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.
Showing posts with label Internet retailer. Show all posts
Showing posts with label Internet retailer. Show all posts
Thursday, January 30, 2014
Tuesday, November 26, 2013
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.
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.
Wednesday, April 25, 2012
Internet Retailers and Digital Businesses Should Understand the State Tax Risks Associated with Telecommuting Employees
In the increasingly “officeless” environment of the digital workplace, Internet retailers, cloud computing providers and other remote sellers should be aware of the sometimes unexpected state tax consequences associated with employees who telecommute. Although there are few reported court decisions, a vast majority of the states assert that having employees located in the state engaged in non-sales activities who telecommute from home is a sufficient presence in the state to require a company to collect the state’s corporate income or franchise tax. It is also clear that having a telecommuting employee in the state creates meaningful sales and use tax nexus risk, but whether a telecommuting employee will create a "physical presence" in the state sufficient to require the company to collect state use tax may depend upon the nature of the employee’s in-state activities on behalf of the company.
The leading case in the still-developing decisional law on telecommuting is the recently-decided Telebright Corp. v. New Jersey Division of Taxation, 424 N.J.Super. 384, 38 A.3d 604 (App. Div. 2012). In Telebright, the Appellate Division of the Superior Court of New Jersey affirmed a Tax Court decision that the presence in the state of a software developer telecommuting on a daily basis for a Maryland company was sufficient to subject the company to an obligation to report New Jersey Business Corporation Tax (“CBT”). Id., 424 N.J.Super. at 395, 38 A.3d at 611. The employee in Telebright performed no sales functions on behalf of the company (indeed, the Tax Court noted that the company solicited no sales in New Jersey, at all), but she was involved in developing a web-based software application that the company marketed to its clients, a fact that the Appellate Division emphasized in finding that the company both was “engaged in business” under CBT statute and had sufficient nexus with the state for CBT purposes.
Of course, federal law P.L. 86-272 will still protect a company from an obligation to report a state’s corporate income tax, if the company’s in-state telecommuting employees are engaged solely in solicitation of sales for orders of tangible personal property that are approved and filled from outside the state. Many businesses that rely on telecommuting, however, are not protected by P.L. 86-272, because they sell services or computer software applications that may not be deemed “tangible personal property” under state law. Furthermore, employees telecommuting from a state engaged in activities other than solicitation (or activities strictly ancillary to solicitation), will not qualify for P.L. 86-272 immunity. Indeed, more than thirty-five state revenue departments have indicated in response to various surveys that the presence of non-sales, telecommuting employees will subject the company to an obligation to report state income tax.
With regard to state sales and use taxes a direct physical presence in a state through employees will also create a risk of use tax nexus. It is clear that if an in-state employee is engaged in sales solicitation or support activities with respect to in-state customers, s/he can create nexus under established Supreme Court precedent. See, e.g., Tyler Pipe Indus., Inc. v. Washington Dep’t of Revenue, 483 U.S. 231 (1987). Even the activities of non-sales employees, however, should be examined carefully to determine the level of nexus risk to the company when making a business decision about whether to engage telecommuting employees in the state employee to telecommute. In some states, a non-sales employee may not create nexus. For example, the California Board of Equalization has indicated in one Sale and Use Tax Annotation (SUTA 220.0256: “Telecommuting In-State”) (June 21, 1999) that a remote seller that had an employee engaged in web design who telecommuted from his home in California was not “engaged in business” in the state for purposes of California use tax because the telecommuter did not have any contact or involvement with customers in the state. Many other state revenue departments have, however, at least in response to informal surveys, taken a less permissive view. Remote sellers should consult carefully with their tax counsel to understands the use tax risks associated with particular telecommuting arrangements.
The leading case in the still-developing decisional law on telecommuting is the recently-decided Telebright Corp. v. New Jersey Division of Taxation, 424 N.J.Super. 384, 38 A.3d 604 (App. Div. 2012). In Telebright, the Appellate Division of the Superior Court of New Jersey affirmed a Tax Court decision that the presence in the state of a software developer telecommuting on a daily basis for a Maryland company was sufficient to subject the company to an obligation to report New Jersey Business Corporation Tax (“CBT”). Id., 424 N.J.Super. at 395, 38 A.3d at 611. The employee in Telebright performed no sales functions on behalf of the company (indeed, the Tax Court noted that the company solicited no sales in New Jersey, at all), but she was involved in developing a web-based software application that the company marketed to its clients, a fact that the Appellate Division emphasized in finding that the company both was “engaged in business” under CBT statute and had sufficient nexus with the state for CBT purposes.
Of course, federal law P.L. 86-272 will still protect a company from an obligation to report a state’s corporate income tax, if the company’s in-state telecommuting employees are engaged solely in solicitation of sales for orders of tangible personal property that are approved and filled from outside the state. Many businesses that rely on telecommuting, however, are not protected by P.L. 86-272, because they sell services or computer software applications that may not be deemed “tangible personal property” under state law. Furthermore, employees telecommuting from a state engaged in activities other than solicitation (or activities strictly ancillary to solicitation), will not qualify for P.L. 86-272 immunity. Indeed, more than thirty-five state revenue departments have indicated in response to various surveys that the presence of non-sales, telecommuting employees will subject the company to an obligation to report state income tax.
With regard to state sales and use taxes a direct physical presence in a state through employees will also create a risk of use tax nexus. It is clear that if an in-state employee is engaged in sales solicitation or support activities with respect to in-state customers, s/he can create nexus under established Supreme Court precedent. See, e.g., Tyler Pipe Indus., Inc. v. Washington Dep’t of Revenue, 483 U.S. 231 (1987). Even the activities of non-sales employees, however, should be examined carefully to determine the level of nexus risk to the company when making a business decision about whether to engage telecommuting employees in the state employee to telecommute. In some states, a non-sales employee may not create nexus. For example, the California Board of Equalization has indicated in one Sale and Use Tax Annotation (SUTA 220.0256: “Telecommuting In-State”) (June 21, 1999) that a remote seller that had an employee engaged in web design who telecommuted from his home in California was not “engaged in business” in the state for purposes of California use tax because the telecommuter did not have any contact or involvement with customers in the state. Many other state revenue departments have, however, at least in response to informal surveys, taken a less permissive view. Remote sellers should consult carefully with their tax counsel to understands the use tax risks associated with particular telecommuting arrangements.
Friday, March 11, 2011
Illinois Governor Signs "Amazon" Affiliate Nexus Law
On March 10, Illinois Governor Pat Quinn signed into law HB 3659, the affiliate nexus bill passed by the legislature in January. Quinn's signing makes Illinois the fourth state (along with New York, Rhode Island, and North Carolina) to enact such a law. The Illinois bill provides that once an out-of-state Internet retailer realizes $10,000 in receipts from sales made to customers linked to the retailer's website from the websites of its Illinois affiliates, the retailer will be deemed to be a “retailer having or maintaining a place of business in this State” and be obligated to collect and remit tax on all of its sales to Illinois consumers.
In response, Amazon.com promptly informed its Illinois affiliates that it is terminating its relationships with them. Look for further developments in the coming days.
In response, Amazon.com promptly informed its Illinois affiliates that it is terminating its relationships with them. Look for further developments in the coming days.
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