are two potential sources for this detail order information – the operational
order processing system and the direct marketing system. The order and customer
number associated with the transaction will also be required to answer customer
inquiries back to the operational file. As explained later in this section (see
Complication to Tracking and Notification Programming), there are complexities
involved with the data base programming and identifying how to aggregate purchases.
a.
Program Development of the Colorado Tracking and Reporting
Required.
The retailer will have to develop a tracking and reporting system to meet the
regulation’s requirements. In a generalized way, we have outlined below the production
processing steps the system and the various departments would need to accomplish to
meet the statue’s annual requirements. Because the company would likely address the
requirements for creating a data file to satisfy the requirement to provide the
Department of Revenue an annual Customer Information Report at the same time it
developed processes for generating a data file for purposes of the Annual Purchase
Summaries to customers, we have included steps for that process, as well. The
production steps are:
1. The new system will use as its base data a high data integrity marketing or
operational customer purchase file. It must have all detailed order/purchase
activity data and customer name, billing address, ship to addresses, and
purchase amounts. It must be totally accurate as a financial system would
be.
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Exh.10
2. IT Department extracts each customer with a ship to address in Colorado.
3. IT system will track all Colorado customer purchases and report all purchases
regardless of amount.
4. IT system logic determines which customers exceed $500 annual purchases.
5. IT Department runs preliminary file of customers purchasing over $500 and
Annual Purchase Summary to customers.
6. Retailer’s Accounting Department would check the file to determine if any
corrections are necessary.
7. Retailer’s Accounting Department makes any corrections and approves final
IT production run.
8. IT Department runs final file for Annual Purchase Summary purchasers based
on ship to address.
9. IT system outputs Annual Purchase Summary disclosures to magnetic media
or transmits the required data and formats to mailing house.
10. Mailing house produces disclosures and Annual Purchase Summary; inserts
the printed material in #10 envelops; and mails First Class.
11. IT Department runs a file of all customers with a Colorado ship to address to
generate Customer Information Report for Department of Revenue.
12. IT Department performs quality control and formatting for transmission of the
Customer Information Report to the Colorado Department of Revenue.
Some retailers may be able to perform all steps internally, depending upon their
mailing and insertion capabilities. Within the Retailer’s organization the responsibilities
cited above could be performed by several different departments.
If the company chooses to run the new Colorado system at an outside service
bureau, then the service would process the year end file of purchasers. If the company
has not done marketing system updates earlier in the year this would need to take place
first. In many companies these updates take place monthly or quarterly.
Many smaller companies do not use merchandise categories, so compliance with
the requirements to provide the category of purchases may be very costly.
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Exh.10
b.
Costs of Initial Systems Modifications
The estimated costs for developing the system to track and produce the Annual
Purchase Summary are as follows:
Company internal development costs to develop system internally
internal costs of $8,000 to $10,000, representing 175 to 225 hours; or
External programming by marketing or software vendor to create system:
$15,000 to $20,000, representing 100 to 135 hours.
c.
Annual Costs to Produce the Annual Purchase Summary Mailing
The total costs of creating the actual First-Class mail pieces will vary for each
retailer depending upon the number of Colorado customers who purchase over $500
and must receive the Annual Purchase Summary. Therefore, we have done a
calculation of the cost on a per piece basis.
In order to get an estimate of the number of customers, one has to develop an
estimate of the number Colorado customers that are affected by the regulation. In
general we feel there are several factors which will determine how many customers get
the Annual Purchase Summary:
Size of the 12 month buyer (purchaser) file – varies by sales volume.
Average order in dollars – many businesses have less than $100
average order, but some retailers, such as consumer electronics
vendors, have an average order value of several hundred dollars.
The number of times a customer purchases annually is often less than 2
times on average, but many companies have a substantial number of
loyal, repeat customers.
Number of one time buyers – most businesses experience that 50% of
all first time buyers are opportunistic and never buy again.
