In an unusual move, the Department of Commerce has chimed in on the question of Internet data privacy, issuing a 78-page report from its Internet Policy Task Force. While the Chairman of the FTC has welcomed the new report, the business-oriented tone of the Commerce report suggests that a battle is brewing. Indeed, the report offers strong support for a “voluntary, multi-stakeholder process” that includes businesses as important, cooperative partners, while the FTC treats voluntary efforts by industry -- and industry itself -- almost contemptuously. While Commerce defers to the FTC as the primary enforcement authority, it also stages what appears to be a power grab to take a leadership role in defining how industry will or will not be regulated in the areas of privacy and information security.
So, what exactly is the Commerce report, and where is it likely to lead? The Commerce report refers to itself as a “green paper,” which one might think is a nod to wholesome environmental practices. Actually, in government-speak, a green paper is merely a tentative proposal or call for comments that might lead, eventually, to a white paper, which is a more formal statement of governmental policy. As a result, both the Commerce report and the FTC initiative reflect tentative steps in the direction of statutory, regulatory, and policy changes. How far they proceed is a matter of guesswork, particularly with a new and more conservative Congress waiting in the wings.
The Commerce Report Sounds the Defense of the Status Quo In Privacy Regulation, Founded In Large Part On Self-Regulation By Industry. The Commerce report praises almost unconditionally the handling of the Internet under US law, focusing mainly on at the success of industry as voluntary self-regulators. The report also posits the Department of Commerce itself as the leadership entity within the US Government on privacy matters, and claims a power to “ensure the Internet fulfills its social and economic potential.” The FTC’s mandate of protecting consumers from commercial abuses is far narrower. Direct marketers may have found, in the Department of Commerce, a voice to stand up to the newly regulation-happy and business-unfriendly FTC, and one that is ready to take power from the FTC. This could not be clearer than in Commerce’s own recommendation that an overarching Privacy Policy Office be created under its regulatory umbrella.
FIPPs. Commerce’s approach centers on the “broad adoption” of Fair Information Privacy Practices (“FIPPs”) that are sweeping and general enough to provide “ample flexibility” and “encourage innovation,” and envisions these being reflected in “voluntary, enforceable codes of conduct.” If they are voluntary, of course, they likely would not be promulgated in the form of statutes and regulations. If they are nonetheless enforceable, it would seem as if Commerce -- at least in part -- envisions trade groups and associations to require adherence by members and to provide for their own policing. Whatever the implications, they are different from the FTC’s report requesting that Congress invest it with greater legal authority over privacy matters. The FIPPs, as envisioned by Commerce, would include “simple notices, clearly articulated purposes for data collection, commitments to limit data uses to fulfill those purposes, and the expanded use of robust audit systems to bolster accountability.”
The PPO. Commerce’s proposed Privacy Policy Office is intended to be both “the convener of diverse stakeholders” on privacy matters, but also the “center of Administration commercial data privacy expertise.” It would work with the FTC in “leading efforts to develop voluntary but enforceable codes of conduct.” In a sentence that likely made career FTC employees cringe, Commerce states that compliance with such voluntary codes would serve as a “safe harbor for companies facing certain complaints about their privacy practices.” In other words, compliance with these voluntary codes could potentially insulate a company from privacy and security related claims asserted by the FTC, the individual states, and potentially even money-hungry class action lawyers. Of course, the scope of the “safe harbor” protection is not made especially clear in the Commerce report, and past experience—as in the telemarketing area—suggests that Congress could seriously fumble on the issue preemption of state laws and limitations on bankrupting class action lawsuits.
Uniform Security Breach Notification Rules? The Commerce report takes on an issue that has plagued direct marketers in recent years, and on which Congress has been unable to anything meaningful. Specifically, it proposes replacing the patchwork of dozens of inconsistent state security breach laws with a single national law. While this would put an array of consultants out of business, it would—if done correctly—remove significant regulatory expense (and uncertainty) from the shoulders of direct marketers of all sizes.
Overall, the Commerce report, if it is taken at face value as a genuine reflection of the Department of Commerce's position on commercial privacy matters, is a breath of fresh air. Unlike the FTC's report, which treats things like personalized advertisements as horrible invasions of privacy, the Commerce report reflects an understanding that the collection and use of customer information by businesses has an important place in not only bolstering the growing internet economy, but also serving legitimate consumer and business interests. And, unlike the FTC, places the greatest governmental focus on far more important privacy issues like data security and identity theft.
We are now at the beginning stages of a great debate about Internet privacy that could result in considerable change to the regulatory landscape. In subsequent blog posts, we will be addressing in greater detail individual issues raised by both the Commerce and FTC reports, and provide insights how the debate is evolving.
We wish all of our readers a wonderful holiday season!
Friday, December 24, 2010
Tuesday, December 21, 2010
6th Annual International Conference on Contracts
6th Annual International Conference on Contracts. Stetson University College of Law and Texas Wesleyan School of Law are co-sponsoring the 6th Annual International Conference on Contracts, February 18–19, 2011, at Stetson’s beautiful campus in Gulfport, Florida. Similar to prior contracts conferences held at UNLV, McGeorge, South Texas, Texas Wesleyan, and Gloucester, England, this conference is designed to afford scholars and teachers at all experience levels an opportunity to present and discuss recently published papers, forthcoming papers, works in progress, and pedagogical innovations, and to network with colleagues from the United States and around the globe. Stewart Macaulay, Professor of Law Emeritus at the University of Wisconsin, is the keynote speaker. A few places remain available for panelists and moderators at the conference. Proposals for presentations will be considered on a rolling basis until spaces are filled, but no later than January 15. For more information or to register online, visit www.law.stetson.edu/conferences/contracts. Contact person: Associate Dean James Fox fox@law.stetson.edu.
