Blue Jeans Cable

Good news for our Illinois customers: due to changes in state law, starting January 1, Blue Jeans Cable will no longer be obligated to collect Illinois sales tax. Sales through Amazon in IL will remain taxable, but sales through our website will not.

This is a topic about which a lot of customers -- not just in Illinois -- have asked, and about which there's been quite a bit of confusion. Blue Jeans Cable has essentially no physical presence anywhere in the USA other than Seattle, Washington -- so why do we charge sales tax in about twenty states?

Well, back in 2018, the US Supreme Court upset a long-standing precedent on the authority of states to impose sales tax on out-of-state vendors. For a long while, those taxes were unenforceable because a traditional reading of the Interstate Commerce clause of the US Constitution prohibited states from regulating commerce between the states, and that meant that practices of states which burdened interstate commerce were frequently -- not universally, but frequently -- unlawful. This included imposition of sales tax collection obligations on sellers who lacked a physical presence in the state to which the goods were shipped.

States didn't like this, of course. Theoretically the obligation to collect and remit the tax still existed, but was placed on the local buyer of goods -- but in practical terms that was seldom enforceable due to the states' lack of access to the relevant information and the small size of most such obligations. And states pushed, in a variety of ways, to open the floodgates. California was particularly aggressive on the point, and used to send letters to out of state vendors trying to bluff them into collecting taxes they had no obligation to collect.

But then came the Wayfair case before the US Supreme Court. It's a complicated subject and parts of the governing law remain unclear due to a rather nebulous decision, but in essence the Supreme Court held that a state could set reasonable thresholds for the tax-collection obligation upon out of state sellers, and that if those thresholds were indeed legally reasonable, those sellers could be obligated to collect and remit state sales taxes. Many states imposed such thresholds in the aftermath of Wayfair, often at the level of $100,000 in annual sales and/or 200 annual transactions. We meet thresholds in a variety of states, and additional wrinkles come into it as well -- many states contend (incorrectly, we believe, but who wants to litigate?) that the mere presence of inventory in a third party's hands (read: Amazon fulfillment warehouses) in the state constitutes a "physical presence" giving rise to sales tax nexus, even if the seller has no control over the location of that inventory or access to it other than the right to demand it be shipped back.

Who to blame? Kennedy, Thomas, Ginsburg, Alito and Gorsuch are responsible for the mess, while Breyer, Roberts, Sotomayor and Kagan dissented. The majority were persuaded by, among other things, self-serving amicus briefs by companies which sell sales tax compliance services; those companies assured the Court that sales tax compliance would be really easy and would cost next to nothing, "because software." Software which, conveniently, they sell at a price quite a bit higher than anything they suggested to the Court. Of course, actually implementing sales tax calculation and filing systems is a hideous mess, fraught with all manner of difficulty, and it is now a regular monthly ritual here, with BJC collecting and filing sales taxes in about twenty states. And that software? Well, we don't use it; it would be wrong, in our view, to reward the companies that aimed this particular bazooka at small business, and so we have had to build our own compliance systems.

Illinois, thank goodness, after being one of the most complicated states for sales tax compliance, has done something downright sensible. It eliminated the 200-transaction threshold (we were hitting that, but not the $100K threshold) and it clarified its stance on "physical presence" by declaring Amazon inventory, in most cases, irrelevant to physical presence. Illinois residents will still pay sales tax on a lot of out-of-state purchases, but as of January 1, not on purchases from our website.

If you don't live in Illinois but have the ear of a local legislator, this isn't a bad topic to raise. Sales tax compliance is relatively easy for huge companies with legions of accountants, but it's a real hardship for smaller businesses like ours. After Wayfair, it may be unreasonable to expect a state to give up the idea of collecting from very large vendors like Amazon, but lifting that burden from businesses of more modest size doesn't actually cost states that much (if anything at all -- on small accounts, administration can cost as much as the taxes that are collected).

Most of our stock, of course, is composed of things people regularly want: RCA, XLR, HDMI, Ethernet and speaker cables of various sorts, particularly.

And then there are some odd bits which sell slowly, like s-video cable. Yes, people still want it. No, they don't want very much of it.

But here and there we have something that seems to have passed beyond human memory. Consider Belden 8281.

If you were building a television station, ages ago, you probably needed a great big shipment of 8281 to hook everything up. It's a 75 ohm video coax, used for routing video signals between devices around production facilities -- good for analog composite video, analog RGB signal types, and even for standard-def SDI. But we've had about 2000 feet of it in the "walrus room" down in our basement for a decade or more, and it's not apparently going anywhere any time soon.

8281: the cable time forgot. Why did something like this go from being so very, very common to being nearly non-existent? A few things.

