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July 4th, 2009, 02:56 PM #1
RI Tax Agency Interpretation: Advertising isn't Advertising
- Join Date
- January 18th, 2005
The "notice" posted on the RI tax agency's web site makes a very strange attempt to "clarify" the meaning of the "Advertising-Nexus" tax law:
> "In addition, an agreement to place an advertisement does not give rise to the presumption described above. For this purpose, placing an advertisement does not include the placement of a link on a Web site that, directly or indirectly, links to the Web site of a seller, where the consideration for placing the link on the Web site is based on the volume of completed sales generated by the link." < (http://www.tax.ri.gov/notice/Retaile...on_NoticeC.pdf)
This is fascinating: according to the tax agency, the "Advertising-Nexus" tax law doesn't affect advertising, which is then defined to exclude performance-based advertising (e.g. advertising isn't advertising).
Rhode Island's tax agency seems to recognize that using an advertising contract to create "nexus" isn't constitutional, but its first interpretation of the law is much broader than New York's -- it isn't limited to "solicitation" and appears to re-define all performance-based advertising relationships (by simply declaring that advertising isn't advertising).
Under this interpretation, the sole method of determining whether an advertisement is exempt is the mode of compensation. This interpretation does narrow the law's scope somewhat, by focusing on sales (thus "pay-per-click" advertising is still advertising, while "pay-per-sale" advertising isn't advertising).
Unlike New York, Rhode Island's interpretation doesn't examine the role or activity of the publisher (New York's interpretation seemed to emphasize "solicitation," while Rhode Island's doesn't mention solicitation.)
If Rhode Island persists with this significantly broader interpretation of the "Advertising-Nexus Tax Law" than New York, I suspect that Amazon and Overstock might put their New York litigation "on hold" while they first litigate over Rhode Island's much more blatantly unconstitutional interpretation of the law.
Disclaimer: This is not a legal opinion; consult with an attorney who is familiar with Rhode Island sales tax law for specific legal advice.
Last edited by markwelch; July 4th, 2009 at 03:09 PM.
July 4th, 2009, 03:01 PM #2
Rhode Island Tax Agency's Notice (Interpretation) of "Advertising-Nexus" tax law
- Join Date
- January 18th, 2005
Attached is the PDF version of the "Notice" posted on the Rhode Island tax agency's web site regarding the "Affiliate-Nexus Tax Law" which was enacted this week. I'm also posting a text version here, for those who may find the PDF version inconvenient.
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS
Department of Revenue
DIVISION OF TAXATION
Excise Tax Section
One Capitol Hill
Providence, RI 02908-5800
Fax (401) 574-8914
TDD (401) 574-8934 (Telecommunication Device for the Deaf)
Definition of Sales Tax “Retailer” Amended
The 2009 Rhode Island General Assembly enacted into law Article 16 of House Bill
5983 Sub A as Amended to provide a presumption that certain sellers of taxable tangible
personal property are retailers under § 44-18-15 and are required to register collect and remit
Rhode Island sales taxes. This new law is effective as of July 1, 2009.
The term retailer includes persons who solicit business within the state through
employees, independent contractors, agents or other representatives and, by reason thereof, make
sales to persons within the state of tangible personal property that are subject to sales tax.
Accordingly, if a business located outside Rhode Island solicits sales of taxable tangible personal
property or services through employees, salespersons, independent contractors, agents, or other
representatives located in Rhode Island, the business must register as a retailer and obtain a
Permit to Make Sales at Retail (See Regulation SU 90-20).
New rules Pertaining to E-Commerce Retailers
Under the new legislation, an e-commerce retailer that uses persons to act as its
representatives in the state to solicit sales or to make and maintain a market in return for
commissions, referral fees or other types of compensation is considered to be soliciting business
within this state through the use of independent contractors or representatives. Therefore, the e-
commerce retailer must register as a retailer for Rhode Island sales tax purposes. However, a
business is not considered a retailer under the law merely because the business is advertising on
a server or other computer equipment located in Rhode Island, or has advertising disseminated or
displayed on the Internet.
