Barter can bring in brownies or 10,000 tennis rackets
Boston — The lone brownie among the shampoo bottles wasn't the only evidence of this barbershop's business. After all, the owner had an Italian dinner to show for his work. One of his hairdressers received a homemade skirt and advice from an interior decorator.
This was barter day at the J. Harringtons salon on Boston's fashionable Newbury Street. By late afternoon, some 25 clients had traded everything from baked goods to a few hours of belly dancing for haircuts.
Trading haircuts for brownies is a bit beneath John Sweeney. From his carpeted office in downtown Boston, Mr. Sweeney operates a barter clearinghouse for businesses. On this day, his firm is ready to trade off leather furniture and $50,000 worth of hotel rooms in Jamaica.
Mesrrs. Clark and Sweeney are two examples of the growing barter business in the United States. Once thought to be outmoded by cash and credit cards, barter is slowly reentering the mainstream of commercial transactions. Today (July 1) it passed something of a milestone - it has earned a badge of legitimacy from the Internal Revenue Service (IRS).
''Barter has always made economic sense,'' Mr. Sweeney says. The problem was that it was difficult to trade in the old-fashioned way.
A homeowner trades his second pair of grass shears for his neighbor's lawn chair. Mr. Clark, too, deals on a one-to-one basis.
But what happens when a company wants to trade for 10,000 tennis rackets, but has nothing the tennis racket manufacturer wants in exchange?
That's where the approximately 350 US barter-exchange companies like Mr. Sweeney's have come into the picture. ''The computer . . . has taken the one-on-one out of trading,'' he says.
Tradecard, one of the 10 largest such firms in the US, lists the products and services available from its network of clients - from accountants to yoga instructors. When a client's product is accepted by another, the first client accumulates trade credits that he or she can use to barter for other offerings within the network.
These companies like bartering, Sweeney says, because it lets them conserve their cash while showing their products off to a whole new field of clients. Ordinarily, bartering accounts for 5 to 10 percent of a network firm's business.
Although bartering among retail companies is the bread and butter of Tradecard's business, it is also moving into corporate and international noncash trade.
In the past, bartering increased in times of recession, when cash was short. But as the recession fades, the industry spokesmen say they believe barter is here to stay.
After starting with one Boston office in 1979, Tradecard now boasts seven offices in New England. In its retail division, it annually grosses more than $5 million by charging an 8 percent commission on trades.
''The big question we used to get was: 'Is this a tax dodge?' '' Sweeney recalls of Tradecard's early days. Because barter involves no cash, it is up to traders to report the fair value of their transactions to the IRS. Many traders haven't always lived up to that. So when Sweeney would try to sell his service to new clients, they were sometimes a little leery.
In a project examining barter exchanges, for example, the IRS found that 79 percent of the 2,471 returns had to be adjusted, an IRS spokesman says. The additional taxes to be paid on barter income averaged $2,451.
But beginning today, the federal government is requiring barter-exchange companies to report all trading to the IRS. The International Association of Trade Exchanges has advocated this change for several years (although the trade group objects to specific provisions in the new laws).