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Don’t blame local owners for Marquette’s gas prices

June 24, 2012
Pete Gadzinski , The Mining Journal

I am an independent public accountant who has specialized in retail petroleum outlets for 41 years.

My clients are located in the eastern half of the Upper Peninsula, including Marquette County.

In the past 3 years we have compiled income statements for approximately 30 retail convenience stores each year. Listed here are the average profits per gallons that my clients grossed after the cost of product, road taxes and credit card fees are deducted: 10.61 cents in 2010 and in 10.86 cents in 2011. Retailers in Marquette County grossed 10.08 cents in 2010 and 11.46 cents in 2011.

Out of these margins the owners must pay their employees, employee taxes, property taxes, utilities, insurance, repairs, supplies, equipment, loan payments and all other business expenses.

A tribe that has not entered into a compact with the state of Michigan does not have to pay the Michigan sales tax if their store is on Tribal Trust land. If the price of gas is $3.80, the Michigan retailer pays a sales tax of $.20433 per gallon.

The tribe is also allowed to have the $.19 State Excise tax returned to them for sales to qualifying exempt tribal members if the sale takes place in Indian Country.

So the tribe has a 39.433 cent advantage when selling to tribal members and a 20.433 cent advantage when selling to non tribal members. If Upper Peninsula retailers lower their price 20 cents to compete with a Tribe, they will be losing 8 to 10 cents per gallon.

A tribe that does not enter into a compact will be able to sell other taxable products sales tax free. This will give them a 6 percent advantage on cigarettes, beer, wine, liquor, motor oils, and other products that Michigan retailers must collect the tax on. All grocery stores and party stores in the Marquette area would have to adjust to compete.

In recent years there have been 15 bankruptcies or closings of convenience stores in Marquette and Alger counties. They have occurred in Shingleton, Munising, Chatham, Eben, Skandia, Marquette, Negaunee Township, Ishpeming, Champion and Michigamme. Remember when there were eight gasoline stations on Front Street? Now there is one.

Ten of the twelve recognized tribes in the state of Michigan have entered into Tax Compacts with Michigan in the year 2003. Only the Baraga and Watersmeet tribes have refused to deal with our state.

Under a tax compact, tribal members are allowed to buy gasoline at discount of around 40 cents per gallon. This is done with an electronic card system. The tribal members also receive other tax advantages through a compact. Michigan in return gets the benefit of collecting road and sales taxes on fuel that is being used on Michigan highways.

Anyone who wants to calculate gas margins needs to educate themselves. You must subscribe to a source for rack prices to know what fuel costs at different terminals. Then you must add to that the federal and state taxes along with the freight and freight surcharges and credit card fees to find total cost. This constant arguing about the price of gasoline has turned into a witch hunt.

Yes, some days my client's margin might be 20 cents but on another day it might be a negative 2 cents. The main point is that competition has been taking care of itself and year after year margins are within pennies of prior years.

I hesitated to become involved in this continuing argument that lays blame to honest local businesses. We all have better things to do that could help others in our communities.

We note that The Mining Journal will not point out to their readers the price differences in groceries, automobiles, furniture etc. because they might jeopardize the advertising income they derive from those retailers.

Most Michigan citizens understand the need for taxes to fund roads, schools and our government. Some selfish people look only to save a buck on gas at the expense of others in Michigan.

It is unfortunate that The Mining Journal has decided to pick on a retail industry without solid facts. The operators of these stores take large risks. Only 1 in 3 new stores can make all of its loan payments in the first 5 years.

The owners put in long hours and deal with increasing theft and other problems at these prices. Some of the statements about store owners were ignorant and uncalled for.

An apology is in order. Journalism should not be a witch hunt. If you think this is an easy business, I invite you to try it. There are plenty of convenience stores available for sale.

Editor's note: Peter Gadzinski is in independent public accountant.

 
 

 

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