- JSM
Monday, December 20, 2010
What are they teaching kids about finance and budgeting?
My eighth grade daughter just participated in a program on finances and budgeting sponsored by Junior Achievement. A Junior Achievement teen personal finance survey reports that more than half of teens are not confident that they will make sound choices in terms of credit. Moreover, nearly all teens think they should have a credit card by age 21. The survey observes:“Teens are admitting that they don’t have knowledge of some of the basic money management skills around investing, budgeting and using credit. Despite the alarming numbers, teens overwhelmingly have high hopes for future financial stability. The poll shows we need to do a better job of ensuring our youth are financially literate. JA offers a broad range of age-appropriate financial literacy curricula, from kindergarten through grade 12.”So, all of this sounds a little dire. Making the work of Junior Achievement even more important, of course. And perhaps a few basic tips from Suzi Orman are in order? Not surprisingly, we talk to our daughter about making wise choices and living within her means. This would include everything from buying items on sale to purchasing used items on sites like Craigslist. We also talk to her about being a good citizen in terms of the environment as well, including walking and biking when possible. That is, not everyone (particularly college students) needs a car.
I was ready to embrace the Junior Achievement concern to educate teenagers, until my daughter started asking me questions about the workbooks her teacher assigned. She understood her profile to be a college student who has a job earning about $30,000 per year. A little unrealistic for a college student, but all right. The program has the student fill out budgets. This is where my daughter had many questions and I simply could not support the choices the program expected. For instance:
- The workbook not only mandated that she purchase a car (whether she could afford it or not), but also required her to take out a five year loan on the car. In the summer Oprah magazine, Suzi Orman yet again blasted this practice advising against car loans more than 36 months or less (7 Deals You Should Never Make). Basically, perhaps one needs to shop for a less expensive car.
- The workbook also mandated that she replace $650 of household furnishings and that she must put it on a credit card and pay for it that way. Apparently, no option to save up and buy in cash or to purchase something used.
- The workbook required an apartment. While the student could get roommates, there was no easy way for the student to select a less costly alternative of living in a college dormitory where utilities, rent and food are typically included.
In the end, I advised her on how to best fill out her worksheets making the least devastating decisions. She did budget for buying household furnishings with cash and saving most of the money as a down-payment for the car. While I might have been fine with this if it was designed to teach teens the devastating impact of debt, there were no comparisons to other models or advise on better decisions. I also wrote a note in the workbook for the teacher asking him not to teach our children that it is fine to enter into these types of credit and financial situations.
The result of all this? The teacher was angry with her when he saw the worksheets and gave her a D for not following the program requirements. She had waited until the last minute to finish this, so her work was not as neat as it should have been, but really? Maybe the teacher will reconsider. In the end, I'd rather her get a D on the junior achievement and an remain solvent for a lifetime. Isn't all this debt part of what lead to the financial crisis?
- JSM
Income Tax Nexus in a Digital World
We have written extensively in this blog about nexus for sales tax and gross receipts tax purposes. All but a few states have an income tax. In addition to the Due Process Clause and Commerce Clause standards of nexus, out-of-state companies are protected from income tax of other states by a federal statute, Public Law 86-272, which is found at 15 U.S.C. § 381. P.L. 86-272 provides an exemption only for state income tax and sets forth a fairly clear, but somewhat limited, standard for the exemption.
The exemption applies if a company’s activities in another state include only the solicitation of sales of tangible personal property by an employee, representative, or independent contractor for delivery of inventory located outside the state to residents of the state, if orders are accepted outside the state. The exemption also extends to maintenance by an independent contractor of an office in the state. Thus, while solicitation activities of an out-of state company in a state would create nexus under the Commerce Clause and Due Process Clause standards, if the solicitation is limited to the sale of tangible personal property and, subject to the other limitations in the underscored portions above, the company would be exempt from the state’s income tax.
There have been a number of cases defining solicitation (See, e.g., Wisconsin Department of Revenue v. William Wrigley, Jr., 112 S.Ct. 2447 (1992)). And the MTC has issued guidelines, which many states have adopted, defining protected and unprotected activities under P.L. 86-272. See Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States under Public Law 86-272 (Multistate Tax Commission, Third Revision adopted July 27, 2001).
The cases and guidelines make it clear that if a company solicits the sale of services as well as tangible personal property, the exemption of P.L. 86-272 does not apply. See, e.g., Amway Corp., v. Director of Revenue, 794 S.W.2d 666 (Mo. 1990). Thus, a pertinent issue under P.L. 86-272 is whether the items being sold by an out-of-state company constitute tangible personal property or services.
