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Open letter to Seattle City Council

Esteemed Seattle City Council Members:

This coming Monday you will be asked to vote on Tim Burgess’ proposal to introduce the tax on firearms and ammunition sales. When you vote, I hope that your decision will be informed by data and logic, rather than politics and ideology.

My name is Sergey Solyanik, and I am the owner of one of Seattle’s two biggest firearms stores, Precise Shooter LLC. I am also a development manager at Microsoft and I have M.S. degrees in Physics (From MIPT, Russia – the Soviet version of MIT), Computer Science (University of Pennsylvania), and an MBA from University of Washington. This is relevant because we will be talking about data analysis, and this is my specialty.

First and foremost it is important to note that all the arguments that the tax proposal advances are related to what they perceive as a gun violence crisis which is gripping the nation, and Seattle in particular (though Seattle is one of the safest cities to live in the US, with the homicide rate twice below the national average[1]).

These arguments are beside the point as far as this law is considered. You will not find any legal gun owners who supports or condones gun violence – we are far more law abiding people than the national average. We passed the background check that excluded people who were implicated in domestic violence, drunk driving, felonies, etc.

We are all for reducing or eliminating all violence – gun or otherwise. The question here, however, is whether this law has a chance to make an impact. The answer is no, yet it comes with significant costs for the city.

First of all, the mathematics around this law are fatally flawed. The “Summary and Fiscal Note”[2] document accompanying the bill claims that the revenue is expected to be in the $300000 to $500000 range. It does not go into the details of how these numbers were achieved, but the article by Daniel Beekman in Seattle times does[3] explain the methodology behind them.

The City Finance Office took the total number of firearms transactions in WA and apportioned them proportionally to the number of firearms licensees in Seattle. Then they took a range that looked “big enough” for them and slapped it on top of this average number ($400,000), thus arriving at $300,000-$500,000 prediction.

The easiest way to see why this does not work is by considering a room with 99 average people and one Bill Gates. The average income in this room will be $10,000,000. What Seattle City Finance Office is saying, that therefore the expected income range for 20 randomly selected people should be $9,000,000-$11,000,000.

It is mathematically impossible to arrive at a confidence range for a value without knowing its distribution. This is a simple statistical fact which anyone who took Stat 101 surely appreciates. There is NO BASIS – AT ALL – ANYWHERE – for $300,000-$500,000 range. Again, this is very basic math at the college freshman year.

In this particular case the city has very few actual firearms retailers. Of 22 firearms licensees only a handful actually do retail sales: my own Precise Shooter LLC, Outdoor Emporium, Discount Gun Sales, Capitol Loans (2 locations), and 3 Big Five stores. The rest are gunsmiths, “kitchen table” FFLs who only do transfers for people buying guns on the Internet, exporters/importers, and the like.

Of the above retail sellers, Precise Shooter LLC and Outdoor Emporium have the biggest inventories – roughly 600 guns each. The rest are very small – Discount Gun Sales have 80 firearms in its counters, Capitol loans and Big Five stores – about 60 each.

Precise Shooter sells roughly 100 guns per month. Outdoor Emporium – probably more, but not an order of magnitude more. Altogether it is a far cry from 1000 guns a month necessary to reach even the lowest number predicted by the City.

To put things in perspective, Cook County IL has a similar tax in place. They generate $800,000 in revenue per year. However, Cook County is 10 times bigger, and 10 times more populous. Seattle residents would have to buy firearms at 5 times Cook County average rate to be in line with City prediction.

Of course, they don’t have to buy anything in Seattle at all. There are plenty of firearms retailers just outside Seattle City limits – more than a dozen – such as Wade’s, West Coast Armory, Discount Guns in Tukwila, Pinto’s, Adventure Sports in Lynnwood, just to name a few. Seattle is a small place, and a gun store outside the city limits is within 7 miles from anywhere in the city.

This tax would not affect any of these stores, but the two stores inside Seattle would have a choice – raise the prices on consumers to offset the tax, pay the tax out of their own profits, or move.

If we raise the prices, we cannot compete with the Internet. The situation with guns is basically the same as with consumer electronics – though the price seems to be big, many online retailers sell for prices very close to wholesale. Only the fact that we can impose the transfer fee and the tax is collected the same was on Internet sales keeps local gun dealers afloat. Otherwise we would all go the way of Circuit City a long time ago.

My store’s typical margin on guns is 13% for guns that cost less than $1000, and 10% on guns that cost more. After credit card charges this works out to 10% and 7% gross margins respectively. A $25 tax on most guns will either eliminate most of the gross margin entirely, or cut it below the point of sustainability.

Specifically, in the first 6 months of 2015 my store had gross profit of $66000 on sales of $416000. We earned further $6000 on the transfer fees. We have spent $42000 on salaries for the two employees in the store, so the net before the other operating costs for 6 months was $30000. Roughly $8000 went to credit card fees, leaving us with just around $22000 – before rent, utilities, and other smaller expenses. Under this proposal, we would have paid more in taxes ($23500) than we could afford if we were to just turn all the money we make over to Seattle City Government.

These are real numbers, and I would be happy to back them up by providing a full disclosure of all my accounting information. I am sure other gun stores would be happy to do the same.

So we cannot increase the prices and we cannot afford to pay the tax – the only avenue that remains to us would be to move, which is exactly what we will do if this tax is enacted and the court does not stay it immediately. So we will move 3.5 miles up north, from 7503 Aurora to 145+ Aurora, and that would be the only outcome of this tax. All other businesses with significant firearms sales would have to do the same.

Which means that there will not only be no positive revenue flow from the tax, the city will lose the sales tax revenue that it receives today. Meanwhile the number of stores in Seattle vicinity will not change, nor will be the availability of either guns or ammunition.

And this brings me to the final point. Seattle Education and Governance council has shrugged off the numbers referenced above – but the courts will not. They will question the shoddy math employed by City’s Finance Office, and there is only one decision that they can possibly make: it is absolutely obvious that the City will lose, not gain the revenue, and so the real intent of this law is to regulate the arms trade, not fund the anti-violence programs.

And under WA “preemption clause” (RCW 9.41.290[4]) it is illegal:

“The state of Washington hereby fully occupies and preempts the entire field of firearms regulation within the boundaries of the state, including the registration, licensing, possession, purchase, sale, acquisition, transfer, discharge, and transportation of firearms, or any other element relating to firearms or parts thereof, including ammunition and reloader components. Cities, towns, and counties or other municipalities may enact only those laws and ordinances relating to firearms that are specifically authorized by state law, as in RCW 9.41.300, and are consistent with this chapter. Such local ordinances shall have the same penalty as provided for by state law. Local laws and ordinances that are inconsistent with, more restrictive than, or exceed the requirements of state law shall not be enacted and are preempted and repealed, regardless of the nature of the code, charter, or home rule status of such city, town, county, or municipality.”

This was tested in the past in Chan v. Seattle[5], which Seattle lost and then lost again in Appeals Court by unanimous court ruling. This proposal, should it be allowed to pass, will not stand the legal challenge as well.

This law, if enacted, will have no impact on gun violence, yet it will cost the City dearly in unnecessary legal expenditures and loss of tax revenue. Please vote no on this misguided proposal.

Thank you very much,

Sergey Solyanik

Owner, Precise Shooter LLC

Seattleite