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  1. #1
    ABW Ambassador Georgie Peri's Avatar
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    January 17th, 2005
    Norwalk, CT
    Question Google Adsense / Adwords
    Does anyone know if all these new state laws affect Google's Adsense / Adwords services?
    OpA! Giasou Ti kanies!

  2. #2
    Join Date
    January 18th, 2005
    As worded, the laws would clearly include performance-based advertising through Google AdWords and AdSense, as well as percentage-based advertising through eBay, Yahoo, and other services. The reference to "commissions" is NOT limiting, as it also includes "other consideration," and it applies to all forms of advertising (not just internet).

    As worded, the laws are not limited to internet advertising or activity; they extend to all payments that result in "direct or indirect" referral of a customer. Any merchant purchasing an ad in the San Jose Mercury News or the Los Angeles Times, or in PC World or Sunset magazine, or on any TV or radio station in California, would be included by AB 178.

    As worded, the practical impact of these laws is that sales-tax-collection duties would be imposed on every merchant selling more than $10,000 of merchandise into a state ($2,000 in some states), unless the merchant can prove that they did not pay any state residents (including businesses) for advertising (or that the state residents did not engage in any activity that isn't protected by the Commerce Clause of the United States; the merchant is required to "prove a negative" according to unwritten rules that even experienced lawyers don't understand).

    Any retailer entering into an agreement with a resident of
    this state under which the resident, for a commission or other
    , directly or indirectly refers potential customers of
    tangible personal property, whether by a link or an Internet Web site
    or otherwise, to the retailer, if the cumulative gross receipts or
    sales price from sales by the retailer to customers in this state who
    are referred pursuant to these agreements is in excess of ten
    thousand dollars ($10,000) during the preceding four calendar
    quarterly periods. This paragraph shall not apply if the retailer can
    demonstrate that the resident with whom the retailer has an
    agreement did not engage in referrals in the state on behalf of the
    retailer that would satisfy the requirements of the commerce clause
    of the United States Constitution during the four quarterly periods
    in question. (emphasis added)
    In New York, the tax agency immediately "interpreted" the law in a very limited way, applying it exclusively to internet advertising in which the publisher is paid a commission; effectively, the agency chose to ignore all of the bold language in the statute above, and also concluded that despite its plain language, the law did not apply to "ordinary advertising," unless the New York resident engaged in some type of "solicitation" activity (but the exact reach and limits of the NY tax agency's interpretation are unclear). The absence of any clear guidelines for applying the law, plus the potential for retroactive re-interpretation of the law's meaning, has led hundreds of merchants to terminate their advertising relationships with all New York web publishers.

    No appellate court has yet considered the New York law; no other state has yet enacted a similar law. As an attorney, I am confident that these laws as written (quoted above) are clearly unconstitutional, and eventually, appellate courts will strike them down. (But an appellate court ruling in 2010 or 2012 or 2015 won't help tens of thousands of web publishers whose revenue was cut off by merchants unwilling to comply with the unconstitutional law.)

    The New York tax agency's interpretation of the law may also run afoul of federal laws prohibiting differential tax treatment of online commerce (it creates a tax-collection trigger based on commission-based online advertising, but not based on similar commission-based "offline" advertising in newspapers, magazines, TV, or radio . I haven't seen this issue raised by any merchants yet.

    The sponsor of the California bill, Nancy Skinner, has asserted that her bill is not intended to apply to other advertising, and she has promised to amend the bill to clarify this. However, since the entire purpose of the law is to use online advertising as a trigger to force sales-tax-collection, I'm not sure how she could amend it. Skinner and other legislators simply don't understand how internet advertising works, and so they deny that the bill means what it plainly says.

    You pay Google AdWords "consideration" (money) to display advertising, and you only pay when they refer a potential customer to you. You pay eBay "consideration" (an up-front fee plus a percentage upon sale) to display your products and facilitate an auction, thereby referring customers to you. There is no rational interpretation of these laws that would exclude those companies from "triggering" the sales-tax-collection duty.

    There is some potential argument about how the law might apply to "intermediary" relationships: for example, if you pay Google AdWords only for ads appearing on its "Content Network," so that Google pays an AdSense publisher to refer customers; or if you pay Commission Junction or Google Affiliate Network a percentage of sales for their role in administering your affiliate program. I think that as worded, the law would include these activities, imposing a huge "tax penalty" on any company that chooses to do business with California-based intermediaries like CJ or GAN, instead of contracting with an out-of-state intermediary.
    Last edited by markwelch; April 10th, 2009 at 12:41 PM.

  3. #3
    Newbie B4What's Avatar
    Join Date
    June 21st, 2009
    Shelby County Alabama
    When did the US Constitution begin describing laws about Commerce; as I must have been out of law class during Constitutional Law I term. Can you explain where you cited this information, am astounded..Thanks

  4. #4
    Member jkgourmet's Avatar
    Join Date
    July 16th, 2009
    Mesa, Arizona
    Article 1, section 8, clause 3 is the commerce code of the constitution. The states have interpreted this section to allow states to set up their own individual commerce laws and tax regulations. In this issue, the interpretation is pretty broad. ( I'm NOT justifying by or any other state for doing this kind of thing so don't flame me please)

    I'm sure mark can explain it better.

  5. #5
    Moderator MichaelColey's Avatar
    Join Date
    January 18th, 2005
    Mansfield, TX
    The two mentions of commerce in the constitution are both in article 1 (rules for the legislative branch, i.e. Congress):

    In section 8 (powers of Congress):

    "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;"

    In section 9 (limits on Congress):

    "No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another."

    That first reference (article one, section 8, clause 3) is typically referred to as the "Commerce Clause". Here's the Wikipedia article on it:

    Another key part is the 10th Amendment, which simply says:

    "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

    This basically means that states are able to do what they want as long as it's not prohibited by the Constitution. When it comes to Interstate Commerce, though, that clearly falls under the commerce clause, so they must comply with that (and the numerous rulings that have clarified exactly what that means).

    One such ruling that is very important in cases like this is Quill vs. North Dakota:

  6. #6
    Newbie B4What's Avatar
    Join Date
    June 21st, 2009
    Shelby County Alabama
    US Constitution
    "so don't flame me please"
    I am not flaming anyone should have read the article, as I was just asking a simple question-duh! I thought ABestWeb was about eCommerce (Affiliate business), not a debate of who is the smartest person on the planet. Speaking this site is a debate forum of whom are allowed to ask and those that must listen to a professional~ Talk flame all you like, no one on this forum has a voice except you. Where do you practice at since you seem to be the 'warning platform of all voices.' You enjoy the rest of your days, might add, I do not associate with your kind.
    "so don't flame me please".... We are different, I try to help people, on the other hand you do the opposite with your warnings!

  7. #7
    Member jkgourmet's Avatar
    Join Date
    July 16th, 2009
    Mesa, Arizona
    Huh? I'm not at all sure what I said to upset you so much - I simply did not want my response to your question to be interpreted to be my agreement that these states could/should/can impose these regulations.

    I regret if I offended you in some unknown and unintended way, but your response was a bit over the top, IMO. I wasn't even expressing an opinion, nor do I understand what group is "my kind."

    Another lesson learned at ABW - stay away from discussions about politics.

    And Michael - thanks for the very complete response to the Constitution question.

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