Our conclusion is that less than 20% of the Colorado purchasers (who are 1.6%
of all purchasers based on Colorado’s population or a percentage of total U.S.
population) on a company file will buy $500 or more per year. This yields a relatively
small number of customers for most out-of-state retailers (perhaps between 50 and
several hundred such customers annually for many retailers, although larger retailers
will have substantially more). However, it bears repeating that a company with only a
small number of customers over the $500 threshold must still incur the initial set-up
costs and annual processing costs, in order to be able to generate the required Annual
Purchase Summaries.
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Exh.10
The costs of the annual IT production processing, the mailing house insertion,
the postage and mailing of the customer disclosures is a variable cost based on the
number of customers over $500. Steps in the process include, but are not necessarily
limited to:
Production run time costs annually. The cost of computer processing
and the IT labor has a cost per hour which is not easily identified. This
will be true whether internal company processing or through a
marketing service bureau. If a company requires a marketing service
bureau, such bureau generally will include a minimum set up charge
(which could be $200 to $300 bundled into the per piece cost) and a
cost of $2 per 1000 names processed (or about $0.002 per piece).
Mailing service costs. Costs to run and insert the Annual Purchase
Summary is a variable cost based on typically minimum set up cost (of
$100 to $200 dollars bundled into the per piece cost) and a variable
cost for 500 to 1,000 customers mailed. Based on our experience, I
would expect this cost to be from $1.25 to $1.50 per piece.
Supplies will cost $0.10 to $0.20 per piece.
(We assumed up to two inserts and a #10 envelop.)
Annual Purchase Summary must be mailed First-Class Mail for $0.44
per piece.
When all costs are summed and the estimated number of Colorado customers
purchasing over $500 annually is determined, the estimated costs including file
generation and mailing costs, the average cost will be, on the low end, $2.00 to $3.00
per customer disclosure (per piece) including all minimums and set ups.
d.
Complications to Tracking and Notification Programming
As mentioned earlier, there are several direct marketing data base IT system
concepts that complicate the programming of “who the purchaser is” and who will
receive the Annual Purchase Summary. For example:
Business-to-Business (B2B) – it is not uncommon for B2B transactions
to derive from complicated marketing data base structure and mailing
concepts. If we use a school district as an example, it may be better
understood. Public schools are part of an entity like a county or city.
There are often many contact names, addresses, billing information, emails and telephone numbers in the total scheme of a customer
record. For example, a teacher in a local school may be the one
ordering the product. Customer purchase data might be grouped with
other purchases under a school district; or school’s department (e.g.
science department). A county purchasing agent may pay for the
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Exh.10
order. Or a school purchasing agent. Or the individual teacher may
pay for the shipment. Determining who is the “customer” is becomes
complicated.
2.
In consumer retailing, there is the concept of “householding”. Think of
a house that has two children and an adult. They all live at the same
address, and companies often consider a household to be a buying
unit for marketing and business purposes. Many retailers will need to
confront problems created by “householding” logic built into existing
systems to ensure compliance with the law.
Customers often use different names. I will use myself as an example.
My given Christian name is “Fred Curtis Barry”. The name I choose to
use for my company is “F. Curtis Barry & Company”. The name many
people know me by is “Curt Barry”. The complexity associated with the
very common use by consumers of variations on their name often
generates multiple catalogs and other correspondence. In determining
who the “purchaser” is, retailers will need to address such issues in
ensuring compliance with the law.
Costs that are necessary but not discretionary.
Regarding the language of the Annual Purchase Summaries, we would expect
that the required information would need to be carefully crafted and disclosed, similar to
bank card and accounts receivable notices. However, retailers will want their notices to
be more customer friendly in format and language than financial notices so that they do
not lose the customer. There will be professional fees and creative/development costs
that may be substantial (i.e., several thousand dollars) in reviewing and finalizing the
language of the notice and ensuring it contains all of the necessary disclosures for the
Annual Purchase Summary set forth in regulation. I have not made a detailed estimate
of such costs because the variables involved are too many to address, but such costs
will clearly be necessary.
3.
Costs that are discretionary but good business practice.
We believe that it would be prudent to have an internal person on site at mailing
service to assure privacy when running and inserting the Annual Purchase Summary.
