Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
Presenting a live 110‐minute teleconference with interactive Q&A
Sales Tax Affiliate Nexus: Latest Developments Sales Tax Affiliate Nexus: Latest Developments Adjusting Multi‐State Compliance Under New State Laws for Online Business Partnerships
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
THURSDAY, DECEMBER 15, 2011
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
Arthur Rosen Partner McDermott Will & Emery New YorkArthur Rosen, Partner, McDermott Will & Emery, New York
Shirley Sicilian, General Counsel, Multistate Tax Commission, Washington, D.C.
Annie Huang, Partner, Pillsbury Winthrop Shaw Pittman, San Francisco
Brian Toman, Partner, Reed Smith, San Francisco
For this program, attendees must listen to the audio over the telephone.
Brian Toman, Partner, Reed Smith, San Francisco
Please refer to the instructions emailed to the registrant for the dial-in information.Attendees can still view the presentation slides online. If you have any questions, pleasecontact Customer Service at1-800-926-7926 ext. 10.
Conference Materials
If you have not printed the conference materials for this program, please complete the following steps:
• Click on the + sign next to “Conference Materials” in the middle of the left-hand column on your screen hand column on your screen.
• Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program.
• Double click on the PDF and a separate page will open. Double click on the PDF and a separate page will open.
• Print the slides by clicking on the printer icon.
Continuing Education Credits FOR LIVE EVENT ONLY
Attendees must listen to the audio over the telephone. Attendees can still view the presentation slides online but there is no online audio for this program.
Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.at 1 800 926 7926 ext. 10.
Tips for Optimal Quality
S d Q litSound Quality
For this program, you must listen via the telephone by dialing 1-866-873-1442 and entering your PIN when prompted. There will be no sound over the web connection.co ect o .
If you dialed in and have any difficulties during the call, press *0 for assistance. You may also send us a chat or e-mail [email protected] immediately so we can address the problem.
Viewing QualityTo maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key againpress the F11 key again.
S l T Affili t N L t t Sales Tax Affiliate Nexus: Latest Developments Seminar
Dec. 15, 2011
Annie Huang, Pillsbury Winthrop Shaw [email protected]
Shirley Sicilian, Multistate Tax [email protected]
Brian Toman, Reed [email protected]
Arthur Rosen, McDermott Will & Emery [email protected]
Today’s Program
O i A d L t t St t A ti Slid 7 Slid 20Overview And Latest State Actions[Shirley Sicilian and Annie Huang]
State Attempts To Tax Remote Business: Background[A i H ]
Slide 7 – Slide 20
Slide 21 – Slide 25[Annie Huang]
Legal Issues[Arthur Rosen and Brian Toman]
Slide 26 – Slide 30
Political Implications[Arthur Rosen]
Slide 31 – Slide 33
Federal Sales And Use Tax Legislation
[Arthur Rosen and Shirley Sicilian]
Slide 34 – Slide 37
Practical Considerations[Brian Toman and Annie Huang]
Slide 38 – Slide 39
Shi l Si ili M l i T C i i
OVERVIEW AND LATEST STATE
Shirley Sicilian, Multistate Tax CommissionAnnie Huang, Pillsbury Winthrop Shaw Pittman
OVERVIEW AND LATEST STATE ACTIONS
I d iIntroduction
I Generally what states are attempting to doI. Generally what states are attempting to do
A. General concept: Nexus based on agreements with “affiliates”
B. Pursuant to so-called “click-through” nexus laws, state l gi l t h tt t d t t t i g j i di ti legislatures have attempted to exert taxing jurisdiction over certain out-of-state, Internet retailers based upon the retailer’s agreements with in-state residents to refer customers via a link to the retailer’s Web siteto the retailer s Web site.
C. This type of legislation typically provides that: (1) a remote seller has to register as a vendor and collect sales and use tax if the remote seller contracts with residents who link to the the remote seller contracts with residents who link to the remote seller’s Web page and are paid a commission; and (2) thereby generate over a threshold number of sales for the remote seller.
8
remote seller.