The new legislation provides that a seller that makes taxable sales of tangible personal
property in Rhode Island is presumed to be a retailer required to be registered for sales tax
purposes and required to collect sales tax on all of its taxable sales in Rhode Island, if both of
the following conditions are met:
- The seller enters into an agreement with a Rhode Island individual, corporation
incorporated under the laws of Rhode Island, or any corporation, association,
partnership or other entity doing business or maintaining a place of business in
Rhode Island; or under which, for a commission or other consideration, the Rhode
Island representative directly or indirectly refers potential customers to the seller,
whether by link on an Internet Web site or otherwise. A Rhode Island
representative would be indirectly referring potential customers to the seller
where, for example, the Rhode Island representative refers potential customers to
its own Web site, or to another party’s Web site which then directs the potential
customer to the seller’s Web site.
- The cumulative gross receipts from sales by the seller to customers in Rhode
Island as a result of referrals to the seller by all of the seller’s resident
representatives under the type of contract or agreement described above total
more than $5,000 during the preceding four quarterly sales tax periods. (Sales tax
quarterly periods end on the last day of March, June, September and December.
For purposes of the presumption described above, a seller is also considered to have met
the condition of having an agreement with a Rhode Island resident where the seller enters into an
agreement with a third party under which the third party, in turn, enters into an agreement with
the Rhode Island resident to act as the seller’s representative.
In addition, an agreement to place an advertisement does not give rise to the presumption
described above. For this purpose, placing an advertisement does not include the placement of a
link on a Web site that, directly or indirectly, links to the Web site of a seller, where the
consideration for placing the link on the Web site is based on the volume of completed sales
generated by the link.
Please complete and return the enclosed Sales Tax registration (Form BAR) to the above
address. Form BAR may also be found at: http://www.tax.ri.gov/forms/1999/with/bar.pdf
If you have any questions, please call the Excise Tax Section at (401) 574-8955.
Last edited by markwelch; July 4th, 2009 at 03:11 PM.
July 4th, 2009, 03:22 PM #3
- Join Date
- January 18th, 2005
It may also be helpful to see the full text of the actual statute (from the link mellie provided here), in order to understand how the tax agency's interpretation differs from the actual text of the statute.
SECTION 8. Section 44-18-15 of the General Laws in Chapter 44-18 entitled "Sales and
Use Taxes - Liability and Computation" is hereby amended to read as follows:
44-18-15. "Retailer" defined. -- (a) "Retailer" includes:
(1) Every person engaged in the business of making sales at retail, including sales at auction of tangible personal property owned by the person or others.
(2) Every person making sales of tangible personal property through an independent contractor or other representative, if the retailer enters into an agreement with a resident of this state, under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the retailer, provided the cumulative gross receipts from sales by the retailer to customers in the state who are referred to the retailer by all residents with this type of an agreement with the retailer, is in excess of five thousand dollars ($5,000) during the preceding four (4) quarterly periods ending on the last day of March, June, September and December. Such retailer shall be presumed to be
soliciting business through such independent contractor or other representative, which presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the state on behalf of the retailer that would satisfy the nexus requirement of the United States Constitution during such four (4) quarterly periods.
(3) Every person engaged in the business of making sales for storage, use, or other consumption, or the business of making sales at auction of tangible personal property owned by the person or others for storage, use, or other consumption.
(4) A person conducting a horse race meeting with respect to horses, which are claimed during the meeting.
(5) Every person engaged in the business of renting any living quarters in any hotel, roomi ng house, or tourist camp.
(6) Every person maintaining a business within or outside of this state who engages in the regular or systematic solicitation of sales of tangible personal property in this state by means of:
(i) Advertising in newspapers, magazines, and other periodicals published in this state, sold over the counter in this state or sold by subscription to residents of this state, billboards located in this state, airborne advertising messages produced or transported in the airspace above this state, display cards and posters on common carriers or any other means of public conveyance
incorporated or operated primarily in this state, brochures, catalogs, circulars, coupons, pamphlets, samples, and similar advertising material mailed to, or di stributed within this state to residents of this state;
(iii) Computer assisted shopping networks; and
(iv) Television, radio or any other electronic media, which is intended to be broadcast to consumers located in this state.