This may include travel time and expenses for the trip to the marketing service
bureau/mail shop, if it is not local. I have not made a specific estimate of such costs.
As discussed earlier, from a customer service perspective, we can envision
companies wanting to be able to inform the customer of the approximate amount of
Colorado sales/use tax due not only on a per order basis, but annually, as well. The
cost of providing such capability would be derivative of the costs to change the system
logic described above for the Transactional Notice, and would affect overall costs only
incrementally.
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Exh.10
Exhibit B.1. – Annual Purchase Summary Total Costs
Basic statutory/regulatory requirements (first year)
Company internal development costs:
$8,000 to $10,000
OR
External programming by marketing or software vendors:
Totals for low end compliance costs
$15,000 to $20,000
$8,000
Totals for upper range compliance costs
$20,000
In addition, the Annual Purchase Summaries will have a variable cost $2.00 to $3.00
per customer statement mailed each year
(Thus, if a Retailer has 250 customers who purchase in excess of $500 in
a calendar year, the costs for the mailing will be $500 to $750)
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Exhibit C. The Customer Information Report – Requirements and Costs
Legal Requirement: Provide annually to the Colorado Department of Revenue a data
file containing the name, billing address, all shipping addresses, and total purchase
amount for each customer shipping goods into Colorado, regardless of total purchase
amount.
1.
Costs incurred to satisfy basic statutory/regulatory requirements.
In Exhibit B, regarding the costs associated with the Annual Purchase Summary,
I included in the required systems modifications two additional steps for creation and
transmission of the report to the Colorado Department of Revenue. The steps are:
11.
IT runs a file of all customers with a Colorado ship to address to
generate the Customer Information Report for Department of
Revenue.
12.
IT performs quality control and formatting for transmission of the
Customer Information Report to the Colorado Department of
Revenue.
The relevant systems development costs for these steps were also included in
Exhibit B.
Unfortunately, the final specifications for the annual Customer Information Report
have not yet been published by the Department.
These specifications could
dramatically impact the costs of creating the file if, for example, the Department requires
specialized software that retailers do not normally use. At the very least, we expect that
complying with Department file specifications will add $1,000 to $3,000 to the costs.
Customer information and purchase information is protected by privacy statutes
and the data is typically encrypted when sent between locations. This is not specified in
the Colorado regulations and could increase costs.
Although some of the initial investment is built into the costs detailed for
developing systems to create the Annual Purchase Summaries for customers, the
disclosure report to the Department of Revenue has much broader consequences and
is a much larger file (because it must include ALL Colorado purchasers, not merely
those purchasing over $500).
Companies will spend hundreds of hours of general management, marketing, call
center, IT and accounting time interpreting and implementing this regulation in their
company business environment and systems.
Because the Customer Information Report is a compliance report, it will
consequently require considerable management time to review, validate, transmit, etc.
Errors in reporting can have severe consequences with Department of Revenue and the
Exh.10
company’s customers.
Even making a very conservative estimate of the additional
management time for preparing such a file, the time required for such quality
control/quality assurance tasks would be between 150 and 200 hours, or between
$7,500 and $10,000, separate and apart from additional systems costs.
2.
Costs that are necessary but not discretionary.
None identified.
3.
Costs that are discretionary but good business practice.
None identified.
Exh.10
Exhibit C.1. – The Customer Information Report Total Additional Costs
Basic statutory/regulatory requirements
Final specifications
$1,000 to $3,000
Management time
$7,500 and $10,000
Totals for low end compliance costs
$8,500
Totals for upper range compliance costs
$13,000
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Exh.10
Exhibit D. Other Potential Costs Not Estimated
There are a number of potential costs which we wish to point out that have not been
estimated.
Overhead. These estimates do not include much of the management time spent
by Call Center, Marketing, Accounting and General Management personnel
required to understand, develop and implement the required systems, changes in
Customer Service and Privacy Policies, etc. These could easily exceed the
stated costs in this opinion.
High cost of losing customers and losing sales. Out-of-state retailers have
existing relationships with Colorado purchasers and prospects. They have
acquired Colorado customers by promoting and mailing to Colorado purchasers.