Efforts To Address QuillAnd Role Of ‘Click Throu h’ Le islationAnd Role Of ‘Click‐Through’ Legislation
Working within Working to change QuillgQuill reality
G id D fi PP
reality
Congress: Guidance: Define PP in Internet Age
Congress: • MSFA (H.R. 2701 – SST)• MEA (H.R. 3179)• MFA (H.R. 1832)
Courts:
PP Yes: Collect• Affiliate entity nexus• “Click-through” nexus
Courts:• Oklahoma statute?• Colorado statute?
PP No: Notice/report• General statute: CO, OK,
SC SD VT
9
SC, SD, VT • Ad-hoc: e.g., NC
‘Click‐Through’ Nexus Overview‘Click‐Through’ Nexus OverviewClick Through Nexus OverviewClick Through Nexus Overview
Oregon
CTCT
NHNHVT
Michigan
Oregon
Minnesota
CTMass.
N.H.Vt.
New York
Wisconsin
MichiganWyoming
North Dakota
South DakotaIdaho
Montana Maine
Washington
MD
CTCT
Pennsylvania
W. VA
Michigan
NevadaUtah
Iowa
IndianaOhio
Del.
N.J.
CTPA
W. Va.
Missouri
Illinois
Michigan
VirginiaKentucky
Wyoming
Colorado
South Dakota
Nebraska
KansasCalifornia
R.I.
D C
MD
Legend
N l gi l ti d
Miss.Alabama
Missouri
Miss.Alabama Georgia
TNS. Carolina
N. Carolina
Kentucky
OklahomaArizonaNew Mexico Arkansas
D.C.
Nexus without statute
Legislation under consideration
Nexus legislation passed
Legislation considered but not passed or passed then
Louisiana FloridaTexas
HawaiiAlaska
* V i l i ff if 15 h
10
vetoed
Other (incl. notification requirement)
* Vermont is only in effect if 15 other states enac.** California’s legislation is delayed until 2012, subject to passage of federal legislation.*** South Carolina has enacted a limited-notice requirement, and legislation is under consideration.
H S H D IHow States Have Done It
I State statutes State Effective Date Affiliate Threshold StatuteI. State statutes
A. Enacted in NY, CA, IL, CT, AR,
Arkansas Oct. 24, 2011 More than $10,000 Ark. Code Ann. § 26-52-117
California Jan. 1, 2013 if federal legislation is enacted by July 31, 2012.
More than $10,000 and more than $1,000,000 in annual in-state sales
Cal. Rev. & Tax. §6203(c)
RI, NC and VT
II. Two approaches: (1) rebuttable
y y ,
Sept. 15, 2012 if federal legislation is not enacted.
Connecticut July 1, 2011 More than $2,000 Conn. Gen. Stat. §12-407(a)(12)(L)
( )presumption; (2) irrebuttable presumption
12-407(a)(12)(L)
Illinois July 1, 2011 More than $10,000 35 ILCS 105/2 and 110/2
New York June 1, 2008 More than $10,000 N.Y. Tax Law §1101(b)(8)(vi)presumption
A. All have sales thresholds
North Carolina
Aug. 7, 2009 More than $10,000 N.C. Gen. Stat. § 105-164.8
Rhode Island July 1, 2009 More than $5,000 R.I. Gen. Laws § 44-18-15
Vermont When adopted in 15 More than $10,000 Vt. Stat. Ann. tit. 32,
11
other states. § 9701(9)(I) (H.B. 436)
S Cli k Th h N SState Click‐Through Nexus Statutes
I New YorkI. New YorkA. Presumed a “vendor” if the seller: (1) enters into an
agreement with a New York resident or residents for consideration, (2) the New York resident or residents link , ( )to the remote retailer’s Web page, and (3) the cumulative gross receipts from sales through the links to customers in New York exceeds $10,000
B P ti b b tt d B. Presumption can be rebutted. 1. E.g., if the seller includes in its agreements a provision
prohibiting associates from engaging in solicitation activities and each associate submits a signed activities, and each associate submits a signed certification stating the same. TSB-M-08(3)S (May 8, 2008)
12
S Cli k h h S (C )
I Illinois
State Click‐Through Nexus Statutes (Cont.)
