tag:blogger.com,1999:blog-46574199260175026772024-02-08T06:47:54.550-05:00Eyes on eCom LawLegal News & Information for Online and Direct MarketersMartinhttp://www.blogger.com/profile/01733140939874603115noreply@blogger.comBlogger158125tag:blogger.com,1999:blog-4657419926017502677.post-49139609534577716682014-07-25T10:47:00.002-04:002014-07-25T10:47:25.761-04:00Software as a Service: Is it a Nontaxable Service?Many non-state and local tax experts mistakenly believe that subscription charges for Software as a Service ("SaaS"), are not taxable because SaaS is the provision of services. However, there are many states that treat SaaS as taxable. <i>See, e.g.</i>, <a href="http://www.tax.ny.gov/pdf/advisory_opinions/sales/a11_17s.pdf" target="_blank">New York TSB-A-11(17)S</a> (June 1, 2011). Fortunately, the majority of states do not tax SaaS. Recently, the Georgia Department of Revenue published an opinion that the provision of SaaS is not taxable, because it does not include the transfer the personal property on a physical medium. <i>See</i> <a href="https://etax.dor.ga.gov/TaxLawAndPolicy/LetterRulings/SalesAndUse/Georgia%20Letter%20Ruling%20No%20SUT%202014-02-20-01%20Computers%20and%20Software.pdf" target="_blank">Georgia Letter Ruling SUT No. 2014-02-20-01</a>. Thus, while pre-written software is generally taxable as tangible personal property in Georgia, the Georgia Department of Revenue requires that the transfer take place on a physical medium, such as a diskette or CD, in order to be taxable. Several other states have adopted a similar analysis. The mistake, however, is to believe that such a position is universal among the states. It is not.Martinhttp://www.blogger.com/profile/01733140939874603115noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-35140693686746022342014-07-02T10:10:00.000-04:002014-07-02T10:15:18.223-04:00Supreme Court Grants Cert In DMA Tax CaseOn July 1, 2014, the U.S. Supreme Court <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-1032.htm" target="_blank">granted the petition for a writ of certiorari</a> filed by the Direct Marketing Association. The DMA is represented by <a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a> partners <a href="http://www.brannlaw.com/info.php?sec=2&pid=25" target="_blank">George S. Isaacson</a> and <a href="http://www.brannlaw.com/info.php?sec=2&pid=18" target="_blank">Matthew P. Schaefer</a>.<br />
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The DMA seeks review of a Tenth Circuit ruling that the Tax Injunction Act bars federal court jurisdiction over a constitutional challenge brought by the DMA to a 2010 Colorado law that requires out-of-state retailers to comply with burdensome notice and reporting obligations that are only indirectly related to the payment of use tax on remote sales. Brann & Isaacson is tax counsel to the DMA and represents over 100 multichannel and online companies. The United State Supreme Court accepts review in only about 70 out of 7000 petitions filed each session.<br />
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Our readers can review previous posts on this topic <a href="http://eyesonecomlaw.blogspot.com/search/label/Colorado" target="_blank">here</a>. Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-24087917434887218692014-06-17T15:42:00.001-04:002014-06-17T15:42:36.153-04:00Illinois and Colorado Adopt Two Different Approaches to Internet Click-Through Nexus LawsWe have written extensively about Internet <a href="http://eyesonecomlaw.blogspot.com/search/label/Click-Through%20Nexus" target="_blank">click-through nexus laws</a>. Indeed, <a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a> prevailed, on behalf of the Performance Marketing Association, in the <a href="http://eyesonecomlaw.blogspot.com/2013/10/illinois-supreme-court-rules-illinois.html" target="_blank">challenge to the Illinois Internet click-through nexus law</a>. On October 18, 2013, the Illinois Supreme Court ruled that the Illinois statute violated the federal Internet Tax Freedom Act (“ITFA”), which is found at 47 U.S.C. §151 note, because the Illinois statute discriminated against electronic commerce. The lower court, the Circuit Court of Cook County, had held that the Illinois statute also violated the Commerce Clause because it mandated that any retailer that had an affiliate relationship with an Illinois company (i.e. the Illinois company referred potential customers to the retailer for a commission or other consideration) was required to collect and remit the Illinois sales and use tax. Because of its ruling under the ITFA, the Illinois Supreme Court declined to address the Commerce Clause issue.<br />
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In February 2014, the DMA, also represented by Brann & Isaacson, <a href="http://eyesonecomlaw.blogspot.com/2014/02/state-court-suspends-colorado-notice.html" target="_blank">obtained a preliminary injunction</a> from the District Court of Colorado, enjoining the enforcement of the Colorado reporting nexus law. The Colorado law required those companies that do not have a physical presence in Colorado to file reports with the Colorado Department of Revenue, make certain disclosures on their websites and catalogs and notify their customers through mailings describing the customers' obligation to remit sales taxes to the Colorado Department of Revenue. We reported on this decision in our <a href="http://eyesonecomlaw.blogspot.com/2014/02/state-court-suspends-colorado-notice.html" target="_blank">February 20, 2014 blog post</a>.<br />
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Subsequent to both the Illinois and Colorado victories for the industry, the legislatures in both of these states amended their statutes to address click-through nexus arrangements. Their approaches are different, though:<br />
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The <a href="http://legiscan.com/IL/research/SB0352/2013" target="_blank">Illinois statute, SB0352</a>, which will go into effect on January 1, 2015 if signed by the governor, provides that a retailer is <u>presumed</u> to have nexus with Illinois if it pays a person (the “affiliate”) located in Illinois a commission or other consideration based upon the sale of tangible personal property for referrals to the retailer, if the affiliate provides potential customers a promotional code from the retailers to track purchases by such potential customers. The promotional code can appear on a web site or be included on written advertising materials used by the affiliate to promote sales by the retailer or it can appear on other broadcast media distributed by the referring person. The presumption may be rebutted by proof that the activities of the person located in Illinois, including the referrals on the Internet or by other advertising, were not sufficient to meet the nexus standards of the U.S. Constitution.<br />
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The Illinois statute is obviously an attempt to cure the constitutional and statutory deficiencies of the prior law. It differs from click-through nexus laws adopted in other states, in that under other states' laws, the retailer may overcome the presumption by proving that the affiliate does not engage in any <u>other</u> solicitation activities in the state that constitute nexus under the constitutional standard. <i>See, e.g., </i><a href="http://law.onecle.com/new-york/tax/TAX01101_1101.html" target="_blank">NY Tax Law Sec. 1101(b)(8)(vi)</a>, NY TSB-M-08(3)S. The Illinois law requires that the retailer must establish that the actual referral relationship between the affiliate and the retailer does not establish nexus under the Commerce Clause.<br />
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The <a href="http://openstates.org/co/bills/2014A/HB14-1269/" target="_blank">Colorado statute, House Bill 14-1269</a>, takes the exact opposite approach as that of the Illinois statute. It provides that a click-through arrangement between a retailer without a physical presence in Colorado and a Colorado affiliate does not create nexus. In other words, it provides a “safe harbor” for a retailer doing business with Colorado blogs and other websites that provide links to the retailer. It should be noted that the Colorado statute does provide for affiliate nexus in certain situations in which the nexus of a company under common ownership with the retailer will be attributed to the out-of-state retailer.<br />
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In short, while some commentators have suggested that states will go on the warpath to adopt more aggressive affiliate nexus statutes in the absence of federal legislation, one state–Colorado–has not done so, at least insofar as click-through nexus statutes.Martinhttp://www.blogger.com/profile/01733140939874603115noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-28743879336732184792014-04-23T15:06:00.001-04:002014-04-23T15:06:21.495-04:00Buffalo Bills Alleged Over-Texting Results in Multi-Million Dollar SettlementThe National Football League’s Buffalo Bills, no strangers to disappointment on the field, are now a cautionary tale for mobile marketers. Last week, a federal judge in the Middle District of Florida approved a class settlement agreement over alleged violations of the <a href="http://www.law.cornell.edu/uscode/text/47/227" target="_blank">Telephone Consumer Protection Act</a> (“TCPA” 47 U.S.C. §227, et seq.), stemming from text messages sent by the Bills to fans who had explicitly signed up to receive texts from the team.<br />
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According to the complaint filed in October 2012, Bills fan Jerry Wojcik visited the Bills website to read news about the team and learned about the Bills text alerts program, under which fans could sign up to receive team news by text message. The program was explicitly opt-in; only fans who signed up would receive text messages. Further, subscribers could cancel their subscriptions at any time. The program description was quite specific, reading, in part: “You will be opted in to receive 3-5 messages per week for a period of 12 months. Text STOP to cancel.”
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Mr. Wojcik signed up for the text program and began receiving texts. One week, he allegedly received 6 messages. Another week, he allegedly received 7. Noting that the program terms had stated that he would receive 3-5 messages per week, he sued, on behalf of himself and all others similarly situated, alleging a massive violation of the TCPA and seeking damages of up to $1500 for every text above the permitted 5/week. A year and a half later, the parties have agreed to a settlement potentially worth as much as $3 million (depending on the number of claimants who come forward), including approximately $500,000 in attorneys’ fees and costs for Wojcik’s lawyers.
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The Bills’ unfortunate experience is an important lesson for anyone who uses text messaging as a marketing tool. After all, the Bills did nothing more than send text messages to fans who had explicitly signed up to receive them, and who could at any time ask to stop receiving them. It’s difficult to see how anyone was harmed by this. Nevertheless, they ultimately made the calculation that this settlement was preferable to continuing down the long path of litigation. This has to do in part with the cost of complex class action litigation, and in part with the TCPA itself. The law requires a company to obtain prior express consent before using automated technology to send mass texts, and provides for statutory damages of $500 per negligent violation, or $1500 per willful violation. In the case of a mass text campaign, the potential statutory damages can quickly add up to a very large amount.
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Companies utilizing text messaging should take care in crafting their program terms and conditions. The Bills’ Text Alert program, with its specific statement that subscribers were “opted in to receive 3-5 text messages per week,” presented a tempting target, because it allowed the argument that subscribers had not consented to receive any text in excess of 5 per week, even it was just a single extra text. Additionally, companies need to ensure that their actual practices are consistent with the disclosures in their terms and conditions. Unfortunately, TCPA litigation can be costly, regardless of a case’s merits, but there are steps companies can take to reduce their risk of becoming a target.
