You Made Your Bed; Now Lie in It
When we returned to the IRS office, I bade good-bye to Nick and Hana, printed out the immunity deal Ross O’Donnell had e-mailed to me, and headed right back out to my car. This time, I aimed for Mister Sandman’s Mattresses and More.
As I drove, I pondered the Sandman folklore. According to legend, he visited people in their sleep, sprinkling magical sand in their eyes to give them sweet dreams. In my experience, having good dreams only to wake to the reality of grainy, crusty, itchy eyes didn’t seem like a very good trade-off. If I were going to have a nocturnal visit from a fantasy figure, I’d much rather it be the dollar-doling Tooth Fairy, thank you very much. Still, the Sandman was preferable to his scary cousin, the Boogeyman.
The mattress store was located in a shopping center on the frontage road for Central Expressway, just north of the 635 loop. It was a large shop, one of those places that moved significant quantities of merchandise for reasonable prices. The front windows bore colorful paint and bold promises. “Nobody beats Mister Sandman’s prices!”
I stepped inside and glanced around the space. Two small, squealing children jumped on a king-sized bed at the back, testing its springs much to the chagrin of the salesman who was speaking to their mother. To my right, an elderly couple were also trying out the mattresses, though they merely lay down on one after another rather than jumping on them. A saleswoman addressed a middle-aged man in the center of the store before lying down on a bed and spreading her arms and legs as if making a snow angel to show how wide it was. I supposed when you worked at a mattress store lying down on the job was encouraged rather than frowned upon.
Figuring my best bet for finding the Sandman was at the checkout counter in the back, I weaved my way among the beds in that direction.
“Hi,” I said as I stepped up to the counter. “I’m looking for—” I realized then that I hadn’t asked the man on the phone what his real name was. I went with, “The boss.”
Before the clerk at the counter could respond, a black man in a dress shirt and tie stepped to the open door of an office behind her. “Are you the woman I spoke with yesterday on the phone?”
“Yep,” I said. “That’s me.”
He waved me over. “Come on back.”
I circled around the counter and walked back to his office.
He closed the door behind me, then held out a hand. “Max Brady.”
I gave his hand a shake. “I appreciate your cooperation, Mr. Brady.”
“You don’t have it yet.” He slid into his seat and gestured for me to sit in one of the padded lounge chairs that faced his desk. “Not until I see that immunity agreement.”
He wasn’t being rude or pushy, just no-nonsense. I could appreciate that. I’d pick a straightforward person over a bullshitter any day. I pulled the document from my briefcase and handed it to him. As he perused it, he took a sip from his coffee mug. Light-brown liquid ran down his chin and onto his shirt.
“Darn Novocain!” he snapped, grabbing a tissue from a box on his desk and dabbing at his shirt. “It’s been three hours since my root canal and my face is still numb.” He slapped his cheek as if to prove his point. “I can’t feel a thing.”
The coffee crisis dealt with, he returned his attention to the immunity agreement. Apparently satisfied, he pulled a pen from a cup on his desk and signed it. Turning to a desktop copier on the credenza behind him, he slapped the paper down on the glass to make himself a copy. He closed the lid, jabbed the button, and waited until the moving beam of light had traveled from one end of the machine to the other. His copy ready, he stashed it in his desk and handed the original back to me. The paper bore a few brown drips of coffee but was nonetheless enforceable.
“Thanks.” I slid the agreement back into my briefcase and got down to business. “As we discussed on the phone, I’m trying to establish that KCSH has been offering on-air advertising in return for products and services. Can you tell me what arrangements you have with the station and how they came about?”
He sat back in his chair, elbows on the armrests. “Flo came into my store about a year ago looking for a queen-sized bed. She wanted a pillow-top model. Even with our discounted prices, those don’t come cheap. She said if I’d give her the bed she’d promote the store on the station three times a day every weekday for the next two years. She’d brought in a price sheet with her, one that showed the rates KCSH charged for airtime, so we could compare. My cost for the bed she wanted was twelve hundred. We sold it for two grand. The amount of airtime she was offering would have cost me over three thousand dollars if I’d paid cash for it. Seemed like a good deal, so I took it. At the end of the day, I’d essentially made eighteen hundred dollars.”
“I can certainly understand the attraction,” I said. Bartering basically allowed people to obtain retail products and services for wholesale prices. “Did you get anything in writing to substantiate the agreement?”
“Sure did,” he said. “I wasn’t born yesterday.”