For example, the cost to acquire a customer can be $10 to $25 because of the
low response nature of direct marketing. It often takes 2 or 3 purchases for
retailers to have a profitable customer relationship because of these acquisition
and fulfillment costs. We anticipate that this statue’s requirement will cause a
major percentage of the customers to abandon the shopping cart or stop and call
the Call Center. Ultimately, the customer may stop shopping through these
channels.
Retailers may unfortunately find that it’s far cheaper to not advertise or solicit
business in Colorado, rather than incur substantial compliance costs for a
process that will alienate many customers.
In general, in-state Colorado retailers will have a significant competitive
advantage over out-of-state retailers because in-state retailers that collect
Colorado sales tax will not have to incur these tremendous costs or turn over
sensitive customer information to the Department.
Other regulatory compliance expense. For larger companies, many of these
costs will be higher, if they have to meet regulatory requirements, such
Sarbanes/Oxley compliance and/or changes for PCI compliance.
Cost of litigation. Settling customer privacy and legal challenges by customers
arising from inadvertent disclosure of customer information.
1
Exh.10
CURRICULUM VITAE
Fred Curtis “Curt” Barry, President
F. Curtis Barry & Company
1897 Billingsgate Circle, Suite 102
Richmond, VA 23238
804-740-8743, fax 804-740-6179
cbarry@fcbco.com
www.fcbco.com
Curt Barry is founder and president of F. Curtis Barry & Company, a national fulfillment
and operations consultancy, with a specialty in systems for the multichannel industries
(retail, e-commerce and catalog). These systems include website and e-commerce, call
center and order management, warehousing, marketing, merchandising, inventory
control, finance, point of sale (POS) and retail merchandising systems, etc.
Mr. Barry has extensive experience with clients that are developing direct and retail
systems internally as well as with clients that are selecting and implementing
commercial systems.
In his work with clients to select and implement commercial systems, his experience
includes but is not limited to:
Developing user requirements for the new system at a management, department
and system functional level;
Project management and participation in the vendor selection process including
development of Requests For Proposal (RFP), evaluating vendors against the
RFP, leading user demonstrations by vendor software, vendor due diligence
(e.g. reference checks, site visits) and helping to make final vendor selection.
Working with the vendor and the client to guide the system modification process
including macro level and program specifications, cost estimation and
understanding the severity of modifications to the base system;
“Best of breed” systems integration to other systems including high level and
detail data flows;
Negotiating vendor software services contracts including defining client and
vendor scope and deliverables, required system modifications, payment
schedules, license and service agreements, project schedules, training and
implementation plans, client/vendor responsibilities, etc.;
Planning system testing prior to implementation including program testing, full
systems and acceptance by the client;
Exh.10
File conversion planning and execution for the new system;
Project planning and management of client and vendor tasks for successful
implementation;
Gaining client and vendor project sign-offs at critical points in the project;
Status reporting daily and weekly involving detail task plans, estimates and task
completion management for clients and software vendors;
Working with clients on best practices for selecting systems;
Applying industry best practices in functional areas with the new application
software system.
Mr. Barry’s internal design, programming and implementation experience includes:
F. Curtis Barry & Company development of proprietary systems for measuring
product profitability and inventory forecasting systems.
Currently, through a partnership with Taurus Software, F. Curtis Barry &
Company co-develops an executive dashboard and analytics system, Manage
Metrix (managemetrix.com).
Mr. Barry was a principal in Molster, Barry & Mason, Inc. 1983 to 1985. The firm
designed and programmed catalog order management systems for catalog
companies Tiffany & Company, Henri Bendel and DH Holmes.
Manager of Research and Development for the Corporate Data Center of
Garfinckel, Brooks Brother, Miller & Rhoads from 1973 to 1983. The department
Mr. Barry managed designed and programmed all of the information systems for
the retail and catalog chain of 250 stores with sales of $500 million.
Mr. Barry has extensive experience with point of sale (POS) and store level
merchandising systems. From 1970 to 1973, Mr. Barry was employed by NCR
Corporation in selling and installing point of sale and retail systems in dozens of major
retail department and specialty store chains.