Nathttp://www.blogger.com/profile/05595917544124284883noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-42682217081238292222014-04-14T12:39:00.000-04:002014-04-14T12:39:46.601-04:00Danger on the Horizon: Gift Card Companies and Unclaimed Property LawsThere are approximately twenty states that require issuers and holders of gift cards to pay to their state treasury the balances of any unredeemed gift cards, which is otherwise known as “breakage.” (For purposes of this article, I refer to gift cards in the broad sense, including gift certificates, gift cards, and stored value cards). The larger states—New York, New Jersey, Massachusetts, and Delaware—provide, however, for the escheat of gift cards. (Technically the required payment of unredeemed gift card balances is based on unclaimed property or abandoned property laws rather than escheat, but the underlying principles of the state taking funds on behalf of its citizens are the same). A majority of state unclaimed property laws do not escheat unredeemed gift card balances.
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For legitimate business reasons with the result of reducing payment of breakage, many retailers with gift card programs have entered into agreements with third parties such as Card Compliant in which the third party forms a special purpose gift card entity to issue the gift cards. Other retailers, without use of a third party, have set up their own gift card subsidiaries to issue their gift cards. The gift card companies are formed in states such as Ohio or Florida, which do not require the payment of breakage to the states. Under the priority rules established by a line of U.S. Supreme Court decisions and embodied in the various state unclaimed property statutes, if the records of the holder (i.e. issuer) of the gift card do not identify the last known address of the owner of the gift card, then the state for payment of the unredeemed gift card balances is the state of incorporation of the holder. Thus, since the gift card company is incorporated in a state with favorable laws regarding gift cards, and because the gift card companies do not maintain the addresses of the owners of the gift cards, the gift card company (and the retailer, which is not the holder) are not liable for payment of breakage. In other words, the theory is that the states with laws that require the escheat of gift cards—even if it is the state of incorporation of the retailer— cannot enforce its laws to require payment of the breakage against either the retailer or the gift card company.
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The theory has now run up against the reality of a <i>qui tam</i> suit brought by a noted plaintiff’s securities fraud law firm on behalf of the State of Delaware and a relator (the individual who sues on behalf of the state in a <i>qui tam </i>suit) against Card Compliant, its special purpose gift card entities, and various retailers that caused their gift cards to be issued by these Card Compliant entities. <a name='more'></a>In a <a href="http://www.kelmarassoc.com/legal/State%20v.%20Card%20Compliant%20-%20Complaint.pdf" target="_blank">112 page complaint</a> filed by Relator French, a former executive of Card Compliant, the plaintiffs describe in detail the formation of the gift card companies by Card Compliant and more than 20 retailers incorporated in Delaware. The complaint describes in detail the contractual arrangements between each retailer and the Card Compliant subsidiary and alleges that these arrangements and the creation of the Card Compliant entities are a sham and a scheme “to deprive the State of Delaware of hundreds of millions of dollars due to the State under the Abandoned Property Law.” The suit alleges that the Card Compliant entities are mere shell companies. Plaintiffs seek treble damages, forfeitures, and civil penalties as well as the law firm’s attorneys’ fees and costs, under the Delaware False Claims and Reporting Act. 6 Del. C. Sections 1201, <i>et seq</i>. The Relator seeks the payment of a bounty, termed the “relator’s share” of the award.
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The suit was filed under seal in Delaware Superior Court in New Castle County on June 28, 2013. The Complaint was made public on March 26, 2014. None of the Defendants have yet to file answers. It is thus too early to determine the strength of the Relator’s claims. The suit should, however, raise alarm bells for any retailer that causes its gift cards to be issued through a special purpose entity. To my knowledge, this is the first proceeding by or on behalf of any state to challenge the gift card company structure.Martinhttp://www.blogger.com/profile/01733140939874603115noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-45065211634254770342014-04-08T15:55:00.003-04:002014-04-09T10:45:35.294-04:00Did Wyoming Just Become an Internet Affiliate Nexus State?We have written often about state Internet “click through” nexus laws, including the New York affiliate nexus statute unsuccessfully challenged by <a href="http://eyesonecomlaw.blogspot.com/search/label/Overstock.com" target="_blank">Amazon.com and Overstock.com</a>, and the Illinois Internet affiliate nexus law stuck down by the <a href="http://eyesonecomlaw.blogspot.com/2013/10/illinois-supreme-court-rules-illinois.html" target="_blank">Illinois Supreme Court</a> in response to a suit brought by the Performance Marketing Association (for which Brann & Isaacson served as counsel). In most states, meaningful risk of Internet affiliate nexus for an out-of-state seller arises only after the legislature adopts a statute that, like New York’s law, creates a rebuttable presumption of “click through” nexus. In our view, even such a rebuttable presumption suffers from <a href="http://www.brannlaw.com/images/MediaAndPublications/253/20130924WebNewsItemAttach.pdf" target="_blank">serious constitutional failings</a>. Thus, an even more aggressive position, such as asserting that an Internet affiliate relationship, by itself, can create nexus for an out-of-state vendor without providing any opportunity to rebut the presumption, is plainly at odds with the Constitution.
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On April 3, 2014, the Wyoming Supreme Court waded into the “click through” nexus arena and raised the possibility that, under Wyoming case law, the mere existence of an Internet affiliate relationship with an in-state website may be deemed sufficient to create nexus for an out-of-state retailer. <i>See <a href="http://statecasefiles.justia.com/documents/wyoming/supreme-court/2014-s-13-0078.pdf?ts=1396586351" target="_blank">Travelocity.com et al. v. Wyoming Department of Revenue</a></i>, 2014 WY 43 (Apr. 3, 2014). The case is one in an extensive series of cases around the country involving challenges to state tax assessments brought by online travel companies. At issue typically in these cases is the question of whether online travel companies (“OTCs”)
are subject to a state sales/use tax collection obligation on the portion of their charge to consumers that is not paid to the hotel that provides the
room (as to which tax is often collected by the OTC, paid to the hotel, and remitted remitted to the state). The OTCs have argued that the portion of the charge not paid to the hotel is a service fee collected by the OTCs, not a part of the charge to the consumer for the room.
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The OTC cases raise numerous issues under both state sales and use tax law and federal constitutional principles, including substantial nexus. Since nexus requires a sufficient connection between the state and both the seller <i>and</i> the activity/transaction being taxed, <i>see Complete Auto Transit Inc. v. </i>Brady, 430 U.S. 274, 279 (1977), the OTCs have argued that nexus is lacking with regard to the transaction in question, since their sales occur on servers located outside the state in which the room is provided. In other words, the OTCs assert that the state lacks nexus with the activity being taxed, regardless of whether there is sufficient nexus with the OTCs themselves as sellers.
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This post was not written to critique the relative merit of this nexus argument by the OTCs. For present purposes, it suffices to note that the Wyoming Supreme Court, after accurately characterizing the OTCs nexus argument in <i>Travelocity</i>, then garbles its analysis. In the process, the Court asserts that the Internet “click through” affiliate relationships entered into by the OTCs with Wyoming websites are an additional basis for finding that the OTCs had nexus with the state, beyond the OTCs’ contracts with the hotels located in Wyoming. The Court gives as an example of such a relationship Travelocity’s agreement with the Cheyenne Area Convention and Visitor’s Bureau. Apparently, a consumer booking a room through the Bureau’s website is actually doing so though a booking engine operated by Travelocity, with Travelocity paying a commission to the Bureau for each booking completed through the site. <i>See Travelocity</i>, 2014 WY 43 at ¶ 81. The Court cites the decision in <i>Overstock.com, Inc. v. New York Department of Taxation & Finance</i>, 20 N.Y.S. 3d 586 (N.Y. 2013) (in which the New York Court of Appeal upheld the New York affiliate nexus law’s rebuttable presumption of nexus) as establishing that “through these types of affiliate agreements, a vendor is deemed to have established an in-state sales force.” <i>Travelocity</i>, 2014 WY 43 at ¶ 82.
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The Wyoming Supreme Court badly misreads the decision in <i>Overstock.com</i> and, in the process, introduces confusion as to whether Internet “click through” nexus is now the law in Wyoming, despite the Wyoming legislature not having adopted a “click through” affiliate nexus statute. In <i>Overstock.com</i>, the New York Court of Appeals made very clear that mere passive advertising relationships, even if they involve compensation based on sales, do <i>not</i> create nexus under the New York statute. <i>Overstock.com, </i>20 N.Y.3d at 596 (“no one disputes that a substantial nexus would be lacking if New York residents were merely engaged to post passive advertisements on their websites”). There is no basis for reading the <i>Overstock.com</i> decision as holding that “click through” affiliate arrangements with in-state websites, without more, create nexus with a state for an out-of-state retailer. Furthermore, because the Wyoming Court discussed the OTCs’ Internet affiliate relationships as an additional nexus factor, beyond their contractual relationships with the Wyoming hotels themselves, it is now unclear whether out-of-state retailers whose <i>only</i> connection with Wyoming is via Internet affiliate arrangements will be deemed by the Wyoming Department of Revenue, the Wyoming Board of Equalization, or Wyoming courts, to have nexus with the state as a result.
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Ultimately, the Court’s careless analysis may spell trouble for Wyoming affiliates. In many cases, retailers react to the introduction of a state law or ruling which institutes affiliate nexus by terminating their relationships with in-state affiliates. In the end, it is the in-state small businesses that rely on online advertising revenue derived from contracts with out-of-state online retailers that suffer the most.
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Retailers with affiliate programs that include Wyoming affiliates should consult their tax advisors to determine whether or how to adjust their programs in response to the Court’s ruling.
