Judge Enjoins Cook County from Enforcing Use Tax

We write frequently about the difficult task retailers face in complying with the myriad state and local tax regimes in this country. State and local tax rules are ever changing, both through legislative and regulatory efforts and also through actions of administrative bodies and even the courts. For your average retailer, keeping abreast of every change can be near impossible.

For instance, last November, Cook County, Illinois approved a use tax ordinance that went into effect April 1, 2013, and imposed tax on non-titled personal property purchased outside the county for use within the county. The Cook County use tax rate was set at 1.25%, while the County’s sales tax rate on similar purchases made inside the county was only 0.75%. The language used in adopting the use tax plainly stated the County’s purpose in adopting the new tax: “WHEREAS, it is in the interest of Cook County to take steps that will level the playing field among business interests, close tax loopholes, and incentivize the purchase of non-titled personal property within the County for use within Cook County.”

Report, Recall, or Both: Do You Know Your Obligations Under the Consumer Product Safety Act?

Manufacturers, importers, distributors, and retailers of consumer products have a legal obligation to report hazardous or dangerous products to the Consumer Product Safety Commission ("CPSC"). Failing to do so may result not only in large civil penalties, but also criminal prosecution. But, there are many common myths and misconceptions about this reporting requirement and how it relates to the separate question of whether a product recall ought to be commenced. Here are just a few:

Myth One: “I only need to report to the CPSC if someone is injured by a product I sell.”

In truth, a reporting obligation can arise if not a single consumer has been injured. The law requires the reporting of “unreasonably hazardous or dangerous” products that pose a risk to consumers—even if the risk of harm has never been realized. The possibility of harm, alone, triggers a reporting obligation.

Myth Two: “I can avoid the need to report simply by sending a communication to my customers telling them how to avoid being injured by the product.”

Vermont Reverses Course on Cloud Computing

A little over a year ago, we wrote in this space about the State of Vermont’s moratorium on the taxation of cloud computing in the form of software as a service, or SaaS (“pre-written software accessed remotely” in the state’s terminology). The moratorium had been enacted in the wake of outcry from Vermont-based software companies, who objected to assessments for unpaid taxes on SaaS charges going back to 2006, based on a technical bulletin issued by the Department of Taxes in 2010.

At the time the moratorium was passed in 2012, there was some support for permanently exempting SaaS from Vermont’s sales and use tax, and Vermont’s governor had come out in favor of an exemption. A special study committee set up to make recommendations to the legislature on the issue also supported exempting SaaS from taxation. However, legislators were ultimately unable to agree on cuts elsewhere in the budget to make up for loss of anticipated revenue from SaaS taxes. As a result, the moratorium was allowed to expire, meaning that, as of July 1, charges for SaaS are taxable in Vermont. Because the moratorium applied only to taxes on SaaS, its expiration does not affect the tax treatment of other types of cloud computing, such as infrastructure as a service or IaaS.

Despite Prior Veto, Missouri Governor Signs Click-Through Internet Affiliate Nexus Provision into Law

As we reported last month, on June 5, Missouri Governor Jay Nixon vetoed a bill that included an Internet affiliate nexus provision. What a difference a month makes. On July 5, Governor Nixon signed a different bill, S.B. 23, that amends Missouri’s definition of “engages in business activities in this state” under Mo. Stat. § 144.605(2) to add a presumption of nexus for retailers with “click-through” online advertising agreements with residents of the state. Under the Missouri statute, “a vendor shall be presumed to engage in business activities within this state if the vendor enters in an agreement with one or more residents of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers” to the vendor by an Internet link or otherwise, so long as the vendor realizes at least $10,000 in sales from such referrals. The presumption may be rebutted by submitting proof that the affiliates were not engaged in activities that were significantly associated with the retailer’s ability to make or maintain a market for sales in the state. In particular, such proof may consist of “sworn written statements from all of the residents with whom the vendor has an agreement stating that they did not engage in any solicitation in the state on behalf of the vendor during the preceding year.” See Mo. Stat. 144.605(e), (f).

The Missouri statute continues a disturbing trend among state “click-through” Internet affiliate nexus laws under which a presumption of nexus is created regardless of whether the compensation paid to the in-state affiliate is based on sales completed by the retailer. Statutes recently enacted in Kansas, Maine, and Minnesota contain similar language, as do statutes already on the books in Arkansas, North Carolina, Rhode Island, and Vermont (although Vermont’s statute is not yet in effect). By the plain terms of such statutes, a passive “pay-per-click” advertising arrangement would be sufficient to create a presumption of nexus. Such a presumption is inconsistent with the reasoning of the New York Court of Appeals’ decision upholding the New York affiliate nexus law. See Overstock.com, Inc. v. Department of Taxation and Finance, 20 N.Y.3d 586 (2013). In Overstock, the Court emphasized that “no one disputes that a substantial nexus would be lacking if [in-state] residents were merely engaged to post passive advertisements on their websites.” 20 N.Y.3d at 596. These several states’ affiliate nexus statutes are at odds, on their face, with this fundamental principle.