He reached into a desk drawer, pulled out a sales agreement, and handed it to me. The pricing column showed the retail price of $2,000 for the pillow-top bed, along with sales tax of $165 and a delivery fee of $75, for a total of $2,240. Along the bottom was a handwritten note:
In exchange for the above products and services, KCSH Radio Corporation agrees to promote Mister Sandman Mattresses and More in three spots of no less than fifteen seconds each between the hours of 6:00 AM and 10:00 PM each weekday for two years from the date of this sales agreement.
Signed: Flo Cash, CEO.
“Can you make me a copy of this?” I asked.
“Sure can.” He turned back to the copier and ran the paper through. Seconds later, he handed me the copy of the document, all nice and warm.
“Thanks.” I slid the copy into my briefcase, pulled out my laptop, and typed up an affidavit to attach to the sales agreement. After asking for his e-mail address, I sent him the affidavit. “Print that out and sign it,” I instructed him. “I’ll need it for court.”
As he set about the tasks, I thanked him for agreeing to speak with me. “Your cooperation will help me get this case moving along.”
He raised a nonchalant shoulder. “I don’t want to find myself in hot water. Not like I did with that shoddy plumber Flo sent over.”
What? Flo sent a plumber over? “Excuse me?”
“The guy was young, had no idea what he was doing. He was supposed to fix a small leak in the water heater in our storeroom, but next thing I know we’ve got hot water an inch deep all over the floor. Steam, too. It was like a sauna in here. Ruined three mattresses before I was able to stanch the flow with a blanket.”
“You said Flo sent the plumber over? I’m not sure I understand.”
“I didn’t mean it literally,” Brady replied. “Only that I’d found him on her barter site.”
“Her what?” My voice went up an octave into chipmunk range and I reflexively rose a few inches from my seat. Did he say Flo ran a bartering Web site? Holy guacamole, this case could be even bigger than I’d thought!
He rolled and clicked his computer mouse, reached over to the keyboard for his desktop computer, and tapped a few keys. Finished, he turned his flat-screen monitor so that I could see it. “That’s the site.”
Pulled up on the screen was a Web site called TradingPost.com, the image at the top of an old-timey Western storefront. The verbiage on the home page stated that the site was intended to help individuals and businesses exchange products or services cash-free. A direct, two-party exchange was not required. Rather, to facilitate transactions members would earn “Barter Bucks” in the market value of the products or services they provided to another member. The Barter Bucks could be redeemed for products or services of equal value from any member of Trading Post. Thus, the Barter Bucks functioned as a type of currency.
The site had four clickable tabs along the side of the page. The first was designated with “LIST YOUR PRODUCT/SERVICE,” the second read: “SEARCH FOR PRODUCT/SERVICE,” the third read: “ACCOUNT INFORMATION,” and the last read: “ABOUT BARTERING.”
“Flo owns this site?” I said. “You’re sure about that?”
“She told me about it when we made the trade. She suggested I sign up.”
I pointed at the bottom tab. “Can you log in and show me your account data?”
“I suppose there’s no harm in that. In for a penny, in for a pound.”
Or a Barter Buck.
Brady did some keyboarding and maneuvering and up popped his account details. His balance showed he had an 8,750BB credit to spend on the barter exchange.
I gestured toward the screen. “You’ve got a credit balance. Who’d you give beds to?”
“I can show you the details if you’d like.”
“That would be great.”
He clicked on a drop-down menu to delve into his transaction history. The page listed a dozen transactions. Mister Sandman had traded beds to various small, local businesses, including a janitorial service, a jewelry store, and a company that provided freelance tech support. No doubt the owners of those businesses had taken the beds home with them, just like Flo Cash had done. Commingling corporate and personal finances like this was a big no-no.
“What’s that?” I asked, pointing to a line that read: “TRANSACTION FEE.” The number next to it was also designated in Barter Bucks.
“That’s the part that goes to Flo Cash,” he said. “She takes a three percent cut on every transaction.”
And then spends those Barter Bucks on things for herself, no doubt.
I asked Brady to print out his transaction history, then requested he click on the “ABOUT BARTER” tab. The page discussed the history of barter, noting that early settlers had traded chickens and goats and eggs for things like medical care and fabric and tools. The site went on to say that cash had been invented as a way to make multiparty trades easier. Of course that wasn’t the only reason. Cash wasn’t perishable like eggs, nor did it crap all over your yard like a goat or chicken. Also, cash could be saved in a bank, where it would be safe and earn interest. She neglected to mention these facts, however.