Public Law 86-272 does not define the term “tangible personal property.” Recently, the New Jersey Tax Court helped clarify that standard with regard to software. See Accuzip, Inc. v. Director, Division of Taxation, 25 N.J. Tax 158 (2009). In Accuzip, the New Jersey Tax Court determined that prewritten computer software constitutes tangible personal property based upon the sales and use tax law’s definition of tangible personal property and U.S. Treasury Regulations regarding the transfer of software.
In the digital world, resort to sales and use tax law or federal tax law may be helpful to taxpayers in determining whether the products they sell are tangible personal property. For instance, in several states digital music and digital books are deemed tangible personal property subject to the sales tax. In those states, taxpayers will argue that they are protected by the federal statute by citing the sales tax law and the New Jersey Tax Court’s decision in Accuzip.
The exemption applies if a company’s activities in another state include only the solicitation of sales of tangible personal property by an employee, representative, or independent contractor for delivery of inventory located outside the state to residents of the state, if orders are accepted outside the state. The exemption also extends to maintenance by an independent contractor of an office in the state. Thus, while solicitation activities of an out-of state company in a state would create nexus under the Commerce Clause and Due Process Clause standards, if the solicitation is limited to the sale of tangible personal property and, subject to the other limitations in the underscored portions above, the company would be exempt from the state’s income tax.
There have been a number of cases defining solicitation (See, e.g., Wisconsin Department of Revenue v. William Wrigley, Jr., 112 S.Ct. 2447 (1992)). And the MTC has issued guidelines, which many states have adopted, defining protected and unprotected activities under P.L. 86-272. See Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States under Public Law 86-272 (Multistate Tax Commission, Third Revision adopted July 27, 2001).
The cases and guidelines make it clear that if a company solicits the sale of services as well as tangible personal property, the exemption of P.L. 86-272 does not apply. See, e.g., Amway Corp., v. Director of Revenue, 794 S.W.2d 666 (Mo. 1990). Thus, a pertinent issue under P.L. 86-272 is whether the items being sold by an out-of-state company constitute tangible personal property or services.
Public Law 86-272 does not define the term “tangible personal property.” Recently, the New Jersey Tax Court helped clarify that standard with regard to software. See Accuzip, Inc. v. Director, Division of Taxation, 25 N.J. Tax 158 (2009). In Accuzip, the New Jersey Tax Court determined that prewritten computer software constitutes tangible personal property based upon the sales and use tax law’s definition of tangible personal property and U.S. Treasury Regulations regarding the transfer of software.
In the digital world, resort to sales and use tax law or federal tax law may be helpful to taxpayers in determining whether the products they sell are tangible personal property. For instance, in several states digital music and digital books are deemed tangible personal property subject to the sales tax. In those states, taxpayers will argue that they are protected by the federal statute by citing the sales tax law and the New Jersey Tax Court’s decision in Accuzip.
Tuesday, December 14, 2010
Do As I Say, Not As I Do: The FTC "Do Not Track" Initiative Could Cripple E-Commerce
Just as governments – including our own – are pursuing aggressive new initiatives to gather information about our individual browsing habits and electronic communications for law enforcement purposes, the FTC has decided to advise Congress on sweeping initiatives to prevent direct marketers from engaging in far less invasive practices that present none of the grave risks attendant to enhanced government surveillance. Indeed, many of the commercial practices targeted by the FTC actually benefit consumers by assisting Internet sellers to configure their web sites, adjust their product offerings, and tailor advertising to the specific needs and interests of consumers. While the FTC shrilly intones that consumer information about Internet browsing has been used by an unidentified "some" in "an irresponsible or even reckless manner," it fails to acknowledge forthrightly that the vast majority of direct marketers use such information solely to better serve their customers, and that new laws and FTC initiatives are unlikely to faze the tiny group of Internet pirates who misuse consumer data.
Although most headlines have focused on the FTC's proposal for a "do not track" list, the FTC report is about much more than that. It foretells a highly aggressive new regulatory strategy that may change the landscape of Internet privacy without any concern for the cost impact on industry or a realistic assessment of the privacy interests of consumers. It sweeps so broadly against business as to suggest that–if the FTC has its way–even entirely benign and non-intrusive information collection practices that do not track individual consumers will be sharply curtailed. At the same time, new and intrusive requirements will be injected multiple times into virtually every consumer experience on the Web. If you do business on the Internet, you need to know what the FTC is hoping to unleash on eCommerce.
If the FTC has its way, you will need to redesign your web sites and emails to provide real-time notice and choice to every consumer, whether or not they make any purchases. The overarching theme of the report is highly paternalistic, suggesting that consumers are incapable of making informed choices about their buying decisions and Internet browsing activities. Thus, privacy policies and full disclosure of information collection practices are viewed dimly by the FTC. Instead, it commands that “consumers should [repeatedly] be presented with choice about collection and sharing of their data at the time and in the context in which they are making decisions.” Not only would implementation of such a scheme add substantially to the programming costs of commercial web sites, it could interfere significantly with the consumer purchasing experience. It is hard to imagine Web sales not suffering.
