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  1. #1
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    Sales-Tax Nexus / Streamlined Sales Tax - U.S. Congress
    eBay passed this news along on their "Main Street" public policy site today:

    "US House Committee to Debate Remote Sales Tax Policy

    "The Judiciary Committee of the U.S. House of Representatives will hold a hearing on Thursday, Feb. 4 to discuss various state tax issues, including the Streamlined Sales Tax Project (SSTP). Click here for more information on this week's hearing; Click here to read eBay's point of view on imposing remote sales tax collection burdens on small businesses." (emphasis added)

    The congressional web site identifies the hearing title as "State Taxation – The Role of Congress in Defining Nexus."

    I don't know any more than what I quoted above.

    While most large e-commerce companies have stated their support (at least theoretically) for federal enabling legislation for the multi-state "Streamlined Sales Tax Project," eBay says it opposes even that effort (as "too complex" and too burdensome on small businesses).

  2. #2
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    Mark, how can we find out if it is opened to the public. I'll head over there tomorrow. Anyone else in DC want to go? I'll also twitter from it if it is allowed.
    Adam Riemer Marketing, LLC. Online Marketing Blog and Affiliate Management Company
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  3. #3
    ABW Ambassador Daniel M. Clark's Avatar
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    Because eBay knows all about being a small business

    I know, I know - but I had to make the joke. I'm a slave to the comedy.

    In all seriousness - what kind of predictions can we make if nexus is redefined on a national level? Would this supersede any state nexus laws? Would affiliate marketing just come to an end as merchants nationwide kill off their programs? If they did, wouldn't Congress just pass another law that isn't so easy to circumvent?

    It seems to me that Amazon, Overstock and the rest are dropping affiliates because they know they can both make a statement and survive without the income generated from a few states... but can any large merchant really afford to kill off affiliates nationwide? What's the endgame here?
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  4. #4
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    Isn't it what was mentioned in this thread -
    http://forum.abestweb.com/showthread...ined+Sales+Tax

    "In short, merchants will not be able to avoid the tax collection by dumping affiliates."

    So wouldn't there be no point in dumping affiliates, if they have to collect it regardless.

  5. #5
    ABW Ambassador Greg Rice's Avatar
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    I'm not sure if this hearing is good news or bad.

    On one hand, it could be good if they streamline the process and keep states from making a total mess out of everything.

    On the other hand, Washington is so out of touch with real people they may work it out so they get money too. They're spending money like crazy, raising the debt limit...again, and proposing another $1 Trillion in new taxes. What are the chances they give a crap about affiliate marketing?

    It's also possible they could think taxes are too high and, to make points in the upcoming elections, give the consumer "a break" and put a stop to it all and thereby win votes.
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  6. #6
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    I called and it is opened to the public. When I asked why they don't have anyone who works with the Internet or in Marketing or Online Taxes on the panel, etc... they got quiet. This doesn't look good. They have also asked that there are no interruptions and that people do not ask questions during the hearing. It is for the panel only.
    Adam Riemer Marketing, LLC. Online Marketing Blog and Affiliate Management Company
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  7. #7
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    I believe that the most likely pending federal sales-tax legislation would merely "enable" the multi-state streamlined sales tax project -- in other words, most merchants in any participating state would be required to collect sales taxes for all participating states. (I don't actually understand why federal legislation is required to enforce this, but everyone who matters seems to agree that it is necessary.)

    The "streamlined sales tax" system would include an automated way for merchants to determine the applicable sales tax, and automated ways to remit payments to states. I know I've linked to the project's web site and some of its core documents, in other threads.

    Note that the current "nexus requirements" were created by the courts, after Congress failed to enact legislation to clarify the applicable standard under which states would have sales-tax jurisdiction over out-of-state companies that sell to a state's consumers. (Note that "nexus" for sales-tax-collection purposes is a very different standard than for product liability.)

    If Congress enacts a law (for example, to enable the streamlined sales-tax program, or set a uniform standard), most of the prior court rulings would no longer matter, since by definition this issue involves "interstate commerce."

  8. #8
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    FYI: Last year, I discussed some of the implications of the Streamlined Sales Tax Project (SSTP), including reasons why some states might not participate even if Congress enacts enabling legislation: "What's Wrong with the SSTP"

  9. #9
    OPM and Moderator Chuck Hamrick's Avatar
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    Mark, you have talked about the tax nexus being unconstitutional. You are the closest thing affiliates have to an affiliate lawyer. Understanding that federal tax law may not be your expertise, what would it take if we were to file a case to the Supreme Court in DC?