Matt Schaeferhttp://www.blogger.com/profile/04821311592541145328noreply@blogger.com8tag:blogger.com,1999:blog-4657419926017502677.post-11342252643862363172014-02-20T16:44:00.000-05:002014-02-21T14:27:54.113-05:00State Court Suspends Colorado Notice and Reporting LawOn Tuesday, February 18, 2014, Judge Morris Hoffman of the Colorado District Court for the City and County of Denver <a href="http://www.brannlaw.com/images/MediaAndPublications/279/20140221WebNewsItemAttach.pdf" target="_blank">granted the motion for a preliminary injunction</a> filed by the Direct Marketing Association (“DMA”) in its suit challenging the 2010 Colorado statute that imposes onerous notice and reporting obligations upon out-of-state retailers that do not collect Colorado sales tax. The Court suspended, effective immediately, all of the Colorado law’s requirements (referred to in the ligation as the “Transactional Notice,” the “Annual Purchase Summary,” and the “Customer Information Report”). Judge Hoffman explained that “Plaintiff has proved to my satisfaction at this stage that each of the Act’s three notification and reporting requirements are facially discriminatory” in violation of the Commerce Clause of the United States Constitution. As a result, remote sellers that do not collect Colorado sales tax are not required to comply with the law’s provisions, pending further action by the Court as the case proceeds.<br />
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Readers will recall that the DMA previously obtained both a preliminary and <a href="http://eyesonecomlaw.blogspot.com/2012/04/federal-court-declares-colorado-use-tax.html" target="_blank">permanent injunction</a> against the Colorado law’s enforcement from the federal District Court for the District of Colorado. The injunction was dissolved in late 2013 after the federal Court of Appeals for the Tenth Circuit ruled that the Tax Injunction Act (“TIA”) deprived the federal District Court of jurisdiction to enter the injunction. In response, the DMA <a href="http://eyesonecomlaw.blogspot.com/2013/11/direct-marketing-association-re-files.html" target="_blank">filed an action in state court</a> in November 2013, challenging the law.
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The DMA is represented in the case by Brann & Isaacson partners George Isaacson and Matthew Schaefer.
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The state court will hold a status conference in the next few weeks to determine further proceedings in the case. We will
keep readers apprised of further developments in the case.
Matt Schaeferhttp://www.blogger.com/profile/04821311592541145328noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-32938805971468075782014-02-06T15:43:00.002-05:002014-02-06T15:43:46.507-05:00State Sales Tax Enforcement After the Supreme Court’s Denial of Cert in Amazon/OverstockAs we have discussed in prior posts, <a href="http://eyesonecomlaw.blogspot.com/search/label/Amazon.com" target="_blank">Amazon</a> and <a href="http://eyesonecomlaw.blogspot.com/search/label/Overstock.com" target="_blank">Overstock.com</a> filed petitions for <i>certiorari</i> with the U.S. Supreme Court seeking review of the New York Court of Appeals decision that the New York affiliate click-through nexus statute, on its face, did not violate the Commerce Clause. Late last year, the U.S. Supreme Court <a href="http://eyesonecomlaw.blogspot.com/2013/12/supreme-court-denies-petitions-for-cert.html" target="_blank">denied the petitions</a> and, therefore, the New York Court of Appeals’ decision stands.
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While the denial of <i>cert</i> means that the New York statute is constitutional on its face, it is not an
indication that the U.S. Supreme Court agrees with the New York Court of Appeals’ decision or that the Court has blessed affiliate click-through nexus laws. It simply signifies that the issues presented in that case did not warrant review. Less than 5% of all petitions for <i>certiorari</i> are granted.<br />
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States, however, have taken the denial of <i>cert</i> as a prompt to propose affiliate click-through nexus laws. Thus, representatives have introduced bills in the legislatures of four states—<a href="http://www.capitol.hawaii.gov/measure_indiv.aspx?billtype=HB&billnumber=1651&year=2014" target="_blank">Hawaii</a>, <a href="http://iga.in.gov/legislative/2014/bills/senate/269/#document-52627085" target="_blank">Indiana</a>, <a href="http://wapp.capitol.tn.gov/apps/BillInfo/Default.aspx?BillNumber=HB1537" target="_blank">Tennessee</a>, and <a href="http://www.scstatehouse.gov/sess120_2013-2014/bills/870.htm" target="_blank">South Carolina</a>—that are modeled after the New York statute. There are some variations among this proposed legislation, but in general each provides for a presumption of nexus if the remote seller pays commissions to a person (the affiliate) who resides in the state for referrals by a website link or otherwise, if the retailer’s sales in the state from such referrals exceed $10,000. The bills would also permit the retailer to overcome the presumption by showing that the affiliate does not otherwise solicit sales on behalf of the retailer or otherwise make a market in the state. The New York Court of Appeals in the <i>Amazon/Overstock</i> cases stated that the presumption was rebuttable, so that the retailer could prove that the affiliate did not engage in solicitation activities on behalf of the retailer in New York. The rebuttable presumption saved the constitutionality of the statute.<br />
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In contrast, the Illinois affiliate click-through nexus law that the Illinois Supreme Court <a href="http://eyesonecomlaw.blogspot.com/2013/10/illinois-supreme-court-rules-illinois.html" target="_blank">ruled was unconstitutional</a> in the <i>Performance Marketing</i> case automatically
created nexus based on the affiliate relationships. Similarly, the Connecticut affiliate click-through nexus law does not permit the retailer to submit evidence that its Connecticut affiliates do not make a market in Connecticut on behalf of the retailer. Whether the Connecticut Department of Revenue Services will enforce this statute is unclear at this point, but a recent notice by the Department signifies that it may be preparing to do so. Three weeks after the Supreme Court denied cert in the <i>Amazon/Overstock</i> cases, the Department in AN 2013(9) <a href="http://www.ct.gov/drs/cwp/view.asp?A=1529&Q=537092" target="_blank">revoked Special Notice 92(19)</a>. Special Notice 92(19) had been issued shortly after the U.S. Supreme Court’s <i>Quill </i>decision. It provided that the Department would not enforce a Connecticut statute which stated that any retailer that makes retail sales by means of print, radio, or television media or by mail is required to collect the Connecticut tax if the retailer makes more than 100 retail sales from outside Connecticut. The Department took that position in Special Notice 92(19) because it felt that mere “economic presence” is not sufficient to pass the <i>Quill</i> Commerce Clause standard. The Connecticut statute addressed in Special Notice 92(19) is still in effect, albeit with expanded coverage to include Internet sales. <i>See</i> Connecticut General Statutes Section 12-407(a)(12).
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In short, five states have already used the Supreme Court’s denial of <i>cert</i> as a basis to consider expanding the reach of their sales tax laws. It is likely that other states will follow suit. Yet the state of the law has not changed as a result of the <i>Amazon/Overstock</i> denial of <i>cert</i>.Martinhttp://www.blogger.com/profile/01733140939874603115noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-33425994936294409022014-01-30T12:36:00.002-05:002014-01-30T12:36:32.146-05:00Traps for the Unwary: California’s Prop 65In a previous <a href="http://eyesonecomlaw.blogspot.com/2013/11/mail-order-merchandise-rule-are-your.html" target="_blank">blog post</a> in our ongoing series about legal and regulatory challenges specific to the multichannel merchant, I indicated that I would next discuss quirky California laws that can create traps for unwary merchants. The first of these is one of the many voter-initiated statutes enacted by referendum in California. Popularly known as Prop 65, the Safe Drinking Water and Toxic Enforcement Act of 1986 requires the State of California to publish a <a href="http://oehha.ca.gov/prop65/prop65_list/Newlist.html" target="_blank">list of chemicals</a> known to cause cancer or birth defects or other reproductive harm. This list, which must be updated at least once a year, has grown to include approximately 800 chemicals since it was first published in 1987.<br />
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Many of the chemicals on the list are present in common, every day products, and would require massive doses every day for a lifetime to produce an observable effect. For example, acrylamide is a chemical found in many common food products such as potato chips, breads, coffee, tomato sauce, breakfast cereal, and fruit preserves. <i>See </i><a href="http://www.consumerfreedom.com/2009/11/4024-lawyer-math-1-1-prop-65"><span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">http://www.consumerfreedom.com/2009/11/4024-lawyer-math-1-1-prop-65</span></a><i>. </i> But an individual would have to consume massive quantities of any of these foods every day to create any kind of appreciably increased cancer risk. <i>See id</i>. Nevertheless, Proposition 65 requires businesses to notify Californians about the presence of acrymalide and hundreds of other chemicals in the products they purchase.<br />
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Theoretically, by providing this information, Proposition 65 enables Californians to make informed decisions about protecting themselves from exposure to these chemicals. In practice, however, the law’s private enforcement (or “bounty hunter”) feature has resulted in a cottage industry of threatened and actual lawsuits brought for the purpose of extorting settlements. Because the statute permits the recovery of attorneys’ fees and places the burden on
the defending company to prove that the chemical in question does <u>not</u> cause cancer, the cost of litigation is potentially astronomical. Consequently, there are strong incentives for defendants to settle Prop 65 lawsuits even if good defenses exist.<br />
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As of October 2013, Proposition 65 has been amended to provide relief to certain businesses that fail to provide warnings to consumers in specific situations, including restaurant sales of alcoholic beverages and food, secondhand
smoke, and engine exhaust. But, the most onerous provisions, including the bounty hunter provision, remain.<br />
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Prop 65 can create a very thorny problem for unwitting business selling products in California; it applies even if the business is not located in California, and is unaware of the law’s requirements. Because the sweep of the law is so broad, it is virtually impossible to ensure that all products in a merchant’s assortment are compliant. Indeed it is likely that all are not. And even if all products themselves comply, packaging and labels also create risk. Accordingly, as with many compliance burdens, the best planning technique is to make sure that vendors’ suppliers are
responsible for Prop 65 compliance for the products that they supply.<br />
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Please stay tuned for my next installment, in which I plan to discuss the California Abolition of Child Commerce, Exploitation and Sexual Slavery Act of 2011.
Anonymousnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-46756764095846891712013-12-20T16:44:00.002-05:002013-12-20T16:51:56.831-05:00The Year In ReviewAs the year draws to a close, it’s worth looking back over a range of important legal developments in the world of electronic commerce, a number of which set the stage for fireworks in the months and years ahead. Wishing all of our readers a wonderful holiday season, and the best and brightest New Year, we hope you enjoy our “top five” list.<br />
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Coming in at number five ...<br />
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5. <b> Is <i>Everything</i> Is Personal Information? </b>Reversing cogent and balanced decisions from multiple lower courts, the Supreme Court of California in 2011 opened the floodgates to class actions with its extraordinary opinion in <a href="http://scocal.stanford.edu/opinion/pineda-v-williams-sonoma-33947">Pineda v. Williams-Sonoma</a> in which zip codes were deemed to be personal identification information (PII) which could not be collected in connection with credit card sales. In 2013, Massachusetts joined the <a href="http://eyesonecomlaw.blogspot.com/2013/03/the-perils-of-zip-code-collection-reach.html">bandwagon</a>, and, most recently, a <a href="http://eyesonecomlaw.blogspot.com/2013/12/song-beverly-strikes-again-email.html">California federal court</a> has expanded PII to include email addresses. These cases raise class action litigation risks in a number of <a href="http://eyesonecomlaw.blogspot.com/2013/04/beyond-california-and-massachusetts.html">other states as well</a>, so expect more decisions in 2014. The critical lesson? Vet your information collection practices carefully with a lawyer of your choice.<br />
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4. <b>Affiliate Nexus Anyone? </b>Both in terms of laws being passed and litigation being waged, the area of so-called "affiliate nexus" has boomed across the United States. There was a time when "affiliate nexus" referred to nexus <a href="http://eyesonecomlaw.blogspot.com/2011/10/nexus-of-subsidiary-not-automatically.html">created by related corporations</a> -- parents, affiliates, and subsidiaries -- but now it refers to nexus <a href="http://eyesonecomlaw.blogspot.com/2013/04/despite-unconstitutionality-kentucky.html">created by third-party websites</a> (such as blogs) that include links to a direct marketer's website and through which payments are earned based upon click-throughs or referred sales, for example. This year's highlights include <a href="http://eyesonecomlaw.blogspot.com/2013/12/supreme-court-denies-petitions-for-cert.html">unsuccessful litigation by Amazon and Overstock</a> seeking to overturn New York's affiliate nexus laws, and <a href="http://eyesonecomlaw.blogspot.com/2013/10/illinois-supreme-court-rules-illinois.html">successful litigation by the Performance Marketing Association</a> that resulted in the striking down of Illinois' affiliate marketing statute. Generally speaking, the laws that appear most vulnerable are those that do not provide direct marketers with an opportunity to rebut a presumption of nexus. Look for more affiliate nexus litigation in 2014.<br />
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3. <b>Rocky Mountain Hijinks. </b>Another high profile lawsuit in 2013 was the Direct Marketing Association's federal court lawsuit which sought an injunction to stop an intrusive Colorado law from requiring direct marketers to (among other things) turn over their customer lists to state tax officials. After winning <a href="http://eyesonecomlaw.blogspot.com/2012/04/federal-court-declares-colorado-use-tax.html">an injunction from the United States District Court</a> in 2012, the United States Court of Appeals for the Tenth Circuit <a href="http://eyesonecomlaw.blogspot.com/2013/08/federal-appeals-court-rules-lower-court.html">overturned that decision</a> on a technical, procedural basis, finding that the Tax Injunction Act robbed the federal courts of jurisdiction. The DMA has now <a href="http://eyesonecomlaw.blogspot.com/2013/11/direct-marketing-association-re-files.html">refiled its challenge in state court in Colorado</a>, and a motion for preliminary injunction is pending with a decision likely in early 2014.<br />
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2. <b>A CAT of a Different of a Different Color. </b>If you haven't been contacted by the Ohio Department of Revenue about their Commercial Activity Tax (the "CAT"), it's only a matter of time. This tax appears to have been an attempt to sidestep the <i>Quill</i> physical presence requirement, while also avoiding the tax limitations of Public Law 86-272 (which places limits on the taxation of net income). The tax is identical to a sales tax -- both impose taxes on a seller's gross receipts -- but, unlike a sales tax, the incidence of the tax is on the seller, not the purchaser. On this basis, Ohio claims that sales tax nexus cases (and their physical presence requirement) don't apply. One slight problem, however, gets in the way of this thinking: there are five "substantial nexus" cases from the United States Supreme Court that involve gross receipts taxes just like the CAT, and <a href="http://eyesonecomlaw.blogspot.com/2010/05/nexus-quill-physical-presence-test.html">all of them require a physical presence</a> for tax jurisdiction. In August of this year, the Ohio Board of Tax Appeals held its first hearing on a Commerce Clause challenge to the CAT, and a decision is likely within the next six months. Stay tuned!<br />
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And, finally ...<br />
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1. <b>The Marketplace Fairness Act. </b>The biggest question on the minds of many direct marketers was whether Congress would overturn the "physical presence" requirement of the Commerce Clause. In 2013, the Senate did something that neither it nor the House had ever done before: it <a href="http://eyesonecomlaw.blogspot.com/2013/06/the-marketplace-fairness-act-are-online.html">passed just such a bill</a>, entitled The Marketplace Fairness Act. However, the House said, "<a href="http://eyesonecomlaw.blogspot.com/2013/11/mfa-update-rep-goodlattes-seven.html">Not so fast</a>." What happens next is anyone's guess.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-57927751508239789272013-12-13T16:25:00.001-05:002013-12-16T09:06:11.195-05:00Song Beverly Strikes Again: Email Address Collection Added to Potentially Worrisome ActivityAs we've previously blogged, retailers who sell products to consumers in <a href="http://eyesonecomlaw.blogspot.com/2013/03/the-perils-of-zip-code-collection-reach.html">California and Massachusetts</a>, as well as <a href="http://eyesonecomlaw.blogspot.com/2013/04/beyond-california-and-massachusetts.html">a number of other states</a>, run the risk of costly class action lawsuits if they collect customer zip codes in connection with purchase of goods by credit card. The prohibitions in those states, as we've explained, often go beyond zip codes, and can include -- in California, for example -- any information that does not appear on the face of the credit card.<br />
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A recent <a href="http://www2.bloomberglaw.com/public/desktop/document/Capp_v_Nordstrom_Inc_Docket_No_213cv00660_ED_Cal_Apr_04_2013_Cour">decision</a> by the United States District Court in California involved the collection of e-mail addresses in credit card transactions, and found against a retailer on a motion dismiss -- propelling the case to trial. That decision adopted what some might call an inordinately <a href="http://scocal.stanford.edu/opinion/pineda-v-williams-sonoma-33947">expansive interpretation of the underlying law by the Supreme Court of California</a>, and made things far worse by adding an apparent misreading of the statute to the mix. Not for the faint of heart, but certainly important for the prudent direct marketer who hopes to avoid costly and sometimes bogus lawsuits, the decision helps underscore the risks faced by even the most diligent companies -- risks high enough that companies are often forced to settle when they know in their heart of hearts that they're right.</div>
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<b>The Case Up Close. </b>To begin with, it's not at all a surprise that the the federal court concluded that e-mail addresses are "personal identification information" under the California statute. After all, the statute expressly defines PII as any information not appearing on the face of the credit card, as was pointed out with much energy by the California Supreme Court in what could reasonably be seen as landmark overreach in the <a href="http://scocal.stanford.edu/opinion/pineda-v-williams-sonoma-33947">Pineda</a> case. Thus, if you're collecting any information that's not on the face of the credit card, you're playing on enemy,<i> i.e.</i>, the class action lawyer's, territory. This could extend to information as bland as a customer's state of residence.</div>
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Well, like a lot of other retailers, this one collected e-mail addresses from customers for the purpose of sending customers purchase receipts. However, as the federal court observed, the underlying statute -- the so-called <a href="http://law.onecle.com/california/civil/1747.08.html">Song Beverly Act</a> -- includes an exemption "if personal identification information is <i>required</i> for <i>a special purpose incidental but related to the individual credit card transaction</i>, including, <i>but not limited to</i>, information relating to shipping, delivery, servicing, or installation of the purchased merchandise, or for special orders." Asking a customer for an email address in order to send a receipt for a purchase certainly qualifies, it would seem, as a "special purpose" that is "incidental but related to the individual credit card transaction." That should end the case, right? Well, as lawyers in consumer class action lawsuits have come to understand, the answer is ... not so fast.</div>
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<b>Song-Beverly Up Close and Personal. </b> To set the table for what happened next, a few observations are important.<br />
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<i>First</i>, that exemption I mentioned (let's call it the "special purpose exemption") gets you completely out of the prohibitions of Song Beverly. That's right. If you qualify, all of the prohibitions of the law do not apply. The list of exemptions, including the special purpose exemption, begins with: "(c) Subdivision (a) does not apply in the following instances". What is contained in subdivision (a)? All -- that's right, <i>all</i> -- of the prohibitions on both requesting and requiring the provision of PII are contained in subdivision (a). <br />
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<i>Second</i>, look more closely at the special purpose exemption:</div>
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(4) If personal identification information is <i>required</i> for a special purpose incidental but related to the individual credit card transaction, including, but not limited to, information relating to shipping, delivery, servicing, or installation of the purchased merchandise, or for special orders.</blockquote>
It would seem beyond cavil that an e-mail address is <i>required</i> to send a receipt by e-mail. Any other reading is nonsensical.<br />
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<i>Third</i>, if you have an exemption that removes the prohibitions in subdivision (a), then there is no limit on what you can do with the information that you've collected under the special purpose exemption. (Of course, what you do with the information can't contradict what you've told the customer that you'll be doing with it -- that's Consumer Protection Law 101.)<br />
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<b>What Gives? </b> So then why wasn't this case dismissed? Good question.<br />
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The federal court refused to dismiss the claim because the plaintiff alleged that the retailer somehow had led him to believe that he had <i>no choice but to submit his e-mail address</i>. As the court recited, the complaint alleges that the Plaintiff "perceived the request as a condition" and "did not believe he could obtain the receipt he desired if he did not affirmatively respond to Defendant's request for his email address." It is difficult for me to understand how either point makes a whit of difference because (1) the special purpose exemption quite clearly applies; and (2) once under the exemption, the whole of subdivision (a) is rendered inapplicable. Even if the customer's beliefs were "reasonable," the "factual question" that the court figured should force the case to proceed to trial seems utterly irrelevant. Although in the land of consumer protection statutes ordinary rules of statutory construction sometimes fall by the wayside, it is hard for me to imagine this ruling holding up on appeal. Nevertheless, an order like this on a motion to dismiss usually isn't immediately appealable, which means that it could be <i>years</i> before the Ninth Circuit Court of Appeals gets to hear the case.<br />