In the F. Curtis Barry & Company, they have completed assignments for selecting and
implementing POS systems for multichannel clients.
Bachelor of Science degree, Cornell University, 1970.
2
Exh.10
Published Articles By Curt Barry 2006 to 2010
Since 1983, Mr. Barry has authored hundreds of articles in catalog and e-commerce
trade publications. Other articles appear on the firm’s blog and website. Mr. Barry
authored the book Best Practices in Multichannel Operations & Fulfillment, ISBN
13:978-1-4196-9298-7. Published in 2008. Additional articles and blog opinions are
available on www.fcbco.com.
Multichannel Merchant Magazine and Operations & Fulfillment Magazine
These are Penton Magazines and the articles are available from the magazines’
website archives.
How Barcode Use Can Help Reduce Warehouse Costs
Sep 13, 2010, Multichannel Merchant, By Curt Barry
How to Reduce Warehouse Costs
Sep 01, 2010, Multichannel Merchant, By Curt Barry
Proper Slotting Can Reduce Warehouse Costs
Aug 30, 2010, Multichannel Merchant, By Curt Barry
How to Reduce Labor Management Costs
Aug 17, 2010, Multichannel Merchant, By Curt Barry
12 Mistakes to Avoid in Systems Selection
Jul 01, 2010, Multichannel Merchant, By Curt Barry
Evaluating Web Platform Systems
May 01, 2010, Multichannel Merchant, By Curt Barry
Tips for Finding Third-Party Fulfillment
Mar 29, 2010, Multichannel Merchant, By Curt Barry
Managing Your Fulfillment Folks
Mar 01, 2010, Multichannel Merchant, By Curt Barry
The State of Free Shipping Offers
Feb 01, 2010, Multichannel Merchant, By Curt Barry
Web Expenditures: Sharpening your e-commerce Spend
Dec 01, 2009, Multichannel Merchant, By Curt Barry
Why Some Merchants are Saying Yes to SaaS
Nov 23, 2009, Multichannel Merchant, By Curt Barry
Sharpening Your E-Commerce Spend
Nov 19, 2009, Multichannel Merchant
Is Outsourcing an Option for You?
Oct 01, 2009, Multichannel Merchant, By Curt Barry
3
Exh.10
10 Steps to Better Manage Your Stock | Take a Financial View of Inventory
Sep 01, 2009, Multichannel Merchant, By Curt Barry
Sorting Out Warehouse Automation
Jul 07, 2009, Multichannel Merchant, By Curt Barry
Tips to help with technology options with budget costs | Time to Automate your DC?
Jul 01, 2009, Multichannel Merchant, By Curt Barry
Bean Backorder Customer Service Says The Magic Words
Jun 10, 2009, Multichannel Merchant, By Curt Barry
On Which Version of Data Should We Base Our Decisions? | Business Information
Systems Across the Enterprise
May 01, 2009, Multichannel Merchant, By Curt Barry
Surveying the Software Landscape | E-commerce Platform Providers are Expanding
Offerings into Order Management
Apr 01, 2009, Multichannel Merchant, By Curt Barry
Is Now a Good Time to Invest in Systems? | Excellent Time to Invest in the ecommerce, Order Management and Warehouse Management Software that Your
Business Needs
Apr 01, 2009, Multichannel Merchant, Curt Barry
Paying for Free Shipping and Handling | High Shipping and Processing has been Driven
Upwards by Record Freight Increase and Accessorial Charges
Feb 01, 2009, Multichannel Merchant, By Curt Barry
A Database Marketer’s Perspective on Free Shipping
Jan 06, 2009, Multichannel Merchant, By Curt Barry
Virtualization and Going Green in IT
Dec 23, 2008, Multichannel Merchant, By Curt Barry
Conducting a Post Season Audit, Part I
Dec 18, 2008, Operations & Fulfillment, by Curt Barry
Sales Without Inventory
Dec 03, 2008, Multichannel Merchant, By Curt Barry
Prioritizing Your Tech Spend | Where to Put Your Technology Dollars During Downtown
Dec 01, 2008, Multichannel Merchant, By Curt Barry
IT Spending Priorities
Nov 25, 2008, Multichannel Merchant, By Curt Barry
Keeping Contact Center Costs in Line | Balancing Expenses with Service Levels
Oct 01, 2008, Multichannel Merchant, By Curt Barry
Home Agent Trend Key to Reducing Attrition
Oct 01, 2008, Multichannel Merchant, By Curt Barry
4
Exh.10
Tough Times or Opportunities Knocking?