    How much would we need to pay a federal tax lawyer to file the case? $50k, $100k? Rather than sitting on the curb waiting for the rest of the states to squeeze affiliates out why don't we use our marketing savvy to raise the money and get it done.

    A federal case would shake up the states especially the smaller states. You are not going to be able to make a state legislator understand the complexities of affiliate marketing. And you can not get enough affiliates to show up to represent even 1% of a states population.

    We have the organizations, we have the numbers, we have the savvy to raise that kind of money. If we put our differences aside we can pool our resources and do this:

    ABW
    PMA
    Affiliate Advocate
    Affiliate Fair Play
    Ben Edleman
    who else???

  10. #10
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    I haven't been involved in the active practice of law for more than a decade, and I've certainly never litigated a constitutional issue.

    You can't just "file a case" with the U.S. Supreme Court; it is almost exclusively an appellate court, and generally it will consider petitions only after all other appellate options have been exhausted. It's also important to understand that in general, appellate courts will focus on legal issues, not factual issues -- they will rely on the "findings of fact" made by the lower court, which can sometimes be very problematic.

    And with very limited exceptions, only the parties to a legal case can appeal the result. Here, the "dispute" is between the state and the merchant (advertiser), and web publishers are not parties. As the PMA has demonstrated, it is possible to file a "friend of the court" legal brief with an appellate court.)

    It's unclear to me whether an in-state web publisher (who is expelled from an affiliate program by a merchant in response to enactment of this law) would have legal standing to seek a ruling that the law is unconstitutional, nor for damages (since the state's "action" isn't directly against the web publisher, but against the merchant).

    The appellate process can take several years (sometimes decades). I haven't been following Amazon's New York legal case closely, but it appears that as of September (when the PMA filed its amicus brief), the case was pending in the "Appellate Division," which is the intermediate appellate court in New York. (In New York, unlike other states, the trial court is confusingly called the "Supreme Court," and the highest state court is called the "Court of Appeals.")

    It's also important to recognize that Amazon is probably the "worst" prospective litigant, among affected merchants, in every respect except its deep pockets -- nobody is likely to sympathize with Amazon or believe that it would suffer an undue burden if it's forced to collect and remit New York sales taxes. A much more sympathetic case would arise if the state tax agency sought to enforce the law against a mid-size or small merchant that just barely exceeded the law's sales threshhold; the cost of implementing sales-tax collection could exceed that merchant's entire gross profit from all sales to New York residents.

    Finally, even if a case is appealled, intervening events can render the case "moot" and thus not worthy of review by the U.S. Supreme Court. The obvious example here: if Congress enacts legislation that changes "nexus" rules, then the pending appellate cases would be "moot" since they no longer reflect current law.

    But I haven't been involved in the active practice of law for more than a decade, and I've certainly never litigated a constitutional issue.
    Last edited by markwelch; February 3rd, 2010 at 11:40 PM.

  11. #11
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    Mark is correct that you have to go through all the lower courts first, that has already been discussed in NYS, and I think the "process" is started. The lawyer that was at the Albany Tax Meeting that Mellie and Kevin organized pointed out that it would take years to get the ruling overturned through the legal system.
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  12. #12
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Lots of issues raised here, and they relate to many points I've commented on over the past months in other threads.

    1. As I posted in another thread last week, a decision in the Amazon case was due by the end of January, and should be issued any day now. The dismissal of Amazons' complaint (joined with the case filed by Overstock) was appealed to the Appellate Dept of the NY Supreme Court (the lowest appellate level in NY), the case was briefed, and argued last Sept. or Oct. There was an excellent amicus brief filed, arguing the consitutionality of the law and its implications for affiliates.

    2. The decision can do a lot of different things. It can uphold the dismissal, leaving the plaintiffs (Amazon and Overstock) to seek a further appeal to NY's highest court, the Court of Appeals (a discretionary appeal - the Court decides whether or not to hear it). The court can overturn the dismissal, and remand the case to the trial court for further proceedings, possibly including trial, or the Court can declare the law unconstitutional. If that happens, the State of NY can then seek to have the case heard in the Court of Appeals and they can also ask that the ruling of the Appellate Dept. be stayed pending the appeal.

    3. Only after the NY Court of Appeals refuses to take the case, or takes it and makes its ruling, can either side file a petition to be heard in the US Supreme Court, and that court also only accepts the cases it wants to hear.

    4. Any new case filed in any other state would be 1-1/2 years behind the NY case, and thus would never wind its way to the US Supreme Court before the NY case. Also, any such additional case on the same issues would ultimately be joined with the NY case, once any such cases reach the Federal Court system.