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<b>A Silver Lining? </b>It is worth noting, however, that the retailer may be able to argue that this kind of individualized factual determination -- involving what was told to a consumer and the consumer's (seemingly) subjective beliefs -- makes the case inappropriate for class certification. After all, the hallmark of a class action case is the ability to have one lawsuit resolve the rights of large numbers of similarly situated persons. It doesn't really accomplish that purpose if each individual's claim requires an evidentiary hearing about what they were told and/or what they believed.<br />
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<b>Lessons Learned. Again. </b>If you've been involved in consumer class action lawsuits, the lessons derived from this case aren't great revelations. <br />
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<i>First</i>, if you are going to ask for consumer information like e-mail addresses, try to give the consumer a choice about it and make that choice clear. No class action plaintiff's lawyer is going to be thrilled about taking a case where his or her own client gave information after being told he or she didn't have to do so. While you're at it, if you're going to use that information to send promotions to a customer, consider telling them. Both of these disclosures help set the atmospherics of any subsequent class action lawsuit on the retailer's side since they make clear that no one was trying to pull a fast one. <br />
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<i>Second</i>, back up those disclosures with written scripts for sales associates and store signage if possible, so that any dispute about what was or wasn't said doesn't end up pitting the customer's recollection against the recollection of a specific sales associate (who may or may not still be working for the company). Retailers rarely win those battles, and they'll almost guarantee a trial.<br />
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<i>Third</i>, pick your statutory arguments carefully. In this federal court case, it appears a lot of ink was spilled on arguing that e-mail addresses didn't constitute PII. Why? If zip codes are PII (as we learned in <i>Pineda</i>), then fighting over whether e-mail addresses qualify as PII is a losing battle that might only serve shift attention away from the bigger question of whether the special purpose exemption bars the lawsuit. Obviously, it's impossible to know the precise strategic considerations behind the arguments that were raised. The bottom line, however, is that careful and surgical statutory interpretation arguments can be successful, but generally shouldn't be diluted by weaker arguments -- aim carefully and take only your best shots.<br />
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<b>A Word to the Wise. </b>Cases like this are not-so-subtle reminders to work closely with legal counsel of your choice on privacy and information-gathering activities, particularly where consumer information is concerned. In states like California, where consumer protection laws are like so many unsprung traps, every information gathering approach needs to balance the business gains against the potential downside risks. Where, as in California, the penalties can be substantial for each improperly collected piece of PII, a very large downside may counsel retailers to obtain the information from someplace other than the point of sale.<br />
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<b>Want to Read More?</b> Check out Professor Eric Goldman's <a href="http://blog.ericgoldman.org/archives/2013/11/its-illegal-for-offline-retailers-to-collect-email-addresses-capp-v-nordstrom.htm">take</a> on Song Beverly and the collection e-mail addresses. He's head of the High Tech Law Institute at Santa Clara University Law School in Palo Alto.</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-85175597507779945392013-12-04T15:16:00.000-05:002013-12-04T15:16:25.720-05:00Supreme Court Denies Petitions for Cert of Amazon and OverstockAs we <a href="http://eyesonecomlaw.blogspot.com/2013/09/on-september-23-2013-several.html" target="_blank">recently wrote</a>, last spring New York State’s highest court, the Court of Appeals, issued a decision upholding the state’s Internet <a href="http://eyesonecomlaw.blogspot.com/search/label/Affiliate%20Nexus" target="_blank">affiliate nexus</a> law after a challenge made by Overstock.com and Amazon.com. The Court of Appeals found that the law, which creates a rebuttable presumption of nexus for out-of-state vendors who employ in-state affiliates, satisfies substantial nexus requirements and does not violate the Due Process clause.<br />
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In September, Overstock.com and Amazon.com sought review of the decision of the Court of Appeals by filing <a href="http://eyesonecomlaw.blogspot.com/2013/09/amazoncom-and-overstockcom-petition-us.html" target="_blank">petitions for certiorari</a> with the United States Supreme Court. After extensive briefing by the petitioners, the State of New York, and many amicus curiae, on December 2, the Supreme Court denied the petitions for cert. (See the cases’ status <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-252.htm" target="_blank">here</a> and <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-259.htm" target="_blank">here</a>.)<br />
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This ends the petitioner’s facial constitutional challenge to the New York affiliate nexus law as Overstock.com and Amazon.com have now exhausted their appellate options. The decision by the Supreme Court not to hear the case, however, does not mean that every state’s affiliate nexus law is valid and enforceable. For instance, the Illinois Supreme Court held in October that Illinois’s Internet affiliate nexus statute was <a href="http://eyesonecomlaw.blogspot.com/2013/10/illinois-supreme-court-rules-illinois.html" target="_blank">preempted by the Federal Internet Tax Freedom Act</a>. The Supreme Court’s decision Monday has no impact on the now unenforceable Illinois law.
Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-35086605633023350682013-11-26T12:14:00.000-05:002013-11-26T12:14:45.338-05:00Mail Order Merchandise Rule: Are Your Business Processes up to Snuff?This is the first in a series of blog posts highlighting the major legal and regulatory issues that are specific to the multichannel merchant. The <a href="http://www.business.ftc.gov/documents/bus02-business-guide-mail-and-telephone-order-merchandise-rule" target="_blank">Mail Order Merchandise Rule</a>, promulgated by the <a href="http://www.ftc.gov/" target="_blank">Federal Trade Commission</a>, is intended to ensure that mail order customers actually receive the items that they order from catalog or online merchants. The Rule requires that when a seller advertises merchandise, it must have a reasonable basis for stating or implying that it can ship the merchandise within a certain time. If the business makes no shipment statement, it must have a reasonable basis for believing that it can ship within 30 days. That is why direct marketers sometimes call this the "30-day Rule." Surprisingly, though, many well-established mail order companies have only a loose grip on the operational steps necessary to comply with this rule.<br />
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It is usually the case in the highly competitive, technologically advanced environment of mail order and internet sales, that merchants are easily able to comply with the Rule by providing a stated shipment representation. If a website says the product will be shipped in two days, it almost always is, and often it is shipped even sooner. But when products are not timely shipped, things sometimes go a little sideways. The most common reason for failure to ship within the stated time frame is the lack of a product–the back order issue.
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The rule provides that, if after taking the customer’s order, a seller learn that it cannot ship within the time stated, it must seek the customer’s consent to the delayed shipment. If it is the first such delay, and if the seller can provide a revised shipment date, it must notify the customer of his or her right to cancel the order; sellers are permitted to treat the client’s silence in response as an expression of assent. But, if there is a second delay, or if the seller cannot provide a revised shipment date, then the seller MUST get the client to consent affirmatively to the continued delay. If a seller cannot obtain the customer’s consent to the delay – or if the customer refuses to consent -- the seller must, without being asked, promptly refund all the money the customer paid for the unshipped merchandise.<br />
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There are at least two safe harbors from which many catalog companies may benefit. First, the clock does not begin ticking on any shipment representations until there is a “properly completed order.” An order is properly completed when the seller receives the correct full or partial payment, accompanied by all the information needed to fill the order. In many instances, merchants do not collect payment on backordered items as a matter of routine-though they are permitted to do so. This prevents the shipping representation clock for beginning.<br />
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Second, a shipment representation made at the time of order trumps shipment representations contained on a product page or in a catalog. So if customer service representatives explain to a customer that an item is backordered for 6 weeks, then that becomes the new shipment representation.<br />
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Like many legal issues, the Mail Order Merchandise Rule need not present a business risk, provided that you are aware of its requirements and plan accordingly. It is important for catalog and web merchants to have business processes in place to track shipment representations, and to ensure that the proper notifications are sent to customers.
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In my next blog post, we will touch on some unusual and unexpected California-specific regulations that can impact multichannel merchants.Anonymousnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-77386145606550755772013-11-22T15:42:00.000-05:002013-11-22T15:42:37.182-05:00Direct Marketing Association Re-files Challenge to Colorado Notice and Reporting Law in State Court We have been updating readers on <a href="http://eyesonecomlaw.blogspot.com/2013/08/federal-appeals-court-rules-lower-court.html" target="_blank">developments</a> regarding the court challenge brought by the Direct Marketing
Association (“DMA”) to a 2010 <a href="http://eyesonecomlaw.blogspot.com/search/label/HB%2010-1193" target="_blank">Colorado law</a> that purported to require Internet retailers and other remote sellers that do not collect Colorado sales tax to: (1) give certain notices to their Colorado customers regarding the purchaser’s obligation to self-report Colorado use tax; and (2) file reports with the Colorado Department of Revenue detailing the private purchasing information of their Colorado customers. The DMA won a preliminary injunction in January 2011 in federal District Court suspending the law on the grounds that it violated the Commerce Clause. The Court later made the injunction permanent when it awarded the DMA summary judgment in March 2012. The State appealed.<br />
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In August 2013, the Court of Appeals for the Tenth Circuit ruled on its own initiative that the <a href="http://www.law.cornell.edu/uscode/text/28/1341" target="_blank">Tax Injunction Act</a> (“TIA”) barred federal court jurisdiction over the DMA’s claims. The Court of Appeals did not reach the merits of the DMA’s Commerce Clause claims, but rather ordered that the claims be dismissed on procedural grounds. The Court held that the DMA was required under the TIA to bring its claims in Colorado state court. The DMA requested rehearing on the jurisdictional issue, but the Tenth Circuit declined in early October to rehear the matter. The Court of Appeals then issued a mandate to the District Court on October 9, directing the lower court to dissolve the injunction and dismiss the claims. (The District Court has not yet implemented the mandate, so for now the federal injunction remains in place.)
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On <b>November 5, 2013</b>, the DMA re-filed its challenge to the Colorado notice and reporting law in state District Court in Denver. At the same time, the DMA moved for a preliminary injunction, in order to continue the suspension of the law after the federal court injunction is lifted. Briefing on the motion for a preliminary injunction is expected to conclude in December, with a hearing on the motion likely to be scheduled for early January 2014. The DMA will request that the state court rule on the injunction request prior to January 31, the deadline under the law for retailers to send certain annual notices to customers who purchased at least $500 in goods from the retailers in the prior year.
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<a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a> partners George Isaacson and Matthew Schaefer are co-counsel to the DMA in connection with the appeal.