First, it's big and stiff. It's an RG-59 cable, but you wouldn't know it to look at it, because it's significantly bigger than any modern RG-6. That's because it has a solid polyethylene dielectric; solid PE has a much higher dielectric constant than foamed PE (which, ceteris paribus, is a bad thing), but used to be de rigueur for high quality video cable because of the superb impedance consistency of solid-PE dielectric cable. Modern foamed PE is so good, though, that this is no longer an advantage.

Second, fire. The outer jacket of 8281 is polyethylene, just like the dielectric. After a few disastrous telephone-exchange fires decades ago, in which inhalation of fumes from burning PE caused serious medical problems for firefighters, electrical codes were updated to require less burnable jackets. Most similar cable today is jacketed in PVC; it's slower to burn (one cable company rep said to us one day that PE "burns like a candle") and that means slower fire spread and lower likelihood of large amounts of toxic fumes. Today, you can still use 8281, but you can't install it in walls or risers, so it's fairly useless as a facility cable.

So if you are a fancier of classic video gear, and are out there figuring out how to wire up your desk-sized Ampex 2-inch deck, give us a shout. We've still got the stuff. We're not entirely sure anyone else, anywhere, does.

Pricing update and tariffs:

We are seeing an ongoing wide-ranging round of price increases coming from nearly all of our suppliers, both foreign and domestic, coupled with substantial increases in the cost of our direct imports of custom connectors. The recent threat of a tariff on imported copper, meanwhile, though it has not gone into effect, has resulted in record high prices for copper which are beginning to be seen in the form of large price increases, especially from our domestic suppliers. Since nearly every single article of communications wire and cable (especially speaker wire!) has copper as its largest cost input, the impact across our whole range of goods is becoming quite substantial. Our margins have always been modest and we have no way to absorb these increased costs except through increased pricing.

We are just now beginning to reprice goods around these cost increases, as we are also just beginning to pay the substantially increased taxes on our imports. The situation remains extremely unpredictable, as the "deadline" for imposition of a 32% across-the-board tariff on those parts we import from Taiwan is said to be August 1, and even where countries have entered into arrangements with the US (today, the Phillippines) the terms have involved exceptionally high tariffs (19% in that case). Two large shipments of goods from Taiwan leave port in the last week of July and we have very little idea what these will cost us to receive.

We promise that we will do everything we can to contain the pricing impacts. It's a challenging time to be a domestic manufacturer of goods, with no certainty as to what our costs will be from day to day and with the considerable risks, in the face of wild and unpredictable fluctuations in tariffs, of getting caught buying goods at the wrong moment. To our customers we say: we appreciate your patronage and we hope that you will find yourselves able to stick with us as we weather the storm. No matter how bad the conditions for an American manufacturer become, we will stay the course and continue to build the highest-quality cable assemblies we know how to make, for prices which reflect real costs of manufacture rather than marketing puffery and smoke and mirrors.

And yes, we really do build them right here in Seattle. Apart from a few items (e.g., HDMI and DVI cables) which we import fully-manufactured, when you order a cable from us, we pull it from a spindle, measure, cut, end-prep, terminate and test it all in our own workshop. We know the product literally from the inside out, and what's more, we understand the technical and practical issues of communications cabling. It may be tempting, at times like this, to buy cheaper offshore goods -- especially as the tariff impacts upon them are, counterintuitively, usually smaller than the impacts upon us -- but we hope that you find value in our skill and expertise, which is always right here, ready to work for you.

The Law of Unintended Consequences

Side effects are familiar enough in medicine -- you don't want to take a drug for one serious ailment if the consequence is simply to cause another serious ailment. And in the world of economics, too, there are side effects that can completely negate the intended benefits of a policy. We call these, simply, "unintended consequences."

High tariffs in the modern world are nearly extinct, for a variety of reasons. One principal reason is that tariffs are so frequently fraught with unintended consequences that they tend to be somewhat self-defeating. The great economist Milton Friedman regarded tariffs as so deleterious to one's economy that one should not even participate in a trade war -- because the harms to one's own economy from tariffs are almost always greater than any benefit. Let other countries harm their economies with tariffs, Friedman said; don't make the mistake of harming your own.

The other day, it was suggested that the United States may impose a 50% tariff on imported copper. The price of copper spiked, and stocks of domestic copper mining companies likewise. This certainly caught our attention, because the universal favorite conductor of communications cabling is copper. It's highly conductive, and, when properly annealed, highly flexible. Substitutes like aluminum and silver have significant drawbacks, so copper dominates the communications cable business. A little bit of tin and silver are used in plating on some products, aluminum shows up in foil shields and on the cheap braids on lower-quality coaxes, and silver conductors appear in a handful of specialty products, but copper is far and away the best and, consequently, most common material in communications cable.

The price of copper is enormously consequential for a business like ours, and for our customers. Copper is such a large factor in cable manufacturing cost that many wholesale price quotes in the industry aren't simply "X per 1,000 feet," but "X per 1,000 feet plus an adjustment factor based on the spot price of copper." Some products, such as speaker wire, contain so much copper relative to plastics or to other manufacturing costs that the end product pricing pretty much scales right along with the price of copper itself. So naturally anything which influences the price of copper is of significant concern to producers and consumers in this industry.