    I'll comment on some of the other points in a little while.
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  13. #13
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    AffiliateHound makes a good point -- in a case where the appeal is about a "procedural decision" (here, the dismissal of Amazon's suit by the trial court), even if the appellate court decides that the lower-court decision was "in error," then the next step would ordinarily be to "remand" or return the case to the trial court for further proceedings -- which might reach different conclusions, but even if not, this would create a clearer "record" (including findings of fact) for a subsequent appeal. In some cases, there can be multiple cycles of appeal and remand, which is one reason why some legal cases actually continue for decades.

    While it's true that another lawsuit would start out more than a year "behind" the Amazon case, it's possible that a case filed this year might reach the U.S. Supreme Court long before Amazon's case -- and of course, Amazon might decide to drop its case entirely, at any time, and if no similar cases are then pending, the entire process would need to start again from "scratch."

    And even if the New York Appellate Division (or Court of Appeal) rules that the New York law is unconstitutional, tax agencies and courts in other states are not bound by that ruling -- even if the identical statutory language was used.
    Last edited by markwelch; February 4th, 2010 at 12:09 AM.

  14. #14
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    picking up from where I left off:

    5. Congress can pass any law they want, but that does not mean any such law is itself Constitutional.

    The "nexus" rule as it has been applied in the situations we are concerned with, stem from earlier US Supreme Court cases of Quill Cort v North Dakota and National Belle Hess v Dept of Revenue, which interpreted the US Constitution as to what is required to constitute a "physical presence" for a corporation in a foreign state for sales tax purposes. Congress cannot abrogate the requirements of the Constitution by passing a law violative of that document. Should they seek to, then we can anticipate several additional years of litigation.

    6. As to Congress and a national tax, that raises similar issues. As I have written here before, unless a Constitutional Amendment is passed, Congress has no power whatsoever to pass a national sales tax law that REPLACES existing state sales and use tax laws. There is a considerable question whether or not Congress can pass ANY national sales tax (remember, the Income tax required a Constitutional Amendment), but it is unquestioned that Congress cannot vacate state tax laws. But, should Congress in its wisdom, decide to pass a single, uniform national sales tax law (Constitutional issues aside) covering all financial transactions now subject to the various state sale and use tax laws, that would be an ADDITIONAL tax, beside existing state taxes. The only way such a tax could be INSTEAD of existing state taxes is if the Federal tax law provided that states could voluntarily agree to accept the Federal plan, and a portion of the tax collected, and voluntarily terminate their own sales/use tax system.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  15. #15
    ABW Ambassador delsol's Avatar
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    Isn't the only solution a flat federal internet sales tax?

  16. #16
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Quote Originally Posted by delsol
    Isn't the only solution a flat federal internet sales tax?
    ONLY if every state independently agreed. Otherwise, if would just be a new tax in additional to each state's sales/use tax. And that assumes such a federal tax were Constitutional.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  17. #17
    ABW Ambassador simcat's Avatar
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    After the states passing 'Amazon Tax Bills' realize they aren't getting the tax revenue they hoped for, they might finally start pushing for a ntnl. sales tax.

    ONLY if every state independently agreed.
    But some states (esp. those not charging sales tax) would remain hold-outs.

  18. #18
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    Heading over there now. Follow #rollerblader if I can text from there or I'll post updates later.
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  19. #19
    Affiliate Manager bcwaller's Avatar
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    Quote Originally Posted by delsol
    Isn't the only solution a flat federal internet sales tax?
    Remember this is the government. A national sales tax might end up on top of state taxes. Remember that much of these issues are based on states rights. I'm not sure if the feds CAN replace a state tax.

    The Streamlined Sales Tax is something that could work because it gets implemented because the states agree to it, not because it gets passed by the federal government.
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  20. #20
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    AffliateHound wrote (in part):
    The "nexus" rule as it has been applied in the situations we are concerned with, stem from earlier US Supreme Court cases of Quill Cort v North Dakota and National Belle Hess v Dept of Revenue, which interpreted the US Constitution as to what is required to constitute a "physical presence" for a corporation in a foreign state for sales tax purposes. Congress cannot abrogate the requirements of the Constitution by passing a law violative of that document. Should they seek to, then we can anticipate several additional years of litigation.

    I think you're mistaken on this.

    In these (sales-tax nexus) cases, the U.S. Supreme Court was primarily interpreting the Commerce Clause, which says that Congress holds the power "To regulate Commerce ... among the several states...."

    In essence, the Supreme Court was ruling that if a company doesn't have a "physical presence" within a state, then the transaction is "interstate commerce" which states cannot regulate (or impose any "burden") without Congressional authorization. (Yes, of course it's not quite that simple, but that's the gist of the issue.)