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We will keep you apprised of further developments in the state court proceeding.Matt Schaeferhttp://www.blogger.com/profile/04821311592541145328noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-57281849867374544882013-11-15T14:48:00.003-05:002013-11-15T14:48:49.091-05:00MFA Update: Rep. Goodlatte’s Seven Principles and an Interview with George IsaacsonAlthough the <a href="http://eyesonecomlaw.blogspot.com/search/label/Marketplace%20Fairness%20Act" target="_blank">Marketplace Fairness Act</a> (<a href="http://thomas.loc.gov/cgi-bin/query/D?c113:2:./temp/~c113dcYKsg::" target="_blank">S. 743</a>) ("MFA") has not yet progressed out of a House committee since its Senate passage last spring, it continues to make headlines. In late September, the House Judiciary Committee, chaired by Rep. Bob Goodlatte (R-Va.), released seven “<a href="http://judiciary.house.gov/news/2013/09182013.html" target="_blank">Principles on Internet Sales Tax</a>.” <a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a> senior partner <a href="http://www.brannlaw.com/info.php?sec=2&pid=25" target="_blank">George Isaacson</a> was recently <a href="http://www.brannlaw.com/images/MediaAndPublications/261/20131104WebNewsItemAttach.pdf" target="_blank">profiled by State Tax Notes</a> discussing both the MFA and Goodlatte’s Seven Principles.<br />
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The Seven Principles outlined by Representative Goodlatte provide for:
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<li>Tax Relief – “no new or discriminatory taxes not faced in the offline world”</li>
<li>Tech Neutrality – brick and mortar and online businesses “should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less…than that on similarly situated offline businesses”</li>
<li>No Regulation Without Representation – taxpayers “should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement”</li>
<li>Simplicity – no “onerous compliance requirements,” “laws should be so simple and compliance so inexpensive and
reliable as to render a small business exemption unnecessary”</li>
<li>Tax Competition – “Governments should be encouraged to compete with one another to keep tax rates low and American
businesses should not be disadvantaged vis-à-vis their foreign competitors”</li>
<li>States’ Rights – “States should be sovereign” and “the federal government should not mandate that States impose any sales tax compliance burdens” and</li>
<li>Privacy Rights – “Sensitive customer data must be protected.”</li>
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As Isaacson notes, “The keystone and common thread of these principles is the need for true simplification of the existing sales and use tax system and an assurance of fair treatment of remote sellers when compared
with in-state retailers.” Isaacson goes on to describe several steps that could be taken to simplify sales tax
collection, including setting a single rate (combined state and local) for remote sales into a state, creating uniform tax menus or bases, and establishing uniform sourcing rules for remote sellers.<br />
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Isaacson also calls for providing access to federal courts to address violations of remote sellers’ rights. As the MFA now stands, remote sellers must protest tax assessments made in violation of federal statutory or constitutional law through appeals before state administrative agencies and state courts that may, as Isaacson points out, “tilt in favor or state revenue departments.” Providing for federal court jurisdiction “is the only meaningful way to protect those companies’ constitutional rights and enforce statutory limitations on the scope of state taxing power.” To that end, Isaacson argues for repeal or limitation of the <a href="http://eyesonecomlaw.blogspot.com/search/label/Tax%20Injunction%20Act" target="_blank">Tax Injunction Act</a> (“<a href="http://www.law.cornell.edu/uscode/text/28/1341" target="_blank">TIA</a>”).
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We will continue to keep our readers apprised of any developments regarding the Marketplace Fairness Act.Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-48635703305801478292013-10-25T11:56:00.001-04:002013-10-25T12:32:10.716-04:00California Ups the Ante On Privacy Policy DisclosuresFor the past decade, California law has set the template for commercial website privacy policies. With the passage of a new law, set to take effect January 1, 2014, the state has updated the disclosures required of any commercial website operator who collects personally identifiable information from California residents. <br />
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<b>California’s Online Privacy Protection Act.</b> In 2003, California became the only state to <a href="http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&group=22001-23000&file=22575-22579">require</a> all websites that collect personal information (“PII”) from visitors – in this case, California residents – to post a privacy policy. Until then, there was no generally applicable privacy policy requirement under either state or federal law, and, to this day, neither the other states nor the federal government have imposed such a requirement. Federal privacy policy requirements have been limited to specific kinds of information (such as under Children’s Privacy Protection Act) or industries (under the Health Insurance Portability and Accountability Act). Under the 2003 law, Internet sites need to identify the “categories” of personally identifiable information collected about “individual consumers”; describe the “categories” of third parties with whom the information may be shared; disclose (if there is one) any process for individuals to review or request changes to their personal information; explain how notice is given to consumers of changes in the privacy policy; and post the policy’s effective date. The definition of PII is more expansive than encountered in data breach statutes, and includes email addresses, partial addresses (including street names and towns), and first and last names. The privacy policy also must be “conspicuously” posted, as defined by the statute. <br />
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Now, however, the law has been significantly expanded.<br />
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<b>The New Requirements.</b> Under recently enacted <a href="http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB370">Assembly Bill 370</a>, the privacy policy requirements of California’s Online Privacy Protection Act have been expanded to include (1) disclosure of how the web site “responds to Web browser ‘do not track’ signals or other mechanisms that provide consumers the ability to exercise choice regarding the collection of personally identifiable information about an individual consumer’s online activities over time and across third-party Web sites or online services, if the operator engages in that collection”; and (2) disclosure of “whether other parties may collect personally identifiable information about an individual consumer’s online activities over time and across different Web sites when a consumer uses the operator’s Web site or service.” The statute was approved by the Governor and chaptered by the Secretary of State on September 27, 2013. It will take effect on January 1, 2014. Fortunately for Internet sellers, the law provides that “[a]n operator shall be in violation of this subdivision only if the operator fails to post its policy within 30 days after being notified of noncompliance.” As a result, potential liability will only attach after a notice of noncompliance. Nonetheless, it is prudent to review and amend privacy policies to conform with the new law to avoid having to implement last minute changes should your company receive notice of non-compliance (which is not defined, and presumably could include a telephone call or email from a consumer).<br />
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<b>The Light Still Shines. </b>Companies should also remain mindful of California’s so-called <a href="http://www.leginfo.ca.gov/cgi-bin/displaycode?section=civ&group=01001-02000&file=1798.80-1798.84">“Shine the Light” Law</a>, which can be found at California Civil Code § 1798.83, and as to which we’ve previously <a href="http://eyesonecomlaw.blogspot.com/2013/04/california-right-to-know-act-would.html">blogged</a>. Violations of this law, which, among other things, requires privacy policy disclosures, have led to class actions being filed against Internet sellers. Customers can be awarded up to $3,000 per each violation, plus attorneys’ fees and costs. Some of these cases have been dismissed, but the costs of defending even an unsuccessful class action lawsuit can be <a href="http://eyesonecomlaw.blogspot.com/2013/05/meditations-on-consumer-class-action.html">substantial</a>.<br />
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<b>The Shape Of Things To Come. </b>California isn’t stopping there. <a href="http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB568">Beginning on January 1, 2015</a>, all web sites that direct services to minors, or have actual knowledge that minors are using their sites, must provide a “delete” button to permit minors to remove all of their online content (together with clear instructions for doing so). The law will also prohibit Internet marketing of a wide variety of products and services to minors, including aerosol paint (apparently to inhibit graffiti), etching creams, BB guns, and tanning services. Unlike the COPPA, which is directed to persons under the age of 13, the California law applies to all persons under the age of 18.<br />
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-5599222950143431582013-10-18T14:04:00.000-04:002013-10-18T14:04:33.223-04:00Illinois Supreme Court Rules Illinois “Click Through” Nexus Statute Is Void And Preempted By Federal LawThe Illinois Supreme Court issued its decision today in <a href="http://www.state.il.us/court/Opinions/SupremeCourt/2013/114496.pdf" target="_blank"><i>Performance Marketing Association v. Hamer</i></a>, ruling that the Illinois “affiliate nexus” (also known as “click-through nexus”) law is “void and unenforceable” because it is preempted by federal law. <a href="http://brannlaw.com/" target="_blank">Brann & Isaacson</a> partners <a href="http://www.brannlaw.com/info.php?sec=2&pid=25" target="_blank">George Isaacson</a> and <a href="http://www.brannlaw.com/info.php?sec=2&pid=18" target="_blank">Matthew Schaefer</a> represented the PMA in this case, and <a href="http://eyesonecomlaw.blogspot.com/2013/05/illinois-update-oral-arguments-heard-in.html" target="_blank">Isaacson argued the case</a> before the Illinois Supreme Court on May 22, 2013. The case was on appeal from the Circuit Court, which had had held that the affiliate nexus law was an unconstitutional violation of the Commerce Clause, and was also preempted by the Internet Tax Freedom Act (“ITFA”), because it impermissibly discriminated against electronic commerce. In affirming the lower court’s decision, the Illinois Supreme Court based its holding on a violation of the ITFA, and did not reach the Constitutional argument.
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The Illinois law had purported to impose a use tax collection obligation on any out-of-state retailer or serviceman who had a contract with a person located in Illinois that paid a commission based on sales generated from referral links placed on that person’s website, provided the retailer realized a minimum in $10,000 in sales to customers through such links. Under the Internet Tax Freedom Act, states are prohibited from imposing “discriminatory taxes on electronic commerce.” A discriminatory tax is defined as a tax that “imposes an obligation to collect or pay tax on a
different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means.” 47 U.S.C. §151 note.
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The ruling is a significant victory for online retailers, and for the Illinois individuals who generate income through
affiliate links.
Nathttp://www.blogger.com/profile/05595917544124284883noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-67656146741000083992013-10-11T13:41:00.000-04:002013-10-11T13:41:08.163-04:00Litigation News: Colorado and Cook County UpdateWe have <a href="http://eyesonecomlaw.blogspot.com/search/label/HB%2010-1193" target="_blank">written frequently</a> about the DMA case challenging Colorado’s notice and reporting law. The law, which requires remote sellers to inform consumers of their obligation to self-report sales and use tax and which also requires sellers to hand over Colorado customers’ names to the state’s Department of Revenue, was declared unconstitutional in 2012 by the United States District Court in Denver. <i>See DMA v. Brohl</i>, 2012 WL 1079175 (D. Colo. Mar. 30, 2012). The Court issued an injunction barring enforcement of the law. But, in August, the Tenth Circuit found that the District Court <a href="http://eyesonecomlaw.blogspot.com/2013/08/federal-appeals-court-rules-lower-court.html" target="_blank">did not have jurisdiction</a> over the case, and issued a decision calling for the case to be remanded to the District Court with instructions to dissolve the injunction. The DMA subsequently filed a petition for rehearing <i>en banc</i> by the Tenth Circuit, thereby staying implementation of the decision. But, on October 1, that petition was denied. As a result, the Court of Appeals’ mandate was issued on October 9. The District Court has not yet implemented the Tenth Circuit’s order, however, so for the time being the injunction remains in place--at least until the District Court acts. In response to the ruling, the DMA intends to refile its challenge to the law in state court in Colorado and seek a new injunction from the state court to prevent enforcement of a law that the federal District Court has found to be unconstitutional on its face. <a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a>’s <a href="http://www.brannlaw.com/info.php?sec=2&pid=25" target="_blank">George Isaacson</a> and <a href="http://www.brannlaw.com/info.php?sec=2&pid=18" target="_blank">Matthew Schaefer</a> represent the DMA in the case.<br />
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Meanwhile, we <a href="http://eyesonecomlaw.blogspot.com/2013/07/judge-enjoins-cook-county-from.html" target="_blank">wrote in July</a> about Judge Lopez Cepero of the Cook County Circuit Court issuing a preliminary injunction which barred Cook County from enforcing its recently enacted use tax. On October 4, the Appellate Court stayed the preliminary injunction, but on October 8, Judge Lopez Cepero granted the plaintiffs’ motion for summary judgment. The judge’s ruling will be issued in written form today and effectively is a permanent injunction barring Cook County from enforcing the use tax. It remains uncertain, however, whether the County will appeal this decision.