The FTC's "Do Not Track" Initiative Creates a Presumption Against Collecting Information About Web Site Usage, Even If that Information Is Not Individually Identifiable. The item in the report receiving the largest amount of press is the “do not track” recommendation. It would obligate direct marketers to implement technology – through something “similar to a cookie,” according to the FTC – that would prevent the collection of web browsing activities by individuals or individual browser installations. This would be mandated even if retailers do not actually collect individually-identifiable personal information. Indeed, the FTC report supports doing away with the line drawn in existing law between information that is personally identifiable and that which is not, claiming that “traditional distinctions between the two categories of data are eroding.” Because "some" companies allegedly find surreptitious ways to connect non-personal information to specific individuals, the FTC is ready to recommend that all companies be prevented from collecting even aggregate usage data, which could be a significant blow to retailers who use this data to obtain helpful information for their businesses. Data collection serves important functions that parallel the physical retail environment, including the measuring of foot traffic in certain areas of a store. Denying this data to retailers in its non-personally identifiable form suggests a significant lack of government understanding of – or at least a gross lack of sensitivity to – legitimate industry needs.
At present, the FTC, itself, believes that it does not have authority to implement a tracking system without further action by Congress. But, the pressure is on for Congress to enact a potentially sweeping new set of powers for the agency. In the interim, the makers of at least one popular browser, Firefox, are exploring ways to implement a “do not track” feature that leaves it to consumers to choose whether they will be tracked. Microsoft has already implemented a similar feature in its most recent release of Internet Explorer. This approach is far less onerous for retailers, but may rob them of the very data they need to present consumers with meaningful purchasing choices through targeted advertising. The least effective and most intrusive recommendation – that the FTC appears to favor – involves a “do not track” list that may leave it to Internet companies to figure out whether a person who is visiting their web site has chosen to place themselves on a list. Because the specifics have yet to be determined, it is unclear what this list would even look like. The FTC claims that a list of machine specific identifiers (as might be embedded in an operating system or hardware) or IP addresses is not a likely option.
Prepare to Open Your Files. Some of what the FTC report recommends is positive for the industry, including “standardized” privacy-related notices (which might reduce uncertainty surrounding potential challenges by privacy rights groups, among other things), but the context – including whether federally mandated notices would preempt individual states from enacting different or more complicated disclosure requirements and whether class action lawsuits would be permitted against violators – remains a mystery, and the potential perils for eCommerce are significant. Other FTC recommendations are chilling, including the requirement that companies provide customers “reasonable access” to all the data maintained about them and that the Children’s Online Privacy Protection Act’s onerous obligations be extended to cover children between the ages of 13 and 17.
What's Next? The FTC has asked for industry comments as it pushes forward with its new privacy initiative. This is a critical moment for direct marketers to be heard in petitioning the government to create and implement a more sensible, uniform approach to privacy protection that balances a realistic assessment of the potential harm to consumers against potentially dramatic and commerce-suppressing costs.
Although most headlines have focused on the FTC's proposal for a "do not track" list, the FTC report is about much more than that. It foretells a highly aggressive new regulatory strategy that may change the landscape of Internet privacy without any concern for the cost impact on industry or a realistic assessment of the privacy interests of consumers. It sweeps so broadly against business as to suggest that–if the FTC has its way–even entirely benign and non-intrusive information collection practices that do not track individual consumers will be sharply curtailed. At the same time, new and intrusive requirements will be injected multiple times into virtually every consumer experience on the Web. If you do business on the Internet, you need to know what the FTC is hoping to unleash on eCommerce.
If the FTC has its way, you will need to redesign your web sites and emails to provide real-time notice and choice to every consumer, whether or not they make any purchases. The overarching theme of the report is highly paternalistic, suggesting that consumers are incapable of making informed choices about their buying decisions and Internet browsing activities. Thus, privacy policies and full disclosure of information collection practices are viewed dimly by the FTC. Instead, it commands that “consumers should [repeatedly] be presented with choice about collection and sharing of their data at the time and in the context in which they are making decisions.” Not only would implementation of such a scheme add substantially to the programming costs of commercial web sites, it could interfere significantly with the consumer purchasing experience. It is hard to imagine Web sales not suffering.
The FTC's "Do Not Track" Initiative Creates a Presumption Against Collecting Information About Web Site Usage, Even If that Information Is Not Individually Identifiable. The item in the report receiving the largest amount of press is the “do not track” recommendation. It would obligate direct marketers to implement technology – through something “similar to a cookie,” according to the FTC – that would prevent the collection of web browsing activities by individuals or individual browser installations. This would be mandated even if retailers do not actually collect individually-identifiable personal information. Indeed, the FTC report supports doing away with the line drawn in existing law between information that is personally identifiable and that which is not, claiming that “traditional distinctions between the two categories of data are eroding.” Because "some" companies allegedly find surreptitious ways to connect non-personal information to specific individuals, the FTC is ready to recommend that all companies be prevented from collecting even aggregate usage data, which could be a significant blow to retailers who use this data to obtain helpful information for their businesses. Data collection serves important functions that parallel the physical retail environment, including the measuring of foot traffic in certain areas of a store. Denying this data to retailers in its non-personally identifiable form suggests a significant lack of government understanding of – or at least a gross lack of sensitivity to – legitimate industry needs.