I. IllinoisA. Amends the definition of “retailer maintaining a place of
business” to specify that a business becomes a ‘‘retailer maintaining a place of business’’ in Illinois and is maintaining a place of business in Illinois, and is therefore required to collect tax, when it contracts with a person located in Illinois to pay a commission in return for the person’s direct or indirect referral of customers pthrough a Web site link.
B. Applies only when the retailer’s quarterly gross receipts from click-through referral sales through persons in Illinois
$exceed $10,000 in each of the previous four quartersC. No rebuttable presumption and no exception
13
S Cli k h h S (C )
I Connecticut
State Click‐Through Nexus Statutes (Cont.)
I. Connecticut
A. The definition of “retailer” includes every person making sales of tangible personal property through an “agreement with another person located in this state under which such person located in this state, for a commission or other consideration that is based upon the sale of tangible personal property or services by the retailer, directly or indirectly refers potential customers, whether by a link on an Internet web site or otherwise, to ythe retailer.”
B. No rebuttable presumption (final enacted legislation eliminated the presumption that was included in a prior
14
eliminated the presumption that was included in a prior version of the law)
S Cli k h h S (C )
I. California (and “the deal”)
State Click‐Through Nexus Statutes (Cont.)
A. Initial click-through legislation (AB X1 28) enacted on June 29, 2011.
B. Recently enacted (signed Sept. 23, 2011) AB 155 repeals AB X1 28 and effectively “delays” the implementation of click-through until Sept. 20122012.
1. Amends “retailer engaged in business”
a. $10,000 from commissioned referrals; $1 million in total annual in-state sales in state sales
i. Up from $500,000 in AB X1 28
b. No presumption; exception for referrals that do not satisfy the requirements of the constitutionq
c. Also enacts affiliate nexus
C. If federal legislation is enacted by July 31, 2012 (and California does not elect to implement that law on or before Sept. 14, 2012), then click-
15
through is effective Jan. 1, 2013.
D. If a federal bill is not enacted, then AB 155 is effective Sept. 15, 2012.
O h S S A d S G id
I. Other state statutes
Other State Statutes And State Guidance
A. Arkansas
1. $10,000 in-state sale requirement
2. Rebuttable presumption
B. Rhode Island
1. $5,000 in-state sale requirement
2. Rebuttable presumption
C. North Carolina
1. $10,000 in-state sale requirement
2. Rebuttable presumption
D. Vermont
1. Enacted when similar legislation is adopted in 15 other states
II. State guidance
16
A. Pennsylvania
1. “Pa. Sales and Use Tax Bulletin,” 2011-01 (Dec. 1, 2011)
E l Of R L i l i A
I Maryland (died April 2011 SB 824)
Examples Of Recent Legislative Attempts
I. Maryland (died April 2011 – SB 824)
II. Massachusetts (in committee Nov. 2011 – HB 1731/SB 1450)
III. Hawaii (died May 2011 - HB 1183)
IV. Louisiana (died June 2011 – HB 641)
V. Michigan (introduced Sept. 2011 - S. 1452 and H.R. 2701)
17
Variation: Reporting Approaches
I Sales and use tax information notice and reporting (and
g(Colorado And Oklahoma)
I. Sales and use tax information notice and reporting (and affiliate nexus)
II. ColoradoA. Must provide notice to customers that use tax not A. Must provide notice to customers that use tax not
collected and may be due; $5 penalty per failureB. Must provide customers with annual statements of
purchases; $10 penalty per failureC. Must provide the department with annual statements; $10
penalty per failure D. De minimis rule exempts retailers that made less than
$100 000 i t t l l i C l d i th i $100,000 in total gross sales in Colorado in the prior calendar year and reasonably expect that total gross sales in Colorado in current calendar year less than $100,000
a Includes all sales of goods by all entities under
18
a. Includes all sales of goods by all entities under common control
Variation: Reporting Approachesg(Colorado And Oklahoma), Cont.
I. Oklahoma
A. Similar to Colorado, but requires only the customer transactional notice
B. De minimis rule exempts retailers that made less than $100,000 in total gross sales in Oklahoma in the prior year $100,000 in total gross sales in Oklahoma in the prior year and reasonably expect Oklahoma sales in the current year will be less than $100,000.