Sep 30, 2008, Multichannel Merchant, By Curt Barry
More Green Thoughts
Sep 10, 2008, Multichannel Merchant, By Curt Barry
Let Them Know You’re Green
Sep 03, 2008, Multichannel Merchant, By Curt Barry
Eying IT Expenditures | Where Merchants Should Put Information Technology Dollars |
SaaS
Aug 01, 2008, Multichannel Merchant, By Curt Barry
IT Investment Intelligence
Jul 30, 2008, Multichannel Merchant, By Curt Barry
Get a Grip on Your D.C.
May 2008, ROI (Formerly Catalog Success Magazine), By Curt Barry
Keeping DC Costs at Bay
Apr 01, 2008, Multichannel Merchant, By Curt Barry
Post-Holiday Liquidation Strategies
Feb 01, 2008, Multichannel Merchant, By Curt Barry
Clear It Out
Feb 01, 2008, Multichannel Merchant, By Curt Barry
Reducing Costs in the Contact Center, Part 2 of 2
Jan 2008, ROI (Formerly Catalog Success Magazine), By Curt Barry
Liquidation Tactics for the Holiday Hangover
Jan 29, 2008, Multichannel Merchant, By Curt Barry
Post-Season Audits, Part 2: Reducing Costs in the DC
Jan 02, 2008, Multichannel Merchant, By Curt Barry
The Fulfillment Doctor….On Third-Party Fulfillment
Jan 31, 2007, Operations & Fulfillment, By Curt Barry
Multichannel Inventory Management
Jan 01, 2008, Multichannel Merchant, BY Curt Barry
Give me the Goods
Jan 01, 2008, Multichannel Merchant, by Curt Barry
Reducing Costs in the Contact Center, Part 1 of 2
Dec 2007, ROI (Formerly Catalog Success Magazine), By Curt Barry
Conducting a Post Season Audit, Part I
Dec 18, 2007, Multichannel Merchant, By Curt Barry
5
Exh.10
Balancing Your Budget and Investment:
When is the Right Time to Outsource?
Nov 2007, ROI (Formerly Catalog Success Magazine), By Curt Barry
15 Tips to Combat Parcel Rate Increases
Nov 28, 2007, Multichannel Merchant, By Curt Barry
Rising Transportation Costs and What To Do About Them
Nov 13, 2007, Multichannel Merchant, By Curt Barry
Fulfillment Doctor: The Real Cost of Employee Turnover
Nov 07, 2007, Multichannel Merchant, By Curt Barry
Twelve Trends in Fulfillment
Nov 01, 2007, Multichannel Merchant, BY CURT BARRY
The Fulfillment Doctor on… The Price of Free Holiday Shipping
Oct 31, 2007, Multichannel Merchant, By Curt Barry
E-commerce isn't the only facet of multichannel marketing to advance
Oct 01, 2007, Multichannel Merchant, by Curt Barry
Merchandising 2.0
Oct 01, 2007, Multichannel Merchant, by Curt Barry
Juggling Web and Phone Contacts
Nov 01, 2006, Multichannel Merchant, by Curt Barry
Thinking of Relocating Your DC? Consider These 5 Factors
Oct 4, 2006, Operations & Fulfillment, by Curt Barry
Quick Tip: Little Touches Can Yield Big Gains in Customer Service
Sept 13, 2006, Operations & Fulfillment, by Curt Barry
Multichannel Inventory: What You Need to Know
Sept 1, 2006, Operations & Fulfillment, by Curt Barry
6
Exh.10
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