(b) When the tax administrator determines that it is necessary for the proper administration of chapters 18 and 19 of this title to regard any salespersons, representatives, truckers, peddlers, or canvassers as the agents of the dealers, distributors, supervisors, employers, or persons under whom they operate or from whom they obtain the tangible personal property sold by them, irrespective of whether they are making sales on their own behalf or on behalf of the dealers, distributors, supervisors, or employers, the tax administrator may so regard them and may regard the dealers, distributors, supervisors, or employers as retailers for purposes of chapters 18 and 19 of this title.
Note that only the underlined text -- section (a)(2) -- was added by this amendment (which inserts it as item (2) and renumbers the items below it; I can't understand why they didn't just add it at the end of section (a)).
Note also that much of the other existing language in the statute is already invalid under U.S. Supreme Court decisions.
July 4th, 2009, 04:03 PM #4
- Join Date
- January 18th, 2005
One more clarification: The Rhode Island tax agency's interpretation seems to limit the application of this law to online resellers and "web links," despite the broader scope of the statute's plain language.
Thus, like New York, Rhode Island doesn't appear to intend to apply the law to pay-per-sale advertising in other media (such as television, radio, newspapers, and magazines). In both states, in-state web publishers will be treated differently than offline publishers and broadcasters for the exact same advertising messages compensated in exactly the same way.
By stating that the new rules apply only to "e-commerce retailers," the Rhode Island tax agency also appears to treat online retailers differently than offline retailers. Thus, an offline retailer apparently can continue to use pay-per-sale advertising to promote in-person or telephone sales, but not online retailers. (Of course, in-state retailers must already collect sales tax, but the tax agency's interpretation of the law doesn't seem to apply to offline retailers in other states who may use pay-per-sale advertising in North Carolina media to solicit North Carolina residents to place phone orders or to drive across the border to buy.)
Disclaimer: This is not legal advice; consult with an attorney who is familiar with Rhode Island sales tax law for a legal opinion based on your specific facts and circumstances.
Last edited by markwelch; July 4th, 2009 at 04:32 PM.
July 8th, 2009, 01:44 PM #5
- Join Date
- January 18th, 2005
Okay, I just re-read the sentence that Rhode Island used in its notice, and I re-read the New York tax agency's advisory. And to my surprise, the language is identical.
Yes, indeedy -- Rhode Island's interpretation isn't "different" but is merely less complete.
New York did state that paying for a web link which is compensated based on sales volume is not "placing an advertisement." But then, in its "Example 4," New York contradicted this by describing exactly the same arrangement and concluding that the merchant did not need to collect sales tax.
I'm pounding my head on the table now.
Hopefully, both Rhode Island and North Carolina will adopt nothing worse than the exact same interpretation as New York did, including the more-specific example that contradicts (and hopefully supersedes) the bizarre general language above it.
July 13th, 2009, 08:54 AM #6
- Join Date
- January 17th, 2005
Too many bureaucrats with way too much time on their hands.
I have a question - Is a wholesaler a retailer? Are discounts no longer retail?
Hard to be precise in English when there are hundreds of ways to say the same
However, it's all pretty simple to solve. Trash the whole tax code and start over.
All Corporations & LLC pay 5% of their gross revenue - no writeoffs except a token
amount to cover filling out state tax forms necessary to be a corporation.
REAL people and sole proprietors are exempt from income tax.
Everyone pays a 6% sales tax of whatever they buy except food. To solve the out of state origination to get around the sales tax, you charge all out of state incoming shipments a 'customs' fee of $1 per package. UPS & FedEx and the USPS can collect it as part of their shipping order.
But I understand ... it ain't easy being green in an opaque world.
July 24th, 2009, 06:16 AM #7Originally Posted by markwelch
Indicators are that North Carolina will follow Rhode Island. Even if the law does not make it into the budget, there is a back up plan to interpret existing law and accomplish the same thing.
July 24th, 2009, 09:18 AM #8
July 24th, 2009, 09:19 AM #9
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