C No penalt pro isionsC. No penalty provisions
19
D l Of MTC M d l S
I Colorado reporting statute
Development Of MTC Model Statutes
I. Colorado reporting statute
A. Modeled after Colorado law
B. Public hearing held; considering vote of the commission
II. New York-style “click-through” nexus statute
A C l t d l “ li k th h ” A. Completed sales vs. “click-throughs”
1. Protecting “mere advertising”
B. What is the right threshold? $500,000/$10,000?g $ , $ ,
C. Safe harbor?
20
STATE ATTEMPTS TO TAX Annie Huang, Pillsbury Winthrop Shaw Pittman
STATE ATTEMPTS TO TAX REMOTE BUSINESS: BACKGROUND
History Of State Attempts To Tax
1942 Nelson v. Sears, Roebuck & Co.Nelson v. Montgomery Ward & Co. Northwestern States
P l d C 1959
yRemote Businesses
1967
1980s
National Bellas Hess, Inc. v. Department of Revenue of the State of Illinois
States break the law
Portland Cement Company v. Minnesota
1959
Bloomingdale’s by Mail v. Dept. of Rev1989
1992Quill Corporation v.
North Dakota1992
L t 1990
Geoffrey v. SC1993
1991 SFA Folio v. Bannon
SFA Folio v. Tracy1994
Late 1990s
2000 - Present
E-Commerce
Streamlined Sales
Late 1990s1999 - 2000
2000 - Present
Advisory Commission on Electronic Commerce
2004
1995Current v. CA
2000 - PresentTax and Related Federal Legislation
20042005
2007200820092010
MTC Factor Nexus Proposal
OH Commercial Activity Tax
MBNA v. West VirginiaCapital One v. MA DOR; CA & CT enact econ. nexus
NY enacts “click-through” nexus
Amazon v. NY
22
2010
History Of State Attempts To Tax
I The physical presence requirement
yRemote Businesses (Cont.)
I. The physical presence requirement
A. Quill Corp. v. North Dakota, 504 U.S. 298 (1992)
B. Stare decisis: “Stare decisis is usually the wise policy, because in t tt it i i t t th t th li bl l f most matters it is more important that the applicable rule of
law be settled than that it be settled right ... But in cases involving the Federal Constitution, where correction through legislative action is practically impossible this Court has often legislative action is practically impossible, this Court has often overruled its earlier decisions.” Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406- 407 (1932) (Brandeis, J., dissenting)
1 What does stare decisis mean for the current debate?1. What does stare decisis mean for the current debate?
a. Remember, Oklahoma declared that its statute did notviolate Quill, because there is no “undue burden” on out-of-state retailers
23
out-of-state retailers.
2. What does stare decisis mean more generally?
History Of State Attempts To Tax
I Attributional nexus
yRemote Businesses (Cont.)
I. Attributional nexus
A. Nexus based on the activities of others
B. Foundational cases: Tyler Pipe Industries v. Washington State Dep’t. Rev., 483 U.S. 232 (1987); Scripto, Inc. v. Carson, 362 U.S. 207 (1960)
C. Constitutional standard: Whether the activities performed C. Constitutional standard: Whether the activities performed by the in-state person on behalf of the out-of-state company are “significantly associated with the taxpayer’s ability to establish and maintain a market in [the] state ability to establish and maintain a market in [the] state for the sales”
D. General advertising does not create nexus. Miller Bros. C M l d 347 U S 340 (1954)
24
Co. v. Maryland, 347 U.S. 340 (1954)
History Of State Attempts To Tax
I Attributional nexus (Cont )
Remote Businesses (Cont.)I. Attributional nexus (Cont.)
A. Other noteworthy cases
1. Brick-and-mortar cases: Borders Online, LLC v. State Bd. of Eq., 129 Cal. App. 4th 1179 (Cal. Ct. App. 2005), Barnesandnoble.com v. 129 Cal. App. 4th 1179 (Cal. Ct. App. 2005), Barnesandnoble.com v. State Bd. of Eq., No. CGC-06-456465, (Sup. Ct., San Francisco Cnty., Sept. 7, 2007), St. Tammany Parish Tax Collector v. BarnesandNoble.com, Dkt. No. 05-5695 (E.D. La. 2007)
a. E.g., SFA Folio, Bloomingdale’s By Mail – early 90s
2. Schoolteacher cases: E.g., Scholastic Book Clubs, Inc. v. Comm’r of Rev. Services, No. CV 07 4013027 S (Conn. Super. Ct. Apr. 9, 2009) (current appeal pending at CT Supreme Ct )(current appeal pending at CT Supreme Ct.)
a. Cf. Click-through nexus statute.