At present, the FTC, itself, believes that it does not have authority to implement a tracking system without further action by Congress. But, the pressure is on for Congress to enact a potentially sweeping new set of powers for the agency. In the interim, the makers of at least one popular browser, Firefox, are exploring ways to implement a “do not track” feature that leaves it to consumers to choose whether they will be tracked. Microsoft has already implemented a similar feature in its most recent release of Internet Explorer. This approach is far less onerous for retailers, but may rob them of the very data they need to present consumers with meaningful purchasing choices through targeted advertising. The least effective and most intrusive recommendation – that the FTC appears to favor – involves a “do not track” list that may leave it to Internet companies to figure out whether a person who is visiting their web site has chosen to place themselves on a list. Because the specifics have yet to be determined, it is unclear what this list would even look like. The FTC claims that a list of machine specific identifiers (as might be embedded in an operating system or hardware) or IP addresses is not a likely option.
Prepare to Open Your Files. Some of what the FTC report recommends is positive for the industry, including “standardized” privacy-related notices (which might reduce uncertainty surrounding potential challenges by privacy rights groups, among other things), but the context – including whether federally mandated notices would preempt individual states from enacting different or more complicated disclosure requirements and whether class action lawsuits would be permitted against violators – remains a mystery, and the potential perils for eCommerce are significant. Other FTC recommendations are chilling, including the requirement that companies provide customers “reasonable access” to all the data maintained about them and that the Children’s Online Privacy Protection Act’s onerous obligations be extended to cover children between the ages of 13 and 17.
What's Next? The FTC has asked for industry comments as it pushes forward with its new privacy initiative. This is a critical moment for direct marketers to be heard in petitioning the government to create and implement a more sensible, uniform approach to privacy protection that balances a realistic assessment of the potential harm to consumers against potentially dramatic and commerce-suppressing costs.
Wednesday, November 24, 2010
The Perils of Responding to Nexus Questionnaires
A company should be very careful in determining whether to respond to the nexus questionnaire and how to respond to the questionnaire. After all, any response is a statement to a government agency, which must be truthful and will be an admission on the part of the company. A response that is inaccurate or a response that is not well thought out is worse than not responding at all. In general, there is no obligation to respond to a nexus questionnaire, so the benefit of responding to a questionnaire may not be significant, yet the potential adverse consequences may be significant.
The problem in responding to a nexus questionnaire is highlighted by a recent case involving Barr Laboratories, in which the Michigan Court of Appeals held that the answers on a nexus questionnaire that indicated that the taxpayer’s employees visited Michigan between two and nine times during the year created a factual issue as to whether or not the company had nexus. See Barr Laboratories, Inc. v. Department of Treasury (Mich. App. 2010). The questionnaire indicated that the employees visited Michigan to solicit sales, but all sales were approved in New York. Apparently that response overstated and mischaracterized Barr Laboratories’ connection to the state. After an assessment by the Michigan Department of the Treasury of about $500,000, Barr Laboratories commenced a suit to abate the assessment. In a summary judgment motion, Barr Laboratories submitted an affidavit of its Vice President of Taxation, which contradicted the responses in the questionnaire. The affidavit stated that the visits to Michigan were only to gather information, and not to solicit sales, and were less frequent than stated in the questionnaire. But the response to the questionnaire precluded Barr Laboratories from prevailing in the summary judgment motion, and the response was probably the basis for the assessment in the first place.
The taxpayer in that case made several mistakes. First, it apparently assumed that the standard under Public Law 86-272 applies in the sales tax context, and therefore that the kind of activity that would otherwise be shielded by this federal statute from income tax liability would also be excluded from sales tax collection obligations. Second, if it had understood the true state of the law and facts, it might have considered not completing the questionnaire in the first place. Third, even if it decided to submit the questionnaire, it should have provided more precise answers without characterization of the activities as solicitation. Stating that the employees solicited sales in Michigan is a difficult admission to overcome, even though the activity that had been undertaken may well not have been solicitation. Thus, the old saw that “no good deed goes unpunished” certainly holds true in this case.
The lesson to be learned is to treat a response to a questionnaire as if it were court testimony. In a court case, lawyers prepare, advise and counsel the company. Responding to inquiries from state tax agencies should not be treated differently. Advice of counsel regarding whether to respond to the questionnaire and how to respond to the questionnaire should be sought.
I hope all have a good Thanksgiving holiday.
The problem in responding to a nexus questionnaire is highlighted by a recent case involving Barr Laboratories, in which the Michigan Court of Appeals held that the answers on a nexus questionnaire that indicated that the taxpayer’s employees visited Michigan between two and nine times during the year created a factual issue as to whether or not the company had nexus. See Barr Laboratories, Inc. v. Department of Treasury (Mich. App. 2010). The questionnaire indicated that the employees visited Michigan to solicit sales, but all sales were approved in New York. Apparently that response overstated and mischaracterized Barr Laboratories’ connection to the state. After an assessment by the Michigan Department of the Treasury of about $500,000, Barr Laboratories commenced a suit to abate the assessment. In a summary judgment motion, Barr Laboratories submitted an affidavit of its Vice President of Taxation, which contradicted the responses in the questionnaire. The affidavit stated that the visits to Michigan were only to gather information, and not to solicit sales, and were less frequent than stated in the questionnaire. But the response to the questionnaire precluded Barr Laboratories from prevailing in the summary judgment motion, and the response was probably the basis for the assessment in the first place.