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We will continue to update our readers on these and other cases throughout the country.Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-74320694198994763052013-10-02T14:49:00.001-04:002013-10-02T14:50:28.906-04:00Beware of Taxation of Advertising InsertsDuring the last legislative session in Maine, the legislature approved, and Governor Lepage signed, a bill to eliminate the exemption from the sales tax for publications. <a href="http://www.mainelegislature.org/legis/bills/display_ps.asp?PID=0&snum=126&paper=&paperld=l&ld=1509" target="_blank">L.D. 1509</a>, 126<sup>th</sup> Legs., Part P, (Me. 2013). This law went into effect yesterday. The law now requires the taxation of magazines and newspapers. The sleeping dog, however, is the taxation of advertising flyers and other free publications.<br />
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Taxation of free advertising materials has become a “hot button” issue in Maine. In an <a href="http://www.maine.gov/revenue/salesuse/Furtherguidanceforpublications09272013.pdf" target="_blank">Informational Notice</a> dated September 27, 2013, Maine Revenue Services stated that the costs of printing advertising flyers, including those inserted in newspapers, are now subject to the sales tax if those materials are distributed in Maine. In other words, the publisher will be required to pay a use tax, either to its printer or directly to the state, on the printing charges for advertising flyers.<br />
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This caught the Governor and members of the legislature by surprise.<span style="mso-spacerun: yes;"> </span>In a recent press release, the Governor announced that he, together with legislative leaders, will be introducing legislation in the next legislative session to exempt retroactively the printing costs of free publications and advertising flyers. Please note the next legislative session begins in January 2014. Such legislation may face a rough road ahead, given the State’s fiscal issues, so that whether the exemption is adopted, and its scope and effective date, are up in the air.<br />
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In the interim, advertisers should consider their options. Maine Revenue Services’ September 27 Notice does not mean that after October 1 advertisers must pay the sales tax on printing costs of advertising flyers included in newspapers and other advertisements distributed in Maine. Advertisers should consider the availability of other exemptions. For example, in its September 27 Notice, Maine Revenue Services notes that the sales tax will not apply if the advertisers purchase the flyers for resale. Thus, if the advertiser were selling the flyers to newspapers or others, it might be able to argue for exclusion by virtue of the sale for resale exemption. Another potential argument is, if an advertiser used an out-of-state printer, it might assert that it did not make a taxable use of the flyers. The point is that advertisers should carefully weigh their alternatives regarding advertising flyers and other advertising materials circulated in the State of Maine.
Martinhttp://www.blogger.com/profile/01733140939874603115noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-3504547808216179812013-09-24T11:02:00.001-04:002013-09-24T11:07:39.772-04:00Amicus Briefs Filed in Amazon.com and Overstock.com Supreme Court CaseOn September 23, 2013, several organizations and companies filed briefs as amici curiae in support of the petitions for a writ of certiorari filed by Overstock.Com, Inc., Amazon.com., Inc., and Amazon Services, LLC, requesting review by the United States Supreme Court of the New York Court of Appeals decision in <a href="http://www.nycourts.gov/ctapps/Decisions/2013/Mar13/33-34opn13-Decision.pdf" target="_blank">Overstock.com, Inc. v. New York Department of Taxation and Finance</a>, 20 N.Y.3d 586, 987 N.E.2d 621 (2013). Among the briefs filed was the <a href="http://www.brannlaw.com/images/MediaAndPublications/253/20130924WebNewsItemAttach.pdf" target="_blank">Brief of Newegg, Inc. and the Direct Marketing Association, Inc.</a> (the "DMA") as Amici Curiae in Support of the Petitioners. In their brief, Newegg and the DMA argue that the New York “click through affiliate nexus” statute, N.Y. Tax Law sec. 1101(b)(8)(vi), through an improper legislative presumption, narrows the zone of protected interstate advertising activity for out-of-state retailers under the Commerce Clause by shifting onto the retailers the burden of disproving “substantial nexus” with the state, in violation of the due process rights of retailers. Newegg and the DMA argue that the Constitution’s Due Process Clause prohibits states from using presumptions to interfere with matters that are removed from their authority by the Constitution, such as the regulation of interstate commerce. <a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a> partners <a href="http://www.brannlaw.com/info.php?sec=2&pid=28" target="_blank">Martin I. Eisenstein</a>, <a href="http://www.brannlaw.com/info.php?sec=2&pid=25" target="_blank">George S. Isaacson</a>, and <a href="http://www.brannlaw.com/info.php?sec=2&pid=18" target="_blank">Matthew P. Schaefer</a> prepared the brief of amici on behalf of Newegg and the DMA.<br />
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Among the other organizations filing briefs were the <a href="http://taxfoundation.org/article/urging-us-supreme-court-address-state-efforts-tax-internet-sales">Tax Foundation and the National Taxpayers Union</a>, the <a href="http://www.alec.org/wp-content/uploads/ALEC_amicus_SCOTUS_NYaffiliatelaw.pdf">American Legislative Exchange Council</a>, the <a href="http://www.floridasalestax.com/documents/AAA-CPA-AMICUS-BRIEF-OVERSTOCK-AMAZON.pdf">American Association of Attorney-Certified Public Accountants</a>, and Scrapbook.com, Assisted Living Store, Inc., et al.
Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-37524318693592396042013-09-17T15:36:00.004-04:002013-09-18T09:29:25.556-04:00Traps For the Unwary Under the Consumer Product Safety Act: Children's ProductsNestled in the morass known as the <a href="http://www.cpsc.gov//PageFiles/105435/cpsa.pdf" target="_blank">Consumer Product Safety Act</a> (as amended by the dubiously titled <a href="http://www.cpsc.gov//PageFiles/129663/cpsia.pdf" target="_blank">Consumer Product Safety Improvement Act of 2008</a> and further <a href="http://www.gpo.gov/fdsys/pkg/BILLS-112hr2715enr/pdf/BILLS-112hr2715enr.pdf" target="_blank">amended in 2011</a>) are provisions that can wreak havoc for businesses that manage, understandably, to overlook them. What was once a rather straightforward reporting and recall system involving a relatively small number of federal safety standards has evolved into a complex beast of certifications, third-party testing, and training programs. While it is beyond the scope of this post to identify and discuss all of the requirements of these laws, there are some provisions that our readers should know about. This article addresses one of the thorniest of all: children’s products.<br />
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A host of new requirements apply to children’s products, and the determination of what is – and what is not – a children’s product is now no easy matter. Generally speaking, a children’s product is one designed or intended primarily for children 12 years of age or younger, but the CPSC’s own complex “<a href="http://www.cpsc.gov/PageFiles/132333/interpretive.pdf" target="_blank">interpretive guidance</a>” on the question betrays the superficial simplicity of this inquiry. There are almost no clear rules, and, on matters that could lend clarity to the situation, like a reliable product labeling/marking regime that would put the onus on parents and other responsible adults to keep certain products away from children, the CPSC manages to make things even murkier.<br />
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<b>The impact of regulatory uncertainty. </b>At the core is are very practical questions, including whether a company ought to take a risk that a product thought to appeal to, say, teenagers will be viewed in a manner that extends its likely usage to children within the regulated age range. Once a product falls into such a gray zone, a company may find itself on the receiving end of a CPSC investigation requiring it to <i>justify</i> its failure to apply the children’s product requirements of federal law. One might find regulators asking, "Why not?" -- as if the costs/compliance burdens were not a factor. One can imagine the difficulty of such a burden if, for example, a child twelve or under was injured while using the product. The CPSC, for its part, expects you to examine such amorphous questions as whether the product has a “declining appeal for teenagers,” and the CPSC’s regulations make clear that you are thin ice if you plan to rely on a manufacturer’s labeling to the effect that a product is not intended for use by children. You are all but asked to assume that labels will be ignored by parents. The task of keeping inappropriate products out of the hands of children shifts from parents and guardians to the manufacturer or retailer who must guess and wonder whether a product might be viewed as appealing to children too young to use it.<br />
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<b>Consumer perceptions? </b> Areas of close scrutiny include: how the product is marketed, <i>e.g.</i>, whether children twelve years of age or younger (or perhaps even children who <i>appear</i> to fall within that age group) are depicted in advertising; where the product is sold, <i>e.g.</i>, whether it is sold in catalogs or on Internet pages in close proximity to children’s products (this can
be problematic if web pages generate product recommendations that could populate a page with children’s items; and the nebulous world of “consumer perception” as gleaned from sales data, market analyses, and focus groups.