3. Warranty repair services: E.g., Dell Marketing L.P. v. Tax’n & Rev. Dep’t of New Mexico, 199 P.3d 863 (Ct. App. N.M. 2008)
25
p f , 99 6 (C pp )
Arthur Rosen, McDermott Will & Emery
LEGAL ISSUES
Arthur Rosen, McDermott Will & EmeryBrian Toman, Reed Smith
Legal Issues And Arguments Associated
I. Background legal issues
g gWith Click‐Through Nexus
A. Attributional nexus1. The importance of market enhancement –
“significantly associated with the taxpayer’s ability to t bli h d i t i k t”establish and maintain a market”
II. Constitutional concerns/issues
A. Ultimate issue is whether the arrangements satisfy Tyler Pipe
III. States’ positions on “click-through”A. The activities of the in-state affiliates satisfy the Tyler A. The activities of the in state affiliates satisfy the Tyler
Pipe/Scripto constitutional standards (or at least are presumed to), because the in-state affiliates establish and maintain a market for the remote sellers’ sales.
B S k h i i h b d
27
B. States take the position these arrangements go beyond mere advertising.
C R di Cli k Th h N
I. Case: The Direct Marketing Association v. Huber, No. 10-cv-01546-REB-CBS
Cases Regarding Click‐Through Nexus
I. Case: The Direct Marketing Association v. Huber, No. 10 cv 01546 REB CBS (D. Colo., Jan. 26, 2011) (order granting motion for preliminary injunction)A. The U.S. District Court for the District of Colorado granted a motion for
preliminary injunction enjoining the Colorado Department of Revenue from enforcing its lawfrom enforcing its law.
II. Case: Amazon.com LLC v. Lay, 758 F. Supp. 2d 1154 (W.D. Was. 2010)A. Amazon filed a federal lawsuit alleging the North Carolina DOR’s
attempts to obtain names, addresses and purchases of customers violated the First Amendment, Article I, §§ 4, 5 of the Washington State Constitution; and federal Video Privacy Protection Act, 18 USC § 2710.
B. Declaratory judgment sought1 U S District Court stated “[T]o the extent the [DOR] demands that 1. U.S. District Court stated, [T]o the extent the [DOR] demands that
Amazon disclose its customers' names, addresses or any other personal information, it violates the First Amendment and the Video Privacy Protection Act, only as long as the DOR continues to have access to or possession of detailed purchase records obtained from
28
access to or possession of detailed purchase records obtained from Amazon ...”
d l k h h ( )
III Case: Amazon com LLC v New York State Dep’t of Taxation and
Cases Regarding Click‐Through Nexus (Cont.)
III. Case: Amazon.com LLC v. New York State Dep t of Taxation and Finance, 877 NYS2d 842 (N.Y. App. Div. 2010)A. The facial challenges to the constitutionality of the statute (Due
Process Clause, Commerce Clause and equal protection) were rejectedrejected.
B. The as-applied challenges were remanded to the lower court for fact-finding with respect to whether the in-state residents referring customers to the Amazon Web site solicited sales for A i N Y k Amazon in New York. 1. Is the presumption reasonable?
2. Thoughts on the as-applied challenge
IV. Case: Performance Marketing Association v. Hamer (filed in Cir. Ct. of Cook County, Illinois, July 27, 2011)A. The PMA has filed a suit in federal District Court challenging the
29
constitutionality of the Illinois click-through nexus law.
Legal Issues And Arguments Associated
I. Difference between solicitation and advertising
Legal Issues And Arguments AssociatedWith Click‐Through Nexus
I. Difference between solicitation and advertisingII. Is method of compensation relevant?
III Are “click-through” nexus statutes necessary for a state to impose its III. Are click-through nexus statutes necessary for a state to impose its jurisdiction to tax?