The taxpayer in that case made several mistakes. First, it apparently assumed that the standard under Public Law 86-272 applies in the sales tax context, and therefore that the kind of activity that would otherwise be shielded by this federal statute from income tax liability would also be excluded from sales tax collection obligations. Second, if it had understood the true state of the law and facts, it might have considered not completing the questionnaire in the first place. Third, even if it decided to submit the questionnaire, it should have provided more precise answers without characterization of the activities as solicitation. Stating that the employees solicited sales in Michigan is a difficult admission to overcome, even though the activity that had been undertaken may well not have been solicitation. Thus, the old saw that “no good deed goes unpunished” certainly holds true in this case.
The lesson to be learned is to treat a response to a questionnaire as if it were court testimony. In a court case, lawyers prepare, advise and counsel the company. Responding to inquiries from state tax agencies should not be treated differently. Advice of counsel regarding whether to respond to the questionnaire and how to respond to the questionnaire should be sought.
I hope all have a good Thanksgiving holiday.
Wednesday, November 17, 2010
Thanks from Warren Buffet!
Warren Buffet wrote a "thank you" letter to the U.S. Government which appeared in the New York Times (see Pretty Good for Government Work). It it, he reminds us that about two years ago our economy was on the brink of disaster. We looked to the government to remedy the situation and it responded with action. I agree with Buffet in this case. While the economy is not where we would like it, where business-oriented regulations are not what we might imagine, and many still lack jobs, the situation is not what it was two years back. - JSM
Tuesday, November 9, 2010
Sarah Palin Criticizes Federal Reserve?
Exit elections, but the politics continue. While we ordinarily see the Federal Reserve as supposedly independent in terms of determining monetary policy, Sarah Palin did not pause to take a swipe at the announcement that the Federal Reserve will buy back government bonds (see Sarah Palin Takes Aim At Fed). In fact, she called on the Federal Reserve to "cease and desist." The rationale is that it will cause an unacceptable level of inflation that will erode our jobs and savings. The monetary policy pursued by the Fed raises more issues to me about simply whether it will work. With interest rates historically low, the Federal Reserve has few tools at its disposal to spark the economy. Let Bernanke do his job and let's hope that the Fed can impact the economy positively.
Palin's claim that prices are already rising simply doesn't bear out reality (see Palin Brawls with WSJ Over Inflated Inflation) in an economy where prices are increasing at notably slow rates. Inflation is not particularly high on the list of concerns that the Federal Reserve has currently, but jobs and the health of the economy generally is (See Dallas' Fed's Fisher: Inflation Low on List of worries).
For a discussion of the mixture of politics and the Federal Reserve, see
Palin's claim that prices are already rising simply doesn't bear out reality (see Palin Brawls with WSJ Over Inflated Inflation) in an economy where prices are increasing at notably slow rates. Inflation is not particularly high on the list of concerns that the Federal Reserve has currently, but jobs and the health of the economy generally is (See Dallas' Fed's Fisher: Inflation Low on List of worries).
For a discussion of the mixture of politics and the Federal Reserve, see
- JSM
So, What's in Your Wallet?
Katie Porter over at Creditslips did a piece on the cards that those who teach payment law might carry! It is an interesting read. See What's in Our Wallets?
As for me? As those who follow this blog know, I am not a fan of any cards. And, I mean that pretty much universally. From high interest rates to deceptive practices, I just don't like them. My recent dispute over an instance of credit card skimming has only increased my suspicions about card practices, even though the issuer finally capitulated and reversed the fraudulent
charge. Despite my widespread condemnation of cards, I find them necessary. Like others, I am not a fan of debt and prefer paying off balances whenever possible. Yet, having bought a home this summer, I've found a Lowe's card particularly useful! This card issued by GE Money Bank comes with many of the aspects like high interest rates that I dislike about cards. But, having a home that needs appliances and quite a bit of do-it-yourself initiative, Lowe's offers of no interest financing on many 6 and 12 month purchases is a plus. The risk is that if you don't pay off the amount in the time frame the interest is high, but for card users with discipline, the no interest deals are a nice way to spread out large home improvements over several months.
As for me? As those who follow this blog know, I am not a fan of any cards. And, I mean that pretty much universally. From high interest rates to deceptive practices, I just don't like them. My recent dispute over an instance of credit card skimming has only increased my suspicions about card practices, even though the issuer finally capitulated and reversed the fraudulent
charge. Despite my widespread condemnation of cards, I find them necessary. Like others, I am not a fan of debt and prefer paying off balances whenever possible. Yet, having bought a home this summer, I've found a Lowe's card particularly useful! This card issued by GE Money Bank comes with many of the aspects like high interest rates that I dislike about cards. But, having a home that needs appliances and quite a bit of do-it-yourself initiative, Lowe's offers of no interest financing on many 6 and 12 month purchases is a plus. The risk is that if you don't pay off the amount in the time frame the interest is high, but for card users with discipline, the no interest deals are a nice way to spread out large home improvements over several months.
- JSM
Friday, October 29, 2010
Amazon Wins First Amendment Challenge to North Carolina DOR Information Request
Amazon.com LLC (“Amazon”) has prevailed in its highly-publicized court challenge to a demand by the North Carolina Department of Revenue for information regarding purchases made by Amazon’s North Carolina customers during the period August 1, 2003 to February 28, 2010. The Federal District Court for the Western District of Washington (where Amazon is headquartered) issued a ruling on October 25, 2010, in Amazon.com LLC v. Kenneth R. Lay, in his capacity as Secretary of the North Carolina Department of Revenue, Case No. C10-664 MJP. The ruling enjoins the North Carolina DOR from requiring that Amazon provide the Department with names and addresses of its North Carolina customers and details regarding the products they purchased from Amazon.