But, the protectionist argument has always gone: the benefits to domestic industry will outweigh the enormous cost to the consumer. And it might be that in a pure domestic resource extraction industry like copper mining, the benefits to the owners of mines are indeed huge. Whether those outweigh the enormous cost to the consumer is a political question loaded down with a lot of related questions about values (does the government have any business at all telling you who you can buy copper from, and on what terms? Those not averse to big government may say yes, but those more averse will say no.).

But set aside the pleasant scene of delighted mine owners, which surely brings a smile to the face of anyone whose loved ones own copper mines, for a moment. The mining industry isn't the only industry affected. Anyone who consumes copper -- the plumbing industry or the communications cabling industry, for example -- is also affected. And here's where the law of unintended consequences, refracted through the lens of the actual laws governing import and export, comes in.

When one imposes a tariff on a metal, that tariff applies to specific articles which are composed of, or principally of, that metal, and which are classified as such. There is an international classification system for goods, the Harmonized Tariff Schedule, and HTS Chapter 74 governs articles made of copper. Anything which falls under Chapter 74 would be swept in under a general 50% tariff on imported copper.

But there are a lot of articles with substantial copper content which are NOT classified under Chapter 74, and here's where the consequences get interesting. All types of communications cabling, of whatever metals they may be composed, are classified under Chapter 85. Under Chapter 85 there's no distinction made between articles made of copper and those made of other metals (or of no metal at all). And, of course, even if there were, it would be impractical to impose a 50% tariff on the copper content of those articles; Chapter 74 articles are always things composed principally of copper and copper alloys, but Chapter 85 articles which contain copper may contain anything from a negligible amount (e.g., coaxial cable with copper-coated steel conductors like most CATV drop cable) to a substantial amount (e.g., electrical contacts made of copper or brass). So Chapter 85 articles will miss the 50% tariff, while Chapter 74 articles will be subject to it.

Now, let's imagine that you are a large international firm with manufacturing facilities in many countries. Belden, for example, manufactures some cable in Mexico as well as in the USA. The Richmond, Indiana plant's wire-draw operations start with bulk copper rod -- a Chapter 74 article which will become much more expensive (both from domestic and foreign suppliers) with a 50% tariff. But when Belden draws the wire, strands it, extrudes dielectrics over it, combines conductors and extrudes a jacket over the whole thing, the product is a Chapter 85 article. Now, consider:

If you're a company like that, and you are wondering whether to import copper into the USA for cable manufacture or whether to send that copper to one of your non-US facilities for use, a 50% tariff on copper imports gives you an absolutely massive incentive to send those manufacturing jobs outside of the USA. Why? Well, if you import raw copper to your US cable factory, you pay a 50% tariff. If instead you take that copper to Mexico, no 50% tariff; and when the Mexican plant is done with the product, it's no longer a Chapter 74 article, but has been transformed into a Chapter 85 article, subject to much lower tariffs when it finally enters the USA. Anyone faced with that choice will readily see that the only sensible policy, under the tariff, is to move as much manufacturing as one can outside of the USA.

And, of course, this applies between companies as well. If you are a purely domestic producer of cable, you face huge increases in material costs which your foreign competitors do not face. And when those foreign goods come into the country, they are no longer Chapter 74 goods, but Chapter 85 goods, subject again to the lower applicable tariff rates. A 50% tariff on copper imports gives a massive -- perhaps entirely overwhelming -- competitive advantage to foreign producers of communications cable.

It may be that a fellow who owns a copper mine is absolutely delighted to have his foreign competitors put at a severe disadvantage by huge copper tariffs. But his delight will be offset, in the big picture, by substantial losses of jobs in domestic industries that transform bulk copper into goods no longer classified under Chapter 74.

Not everything, perhaps, is ideal about free markets; that's a political question which has been raging for a long time. But one of the things which free markets do avoid is the law of unintended consequences. The voluntary transactions between free people, unburdened by big government restrictions, produce a sensible market for goods and services where arbitrary distinctions like that between Chapter 74 and Chapter 85 goods simply have no impact at all. When we try to impose huge tax increases for the purpose of benefitting one group of people, we tend to inflict great injury upon other groups of people.

As with all such questions, the issue of whether that's good or not depends upon one's values. But whatever one's values, it's important to go in with eyes open. A 50% tariff will not just harm people like us and our customers, but will also hurt America's domestic bulk cable manufacturers and their many employees, handing a substantial unearned advantage to their foreign competitors. If there is an objective to be reached by this path, all we can say is that it had better be a very, very good one.

We are, of course, watching what happens next in copper. We always do, but never in our history has the potential for such a disruptive increase in copper prices presented itself. Obviously, if it comes the impact upon pricing will be immense, and the advantage handed to our foreign competitors will be similarly immense.