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In addition, a product may still be deemed a “children’s product” if it is sold with adult products (like candles, for example) as part of a set. Thus, if one part of that set is deemed to have some “play value” for a child twelve and under, the onerous children’s products rules could well apply – perhaps to the entire set. Also, virtually anything – from an air purifier to tissue boxes to curtains and ceiling fans – can be converted into a “children’s product” if it
is “decorated or embellished with a childish theme.” What themes would be viewed as designed or intended for thirteen year olds, as opposed to twelve year olds, or fourteen year olds, or sixteen year olds? The lines of demarcation and sophistication between twelve year olds and older teens might be seen as negligible or rapidly diminishing. The fact twelve was chosen, as opposed to a younger cut-off that might make "children" more readily distinguishable from young adults, renders the task for business markedly more difficult and risky, of course.<br />
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<b>Conclusion. </b>All of this is important because the compliance requirements (and costs) for children's products are far more onerous than for non-children's products. Among other things, children’s products are required to undergo third-party testing by a certified laboratory under a “reasonable testing program,” be certified under a special Children’s Product Certificate, and bear permanent tracking information on the product and label (with special requirements for durable infant and toddler products). Manufacturers and importers (which can include retailers) must also, for example, institute a program to train employees in avoiding undue influence on third-party testing laboratories, and obtain employee certifications of compliance. Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-79325481240490439282013-09-13T14:13:00.000-04:002013-09-27T14:37:33.471-04:00Amazon.com and Overstock.com Petition U.S. Supreme Court over New York Affiliate Nexus LawWe’ve written frequently about developments in <a href="http://eyesonecomlaw.blogspot.com/search/label/Amazon.com" target="_blank">Amazon.com</a> and <a href="http://eyesonecomlaw.blogspot.com/search/label/Overstock.com" target="_blank">Overstock.com</a>’s challenges to the New York State <a href="http://eyesonecomlaw.blogspot.com/search/label/Affiliate%20Nexus" target="_blank">affiliate nexus law</a> (a law which has inspired similar laws in many other states). Last spring, the New York Court of Appeals, the State’s highest court, <a href="http://www.nycourts.gov/ctapps/Decisions/2013/Mar13/33-34opn13-Decision.pdf" target="_blank">upheld the law</a>, stating that, in regards to the parties’ Commerce Clause claims, the “statute plainly satisfies the substantial nexus requirement. Active, in-state solicitation that produces a significant amount of revenue qualifies as ‘demonstrably more than a ‘slightest presence’’” under the Tax Appeals Tribunal’s 1995 ruling in the <i>Orvis</i> case. The Court continued by saying that “The bottom line is that if a vendor is paying New York residents to actively solicit business in this State, there is no reason why that vendor should not shoulder the appropriate tax burden.” The Court rejected the parties’ due process claims, as well.
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Late last month, both Amazon.com and Overstock.com took their challenge to the United States Supreme Court, each filing a petition for a writ of certiorari, seeking review of the New York affiliate nexus law and of the New York Court of Appeals Decision (see status of the petitions <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-259.htm" target="_blank">here</a> and <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-252.htm" target="_blank">here</a>). New York has until October 23 to file a response in each case. However, as the Supreme Court’s review is discretionary, it is unclear whether the matter will be actually be heard by or decided by the Supreme Court. If not, the New York decision will stand, and other states’ versions of the affiliate nexus law will not be impacted. Meanwhile, the Marketplace Fairness Act, which could, in theory, make challenges such as these moot, <a href="http://www.govtrack.us/congress/bills/113/s743" target="_blank">remains in committee</a> in the House of Representatives.
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We will continue to track developments and keep our readers posted.Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-27906812266002325812013-08-29T15:23:00.000-04:002013-08-29T15:23:56.986-04:00Federal Appeals Court Rules Lower Court Lacked Jurisdiction to Enjoin Colorado Notice and Reporting Law; Direct Marketing Association Will Seek Rehearing En BancMany of our readers have been following closely the litigation challenging the <a href="http://eyesonecomlaw.blogspot.com/search/label/HB%2010-1193" target="_blank">Colorado law</a> passed in 2010, which required remote sellers to inform consumers of their obligation to self-report sales and use tax and also required direct marketers to turn over to the Colorado Department of Revenue the names of their Colorado customers along with sales transaction information. In 2012, the United States District Court in Denver declared the Colorado law unconstitutional, as a violation of the Commerce Clause. The Colorado Department of Revenue appealed the District Court decision to the Tenth Circuit Court of Appeals.
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On Tuesday, August 20, 2013, the Tenth Circuit issued its decision in <i>Direct Marketing Association v. Brohl</i>. The three judge panel hearing the case did not reach, or address in any way, the constitutional issues in the case. Instead, the Court ruled solely on the question of whether the District Court had jurisdiction to hear the case.
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Although the jurisdiction of the federal courts was not contested by the parties, the appellate court concluded that the United States District Court in Denver did not have jurisdiction because of the so-called <a href="http://www.law.cornell.edu/uscode/text/28/1341" target="_blank">Tax Injunction Act</a> (28 U.S.C. sec. 1341) (“TIA”). This jurisdictional statute prevents federal courts from entering judgments that restrain the collection of state taxes, and the Tenth Circuit ruled that it applied in this case. The Court stated that the challenge to the constitutionality of the Colorado law must be filed in state court rather than federal court. Therefore, the Court of Appeals remanded the case back to the District Court and directed it to dismiss the DMA’s Commerce Clause claims and to dissolve the permanent injunction
against the Department of Revenue’s enforcement of the law.<br />
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effect of the Court of Appeals’ ruling that the case should be dismissed does not take immediate effect, despite some media reports that suggest the contrary. Rather, as in any appeal, the ruling of the Court of Appeals is not implemented until it issues a “mandate” to the District Court. The Tenth Circuit Court of Appeals has not yet issued a mandate in the DMA’s case, and will not do so until after certain deadlines have passed.
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In addition, the DMA has decided that it will petition for rehearing “en banc” by the full group of active judges serving on the Tenth Circuit Court of Appeals. The filing of the petition for rehearing en banc will further extend the period during which the Court of Appeals will withhold issuance of the mandate to the District Court. If the petition is granted by the Court, the mandate would not issue until after the rehearing of the case by the full
court.<br />
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For now, therefore, the injunction entered by the District Court remains in place, and remote sellers are not yet required to comply with the requirements of the Colorado notice and reporting law. We will keep readers apprised of developments in the case in connection with the DMA’s petition for rehearing.<br />
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Brann & Isaacson partners George Isaacson and Matthew Schaefer represent the DMA in the case.Matt Schaeferhttp://www.blogger.com/profile/04821311592541145328noreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-12717501981341531522013-08-06T14:42:00.000-04:002013-08-06T14:42:29.729-04:00Nondisclosure Agreement Do’s and Don’tsThe nondisclosure agreement (“NDA”) is perhaps the most common single agreement that a business person is likely to run across. Virtually any preliminary business conversation, either with a potential vendor or a potential customer, is likely to be prefaced with the exchange of an NDA. In general, these documents are fairly standard and innocuous. The typical business person may feel comfortable executing and NDA without consulting counsel. If you are tempted to do so, here are five tips that can help you avoid making a mistake you may later regret.<br />
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<li><u>Home Cooking is the Best</u>. Have a standard form of mutual NDA that you can readily offer up. In some instances, this is a pure leverage issue, but if you are dealing with a party that does not have its own form, you can seize the initiative by providing your own.</li>
<li><u>What’s Sauce for the Goose is Sauce for the Gander</u>. Some so-called “standard” NDA’s only protect the information of one party (typically the one providing the form of agreement). It is important to make sure that any NDA that you sign is mutual. Obviously, you want your confidential information to be protected to the same degree as that of the other party. In addition, a mutual NDA tends to be more even-handed than a one-way NDA.<a name='more'></a></li>
<li><u>Make sure you can live with it</u>. The single most troublesome aspect of many NDA’s is a requirement that any information intended to be subject to the NDA be marked as such upon production, or otherwise specifically designated as confidential. This is fine if you operate in a culture where that practice is common. However, for many of my clients, it simply isn’t. As a result, I often start with a form that includes certain general categories of information being produced as confidential, whether they are marked as such or not.</li>
<li><u>Beware of Overreaching Provisions</u>. Once in a great while, a form of NDA will contain a provision restricting the ability of one party to move forward with a different vendor, or creating an exclusive negotiating window. This is almost never appropriate at the early stages of a business relationship.</li>
<li><u>Choice of Law/Jurisdiction</u>. If possible, it is highly preferable to have an NDA specify that any disputes will be resolved in your home jurisdiction under the laws of your home state. Often, a compromise is possible, designating a state that is home to neither party. It is especially critical, however, to focus on this issue if the other party is from a foreign country. It is rarely acceptable for a US based firm to consent to the application of overseas law and jurisdiction.</li>
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If you are able to focus on these five items, and avoid having a document that is unfavorable in any of these respects, you are less likely to end up with an unintended business outcome. With that said, of course, every document and every deal is different. So do not hesitate to consult with counsel. Experienced commercial counsel can help you navigate through a document very quickly, and with little or no loss of deal momentum.Anonymousnoreply@blogger.com0tag:blogger.com,1999:blog-4657419926017502677.post-54297004537514377832013-07-26T14:59:00.000-04:002013-10-11T11:21:56.781-04:00Judge Enjoins Cook County from Enforcing Use TaxWe 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.<br />
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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 <a href="http://cookcountygov.com/ll_lib_pub_cook/cook_ordinance.aspx?WindowArgs=1611" target="_blank">language used in adopting</a> 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.”<br />
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A lawsuit in Cook County Circuit Court seeking to enjoin enforcement of the ordinance quickly followed. The suit was based both on the ordinance’s obvious unconstitutionality (imposing a different, higher tax rate on items purchased outside the county than the tax rate imposed on purchases made within the county plainly violates the Commerce Clause) and also on the State Constitution’s prohibition on <i>ad valorem </i>personal property taxes. The lawsuit also asserted that the tax <u>base</u> for the use tax improperly differed from that of the sales tax: the use tax was imposed on the value of goods purchased, while the sales tax was imposed on the purchase price.<br />
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While the suit was pending in court, the County <a href="http://newords.municode.com/ReadOrdinance.aspx?OrdinanceID=599782&DataSource=" target="_blank">revised the ordinance</a> in June 2013, lowering the use tax rate to 0.75% and providing credit for tax paid in another jurisdiction. Then, earlier this week, on July 24, Judge Robert Lopez Cepero of the Cook County Circuit Court preliminarily enjoined the County from enforcing the use tax, finding that it likely violates both the Illinois and federal Constitutions. (Note that Judge Lopez Cepero previously presided over the lawsuit brought by the Performance Marketing Association challenging the constitutionality of the Illinois “click through” affiliate nexus law. Judge Lopez Cepero <a href="http://eyesonecomlaw.blogspot.com/2012/04/court-rules-that-illinois-internet.html" target="_blank">issued an order</a> in May 2012 invalidating that statute. The “click through” affiliate nexus ruling is <a href="http://eyesonecomlaw.blogspot.com/2013/05/illinois-update-oral-arguments-heard-in.html" target="_blank">now on appeal</a> before the Illinois Supreme Court. <a href="http://www.brannlaw.com/" target="_blank">Brann & Isaacson</a> represents the plaintiff PMA in that case.<br />
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Vendors selling into Cook County are, therefore, no longer subject to a higher tax rate than their competitors within the county. Cook County has indicated its intent to ask Judge Lopez Cepero to reconsider his decision, so we will continue to monitor developments in the case.Barbarahttp://www.blogger.com/profile/09699666601692284692noreply@blogger.com0