The Department, in connection with an investigation of Amazon’s possible liability for uncollected use tax on sales to North Carolina residents, had requested that Amazon provide it “all information for all sales to customers with a North Carolina shipping address” for the six-and-a-half year period under examination. Amazon provided the DOR detailed records of products shipped to North Carolina for the entire period, but refused to provide the names or personal information of its customers purchasing such products. When the Department pressed for the information, Amazon sued in federal court, asserting that the Department’s request violated the First Amendment by chilling the exercise of the freedom of speech of Amazon’s customers (and of Amazon itself). On October 25, the Court agreed.
The Department, in connection with an investigation of Amazon’s possible liability for uncollected use tax on sales to North Carolina residents, had requested that Amazon provide it “all information for all sales to customers with a North Carolina shipping address” for the six-and-a-half year period under examination. Amazon provided the DOR detailed records of products shipped to North Carolina for the entire period, but refused to provide the names or personal information of its customers purchasing such products. When the Department pressed for the information, Amazon sued in federal court, asserting that the Department’s request violated the First Amendment by chilling the exercise of the freedom of speech of Amazon’s customers (and of Amazon itself). On October 25, the Court agreed.
Friday, October 22, 2010
4 Bedroom Executive Home for Family Living
29 CHAPPLE STREET MOUNT LOUISA $487,500 Neg
This gorgeous 4 bedroom executive home is located in Crestbrook Estate 8klms from the heart of Townsville, 5 minutes to the airport and 3 minutes to Domain Central with the convenience of retail shopping and coffee shops.
If finding quality education facilities for your kids is a priority, then the Calvary Christian College is only 2 minutes from home and on your way to work or while picking up your groceries.
Getting access to the highway and northern beaches is very easy also for those cherished weekends away fishing, camping, swimming or just taking a leisurely drive.
Although the envy of most people, this property would be suited to the growing family or partners seeking relaxing and peaceful lifestyle with modern and convenient living.
Other features include:
* 4 generous sized bedrooms
* En-suite to master bedroom and walk-in robe
* Modern, spacious and functional kitchen with quality gas stove and oven and walk-in pantry
* Separate lounge/games room
* Large formal dining and living
* Patio and entertainment area overlooking backyard
* Split system air-conditioning throughout
* Large level rear yard (space for sparkling pool)
* Double lock up remote garage
* Built-ins in guest rooms and plenty general storage space
* Garden shed, rainwater tank and environmentally efficient devices
This quality property will not last! Why no live your dreams today and view this gorgeous property by appointment. Contact your local agent Aaron on 0414 590 110 for more information.
A sustainability declaration is avaialble upon request.
This gorgeous 4 bedroom executive home is located in Crestbrook Estate 8klms from the heart of Townsville, 5 minutes to the airport and 3 minutes to Domain Central with the convenience of retail shopping and coffee shops.
If finding quality education facilities for your kids is a priority, then the Calvary Christian College is only 2 minutes from home and on your way to work or while picking up your groceries.
Getting access to the highway and northern beaches is very easy also for those cherished weekends away fishing, camping, swimming or just taking a leisurely drive.
Although the envy of most people, this property would be suited to the growing family or partners seeking relaxing and peaceful lifestyle with modern and convenient living.
Other features include:
* 4 generous sized bedrooms
* En-suite to master bedroom and walk-in robe
* Modern, spacious and functional kitchen with quality gas stove and oven and walk-in pantry
* Separate lounge/games room
* Large formal dining and living
* Patio and entertainment area overlooking backyard
* Split system air-conditioning throughout
* Large level rear yard (space for sparkling pool)
* Double lock up remote garage
* Built-ins in guest rooms and plenty general storage space
* Garden shed, rainwater tank and environmentally efficient devices
This quality property will not last! Why no live your dreams today and view this gorgeous property by appointment. Contact your local agent Aaron on 0414 590 110 for more information.
A sustainability declaration is avaialble upon request.
3 bedroom Home with Pool, Shed, Deck and Entertainment close to City
Railway Estate, Townsville $349,000
In this gorgeous cottage Queenslander you will be situated only 2 minutes to restaurants on Palmer Street, entertainment and employment opportunities in Townsville City, the recreational benefits of the river and beach and within easy walking distance to the cultural centre of the Townsville Civic Theatre, Schools and Shops.
With your own oil stained timber deck gesturing to views of Castle Hill and rear entertainment area overlooking the sparkling in-ground swimming pool, this property offers a great inner city lifestyle and timely investment in Townsville’s robust property market.
This gorgeous property also features:
• Main bedroom with built-in wardrobe + 2 other good sized bedrooms
• Air-conditioned throughout with Split system air-conditioning to living
• Spacious kitchen and dining
• Gorgeous polished timber floors throughout
• Majestic cathedral ceilings and crafted architraves
• Modern and clean bathroom (extra toilet and shower downstairs)
• Lock up garage plus garden shed (room to expand)
• Professionally paved driveway to rear (space for 4-5 vehicles)
• Fully fenced and security screens
Contact your local agent today for a viewing on 0414 590 110.