A. See recent Pa. Sales and Use Tax Bulletin, 2011-01 (Dec. 1, 2011)
1. Prospective enforcement?
30
p
P li i l I li iI. Click-through nexus laws
Political ImplicationsI. Click through nexus laws
A. Why states believe that it’s “fair”B. What small businesses and large brick and mortar retailers sayC. Who is really driving the effort? D Weighing the termination of in-state affiliate relationships vs taxation of D. Weighing the termination of in state affiliate relationships vs. taxation of
remote sellers1. What promotes business?2. Job creation?
32
P li i l I li i (C )I. Contracting Around Quill and nexus
Political Implications (Cont.)I. Contracting Around Quill and nexus
A. Distribution center exemptions (and other nexus exemptions).1. Private agreements (e.g., Tennessee) and legislative exemptions
(e.g., South Carolina) a Are such incentives constitutional? Or fair? a. Are such incentives constitutional? Or fair? b. Can a state “waive” its obligation to collect tax by contract?
i. Tennessee Attorney General Opinion No. 11-55 (July 11, 2011)
B Balancing economic development with just administration of the laws B. Balancing economic development with just administration of the laws 1. Use of related-party distributors. See Lyon Metal Products, Inc. v.
State Bd. of Eq., 58 Cal. App. 4th 906 (Cal. Ct. App. 1997).2. Amazon dispute in Texas
33
Arthur Rosen, McDermott Will & Emery
FEDERAL SALES AND USE TAX
yShirley Sicilian, Multistate Tax Commission
LEGISLATION
F d l L i l iI. Main Street Fairness Act (MSFA), H.R. 2701
A I t d d J l 29 2011
Federal Legislation
A. Introduced on July 29, 2011B. Referred to the Subcommittee on Courts, Commercial and Administrative Law on
Aug. 25, 2011 1. Independent from, but somewhat parallel with, SST
II M k t l E it A t (MEA) H R 3179II. Marketplace Equity Act (MEA), H.R. 3179A. Introduced on Oct. 13, 2011B. Referred to the Subcommittee on Courts, Commercial and Administrative Law on
Oct. 24, 2011 III M k l F i A (MFA) S B 1832III. Marketplace Fairness Act (MFA), S.B. 1832
A. Introduced on Nov. 9, 2011B. Hybrid of MSFA and MEA
IV. Overstock.com billA. Not yet introduced
1. MSFA +++++V. ? (New draft legislation)
A. Not yet introduced
35
1. Simplified MEA
F d l L i l i A C iFederal Legislation: A Comparison
Additional MSFA MEA ?¹MFA
O t kAdditional Consideration: Do thresholds apply at
Streamlined Non-streamlined
SponsorStatewide Administration Statewide Tax Base
MSFA MEA ?¹Overstock
Conyers (MI) Womack (AR) ?Enzi (WY) TBD
pp yindividual seller level or platform level?
Statewide Tax Base Local Rates:
• Zip Code • Blended + • Software
Vendor Discount Threshold 500KSST Governing Board SST Simplification
20MM
TBD
1MM/0.1MM
1MM/0.1MM
(uniform definitions, forms and bundling rules)
Uniform Sourcing No Liability if Rely on I f i F S
maybe
36
Information From State Federal Court
¹ Based on recent draft legislation.
F d l L i l i (C )
I Does the focus on “click through” take away from any
Federal Legislation (Cont.)
I. Does the focus on click-through take away from any momentum that STT or Main Street Fairness may have?
A. If states like New York can collect revenue on e-commerce sales through other means, what is the incentive to join a compact that requires them to modify their laws?
B. Importance of New York litigation and Illinois litigation
II The more bills the better?II. The more bills the better?
37
P i l C id i
I Compliance
Practical Considerations
I. Compliance
A. Recommendations for responding to state enactment of a “click-through” nexus law (or a state’s stated position – e.g., Pennsylvania)Pennsylvania)
II. Planning
A. Review affiliate agreements; include in agreements a provision prohibiting associates from engaging in solicitation activitiesprohibiting associates from engaging in solicitation activities
B. Changing the method of compensation
C. Suspend affiliate relationship before in-state threshold is reached (rather than cancel program)
D. Distribution and fulfillment activities
E. Use of links to the remote seller
39