Software 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. See, e.g., New York TSB-A-11(17)S (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. See Georgia Letter Ruling SUT No. 2014-02-20-01. 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.

Supreme Court Grants Cert In DMA Tax Case

On July 1, 2014, the U.S. Supreme Court granted the petition for a writ of certiorari filed by the Direct Marketing Association. The DMA is represented by Brann & Isaacson partners George S. Isaacson and Matthew P. Schaefer.

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.

Our readers can review previous posts on this topic here.

Illinois and Colorado Adopt Two Different Approaches to Internet Click-Through Nexus Laws

We have written extensively about Internet click-through nexus laws. Indeed, Brann & Isaacson prevailed, on behalf of the Performance Marketing Association, in the challenge to the Illinois Internet click-through nexus law. 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.

In February 2014, the DMA, also represented by Brann & Isaacson, obtained a preliminary injunction 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 February 20, 2014 blog post.

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:

Buffalo Bills Alleged Over-Texting Results in Multi-Million Dollar Settlement

The 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 Telephone Consumer Protection Act (“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.

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.”

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.

Danger on the Horizon: Gift Card Companies and Unclaimed Property Laws

There 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.

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.

The theory has now run up against the reality of a qui tam 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 qui tam 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.

Did 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 Amazon.com and Overstock.com, and the Illinois Internet affiliate nexus law stuck down by the Illinois Supreme Court 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 serious constitutional failings. 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.

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. See Travelocity.com et al. v. Wyoming Department of Revenue, 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.

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 and the activity/transaction being taxed, see Complete Auto Transit Inc. v. 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.

State Court Suspends Colorado Notice and Reporting Law

On Tuesday, February 18, 2014, Judge Morris Hoffman of the Colorado District Court for the City and County of Denver granted the motion for a preliminary injunction 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.

Readers will recall that the DMA previously obtained both a preliminary and permanent injunction 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 filed an action in state court in November 2013, challenging the law.

The DMA is represented in the case by Brann & Isaacson partners George Isaacson and Matthew Schaefer.

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.

State Sales Tax Enforcement After the Supreme Court’s Denial of Cert in Amazon/Overstock

As we have discussed in prior posts, Amazon and Overstock.com filed petitions for certiorari 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 denied the petitions and, therefore, the New York Court of Appeals’ decision stands.

While the denial of cert 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 certiorari are granted.

States, however, have taken the denial of cert as a prompt to propose affiliate click-through nexus laws. Thus, representatives have introduced bills in the legislatures of four states—Hawaii, Indiana, Tennessee, and South Carolina—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 Amazon/Overstock 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.

Traps for the Unwary: California’s Prop 65

In a previous blog post 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 list of chemicals 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.

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.  See http://www.consumerfreedom.com/2009/11/4024-lawyer-math-1-1-prop-65.  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.  See id.  Nevertheless, Proposition  65 requires businesses to notify Californians about the presence of acrymalide and hundreds of other chemicals in the products they purchase.

The Year In Review

As 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.

Coming in at number five ...

Song Beverly Strikes Again: Email Address Collection Added to Potentially Worrisome Activity

As we've previously blogged, retailers who sell products to consumers in California and Massachusetts, as well as a number of other states, 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.

A recent decision 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 expansive interpretation of the underlying law by the Supreme Court of California, 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.

Supreme Court Denies Petitions for Cert of Amazon and Overstock

As we recently wrote, last spring New York State’s highest court, the Court of Appeals, issued a decision upholding the state’s Internet affiliate nexus 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.

In September, Overstock.com and Amazon.com sought review of the decision of the Court of Appeals by filing petitions for certiorari 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 here and here.)

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 preempted by the Federal Internet Tax Freedom Act. The Supreme Court’s decision Monday has no impact on the now unenforceable Illinois law.

Mail 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 Mail Order Merchandise Rule, promulgated by the Federal Trade Commission, 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.

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.

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.

Direct Marketing Association Re-files Challenge to Colorado Notice and Reporting Law in State Court

We have been updating readers on developments regarding the court challenge brought by the Direct Marketing Association (“DMA”) to a 2010 Colorado law 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.

In August 2013, the Court of Appeals for the Tenth Circuit ruled on its own initiative that the Tax Injunction Act (“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.)

On November 5, 2013, 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.

Brann & Isaacson partners George Isaacson and Matthew Schaefer are co-counsel to the DMA in connection with the appeal.

We will keep you apprised of further developments in the state court proceeding.

MFA Update: Rep. Goodlatte’s Seven Principles and an Interview with George Isaacson

Although the Marketplace Fairness Act (S. 743) ("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 “Principles on Internet Sales Tax.” Brann & Isaacson senior partner George Isaacson was recently profiled by State Tax Notes discussing both the MFA and Goodlatte’s Seven Principles.

The Seven Principles outlined by Representative Goodlatte provide for:

1. Tax Relief – “no new or discriminatory taxes not faced in the offline world”
2. 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”
3. No Regulation Without Representation – taxpayers “should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement”
4. Simplicity – no “onerous compliance requirements,” “laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary”
5. 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”
6. States’ Rights – “States should be sovereign” and “the federal government should not mandate that States impose any sales tax compliance burdens” and
7. Privacy Rights – “Sensitive customer data must be protected.”

California Ups the Ante On Privacy Policy Disclosures

For 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.

California’s Online Privacy Protection Act.   In 2003, California became the only state to require 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.

Now, however, the law has been significantly expanded.

Illinois Supreme Court Rules Illinois “Click Through” Nexus Statute Is Void And Preempted By Federal Law

The Illinois Supreme Court issued its decision today in Performance Marketing Association v. Hamer, ruling that the Illinois “affiliate nexus” (also known as “click-through nexus”) law is “void and unenforceable” because it is preempted by federal law. Brann & Isaacson partners George Isaacson and Matthew Schaefer represented the PMA in this case, and Isaacson argued the case 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.

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.

The ruling is a significant victory for online retailers, and for the Illinois individuals who generate income through affiliate links.

Litigation News: Colorado and Cook County Update

We have written frequently 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. See DMA v. Brohl, 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 did not have jurisdiction 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 en banc 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. Brann & Isaacson’s George Isaacson and Matthew Schaefer represent the DMA in the case.

Meanwhile, we wrote in July 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.

We will continue to update our readers on these and other cases throughout the country.

Beware of Taxation of Advertising Inserts

During 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. L.D. 1509, 126^th 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.

Taxation of free advertising materials has become a “hot button” issue in Maine. In an Informational Notice 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.

Amicus Briefs Filed in Amazon.com and Overstock.com Supreme Court Case

On 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 Overstock.com, Inc. v. New York Department of Taxation and Finance, 20 N.Y.3d 586, 987 N.E.2d 621 (2013). Among the briefs filed was the Brief of Newegg, Inc. and the Direct Marketing Association, Inc. (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. Brann & Isaacson partners Martin I. Eisenstein, George S. Isaacson, and Matthew P. Schaefer prepared the brief of amici on behalf of Newegg and the DMA.

Among the other organizations filing briefs were the Tax Foundation and the National Taxpayers Union, the American Legislative Exchange Council, the American Association of Attorney-Certified Public Accountants, and Scrapbook.com, Assisted Living Store, Inc., et al.