    The U.S. Supreme Court's rulings are about what states are allowed to do in the absence of action by Congress. If Congress enacts a law, then certainly the courts might be asked to consider whether that law is constitutional, but the court would no longer need to rule on what states are permitted to do in the absence of Congressional action, since Congress would have acted.

    Consider what would happen if Congress enacts a law that we might consider unwise: for example, requiring that every merchant collect and remit sales tax for every state to which merchandise is shipped, even if the merchant ships only a single $10 order to the state once every decade. I can't think of any plausible "constitutional theory" to argue that such a law is invalid.

  21. #21
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    I went to the meeting and will write a summary later. It was pretty interesting.
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  22. #22
    OPM and Moderator Chuck Hamrick's Avatar
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    The Streamlined Sales Tax is not the answer IMHO as it relies on the states to take action. Thanks MarkWelch and AffiliateHound for framing the response to my question of whether we should put together an national effort to go to the Supreme Court. The intent was to push a national case that may cause the states to pause their tax nexus legislation buying affiliates time. I now understand that it has to go through a lower federal court further lengthening the time line.

    In essence, the Supreme Court was ruling that if a company doesn't have a "physical presence" within a state, then the transaction is "interstate commerce" which states cannot regulate (or impose any "burden") without Congressional authorization. (Yes, of course it's not quite that simple, but that's the gist of the issue.)
    Can the state nexus be construed as impending interstate commerce? (help me with the language if needed) If we were to pursue a national campaign would this fall to the FTC?

    To make my point again, I am suggesting that we focus on the federal level. Working with the states is fine but will not change this for the rest of the country. A national focus can bring this to a head quicker.

  23. #23
    ABW Ambassador delsol's Avatar
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    Quote Originally Posted by Chuck Hamrick
    impending interstate commerce?
    I would say, of course (but I'm not a lawyer). This is the only argument I've not heard publicly in Colorado.

    Basically these laws impose on out-of-state compagnies regulation they do not even impose on their in-state stores.

  24. #24
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    Chuck: As it relates to the workings of the readers of ABW, i.e. true internet affiliates...

    To state the argument as you frame it impends that affiliates are MORE than advertisers. Again, as I've particularly stated since 2007, affiliates are ADVERTISERS and not AGENTS.

    Affiliates do not suppose to create commerce intentionally on one particular set of citizens... i.e residents of their own state. THEREFORE, while the SSTP is a WONDERFUL escapism, and a POWERFUL and RIGHT solution (well, with the one small exception that it could be argued ALSO unconstitutional), we need to include that PER THE CONSTITUTION............. This is bullsh*t. But, the best solution we have so far.

    Just wanted to add that.
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  25. #25
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    While we're discussing case law... It's amazing how much the legislators pushing these laws don't understand the affiliate business and the case law surrounding nexus. Below is part of my response to a ridiculously uninformed editorial in an NC newspaper calling on the state to sue retailers such as Amazon for back sales taxes.
    It’s disappointing to see more misinformation about what constitutes "physical presence" in relation to sales tax. Scripto V Carson (the very case cited by the N.C. Revenue Laws Study Committee) disproves the concept that N.C. web publishers who post links to out-of-state retailers constitutes nexus. The RLSC did not adequately research the case law and how it truly relates to web publishers and out-of-state retailers.

    Nexus (i.e. physical presence) is created when out-of-state retailers contract with sales people for the purpose of using their physical location to generate sales within a “territory.” Constitutionally-based nexus bears upon the importance of the physical proximity between the "agent" and the "buyer" in making the sale happen. Websites reach a global audience through search engines, thereby making the physical location of the publisher unimportant to the sale.

    N.C. web publishers who participate in partner programs do not “stock” items - they just post links to the retailer and get paid when a sale is made.

    Retailers without stores in a state are not set up to administer the varying tax laws of multiple states and 7,000+ local municipalities. To upgrade software, change accounting methods, and hire staff to deal with thousands of different tax collection and auditing methods is more than some retailers can handle. This is why they dropped their partnerships with N.C. web publishers.

    Now supporters of this law realize there is no tax to be collected. They are learning the state is actually losing tax revenue because N.C. businesses who relied on these sales are going out of business, moving out of state, or generally suffering financially (thereby reducing corporate revenues in N.C.). So in desperation they are saying the state should sue the retailers.

    And who is going to pay for this litigation the state will ultimately lose? N.C. taxpayers!
    I think somewhere on this forum I posted more detail about this. If I can find the thread, I'll post a link to it here.

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