But what grabbed my attention most was the statement at the bottom of the page: “Off-the-books bartering is a great way to increase your wealth in cash-free, tax-free transactions.”
The statement was overly broad and misleading. Barter among individuals for personal purposes, such as two mothers trading babysitting services, was indeed nonreportable and nontaxable. But when trades were made in a business context, the situation was different.
Those running a commercial barter exchange, such as TradingPost.com, were required to report all transactions arranged via the service. Earned Barter Bucks were considered income to the member, just as if the member had sold the products or services for cash. In cases where the amount “earned” by a business in a given year equaled the value of that “spent,” no net taxable income would result. But where the amounts earned exceeded the amount spent in a given year the business would have net income and owe tax.
What’s more, when personal and business lines were crossed an individual could owe tax even where the things traded were of equal value. In Flo Cash’s case, for instance, she had traded airtime owned by KCSH Radio Corporation not for something that would benefit the station but rather for a bed that she planned to use personally in her home. In cases like that, KCSH would have reportable income equal to the value of the bed received in return for the advertising service. The transfer of the bed to Flo would be treated as compensation paid by KCSH to her. KCSH could take a deduction for the in-kind “payment” to Flo, but it would be required to report the value to Flo on a W-2 along with her salary. Income, Social Security, and Medicare taxes would also apply to the in-kind payment.
Of course federal taxes weren’t the only taxes at issue here. Just as barter transactions were treated the same as cash transactions by Uncle Sam, they were treated the same for state tax purposes. The Texas Tax Code imposed sales tax on these transactions. The Texas Comptroller of Public Accounts would surely be interested in this barter site.
“Can you print out this page, too?” I asked Brady.
He clicked his mouse and the printer fired up.
Curious how extensive the site was, I pointed to the “SEARCH FOR PRODUCT/SERVICE” tab. “Let’s go there.”
“You don’t really need me for that, do you?” Brady stood and held out a hand, inviting me to take his chair. “I’ve got customers to tend to. How about I let you play around on the site while I go sell some beds?”
“Good idea.” I went around his desk and dropped into his chair. As he stepped to his door, I stopped him. “Just one thing, Mr. Brady. You’re going to have some state sales tax issues, too.”
He looked up and groaned. “I hadn’t thought of that.”
“I might be able to help you there,” I said. “I’ve worked with people in the comptroller’s office on other cases. I can’t guarantee anything, but I’d be happy to put in a good word for you, suggest they give you an immunity deal and waive penalties, too.”
“I’d appreciate that.” He shook his head. “I should’ve known this barter stuff was too good to be true. But Flo Cash is a financial expert. I thought she knew what she was talking about. I trusted her.”
No doubt the others involved in TradingPost.com did, too. They had no idea they were actually dealing with a modern-day snake oil salesman.
As he left the office to return to the sales floor, I clicked on the tab. What product or service should I search for? Hm-m … How about exterminators? I typed in “exterminator” in the search box. Sure enough, Cowtown Critter Control, the service that had provided the termite treatment at Flo’s house, popped up as one of the options. Next I tried “chiropractor.” Yep, Dr. Keele had listed his services on the site, too. I even found a listing for Szechuan Express, the Chinese restaurant that had delivered to the radio station. My mind flickered back to the fortune cookie. The empty vessel makes the loudest sound. Seriously, what does that mean?
I spent several minutes reviewing the offerings. They were extensive and varied, including everything from acupuncture to medical supplies to Zen gardens. Heck, virtually anything a person might need on any given day was listed on the site. No wonder Flo had been able to survive on such a small salary. With a barter network like this, who needed cash?
When I’d finished looking over the listings, I opened another search tab to verify that Flo Cash owned the Web site. Unfortunately, she’d paid extra for the privacy option. The domain was listed only in the name of the company from which she’d purchased it.
I painstakingly perused the site, page by page, printing them out for evidence. All kinds of people and businesses had listed things on the site, some noting as well the specific things they were looking to trade for. A dentist offered to exchange dental cleanings for maid service at his home. A tree-trimming service offered to keep power lines clear of limbs and branches. A mechanic agreed to trade oil changes and engine work for a date to his high school reunion. And, of course, an unnamed local radio station offered on-air promotion.
When I finished, I gathered the tall stack of printouts from the tray and stashed them in my briefcase.
You made your bed, Flo Cash. Now you’re going to lie in it.