A Sustainability Declaration is available upon request.
In this gorgeous cottage Queenslander you will be situated only 2 minutes to restaurants on Palmer Street, entertainment and employment opportunities in Townsville City, the recreational benefits of the river and beach and within easy walking distance to the cultural centre of the Townsville Civic Theatre, Schools and Shops.
With your own oil stained timber deck gesturing to views of Castle Hill and rear entertainment area overlooking the sparkling in-ground swimming pool, this property offers a great inner city lifestyle and timely investment in Townsville’s robust property market.
This gorgeous property also features:
• Main bedroom with built-in wardrobe + 2 other good sized bedrooms
• Air-conditioned throughout with Split system air-conditioning to living
• Spacious kitchen and dining
• Gorgeous polished timber floors throughout
• Majestic cathedral ceilings and crafted architraves
• Modern and clean bathroom (extra toilet and shower downstairs)
• Lock up garage plus garden shed (room to expand)
• Professionally paved driveway to rear (space for 4-5 vehicles)
• Fully fenced and security screens
Contact your local agent today for a viewing on 0414 590 110.
A Sustainability Declaration is available upon request.
Friday, October 15, 2010
Bernanke Speaks in Boston
Fed Chair Ben Bernanke spoke today in Boston at a conference sponsored by the Boston branch of the Federal Reserve Bank about bank policies and options in a low inflation economy (see transcript). Here is the video:
- JSM
Thursday, October 7, 2010
Nice Teaching Case: Home Sold Twice
Ben Davis sent this link out to the contracts professors list serve. http://www.msnbc.msn.com/id/39381416/. The case involves a home sold twice . . . apparently by mistake: once as a short sale and then at foreclosure days later. The new owners, thankfully, recorded their deed and bought title insurance, but it has been quite a headache for them. The lender, not surprisingly, is claiming no wrong-doing in the matter.
I am getting ready to start methods of avoidance in the next couple of weeks and will be sure to mention this one to the class.
- JSM
Wednesday, October 6, 2010
New York’s “Other Affiliate” Nexus Law
By now, many of our readers may be aware of the New York “Affiliate” Nexus law, which provides for a presumption of nexus under certain circumstances; i.e. where a remote seller uses a New York resident (an “affiliate”) to link to its website and pays commissions of more than $10,000 per year to such New York affiliate as a result of sales the affiliates facilitate. See N.Y. Tax Law § 1101(b)(8)(k); and Amazon.com v. New York State Department of Taxation and Finance, 23 Misc. 3d 418, 82 N.Y. S.2d 842 (2009) (on appeal to the New York Court of Appeals).
In 2009, the New York Assembly enacted another law to address a second kind of “affiliate.” This time, the definition of affiliate is based upon the more common usage of the term in which the affiliate is related to the out-of-state company by an ownership interest. The law is found in Tax Law §1101(b)(8)(i)(1). In particular, the statute, when enacted, provided two separate “conditions” or situations for establishing that a remote seller is deemed a vendor required to collect sales and use tax based upon the activities of the seller’s New York affiliate. In the first condition, the out-of-state seller is deemed a vendor required to collect sales and use tax if any person or entity owns, directly or indirectly, more than 5% of the retailer, and a New York sales tax vendor uses a trademark, service mark or trade name in New York that is the same as that used in New York by the remote seller. This condition is designed to address multi-channel vendors, and is similar to statutes adopted in other states.
In the second situation, the person or entity must own directly or indirectly at least 50% of the equity of the remote seller and a company with nexus in New York (the New York affiliate). If the New York affiliate engages in activity in New York that benefits the remote seller in its development or maintenance of a market for its goods or services in New York, to the extent that those activities are sufficient to satisfy the nexus requirement of the U.S. Constitution, then the out-of-state seller is deemed a vendor required to collect the New York sales tax. TSB-M-09(3)(s) outlines the kind of activities that relate to the development or maintenance of a market for the remote seller’s products, They include the affiliate: referring New York customers to the remote seller; accepting merchandise returns on behalf of the remote seller’s customers; distributing catalogs on behalf of the remote seller; and accepting orders on behalf of the out-of-state company.
Recently, the Assembly adopted a law, Chapter 57 of the Laws of 2010, that amended the 2009 law on affiliates, to narrow the definition of companies that are deemed sales tax vendors. Specifically, the 2010 statute provides that if the in-state New York affiliate only provides accounting or legal services or advice, or directs the activities of the remote seller insofar as making decisions about strategic planning, marketing, inventory, staffing, distribution or cash management, the remote seller will not be deemed a vendor required to collect sales and use tax. TSB-M-10(12)(S), issued on August 19, 2010, provides an informational statement about the Department of Taxation and Finance’s views on the 2010 law.
Under the 2010 clarification, therefore, if a New York-based holding company of a direct marketer with facilities located outside of New York were to provide traditional administrative and management services to the remote seller, the remote seller would not be deemed to have nexus under New York law. This, of course, is a significant, favorable clarification for New York-based enterprises that wish to own and control remote sellers located outside of New York without creating nexus in New York.
In 2009, the New York Assembly enacted another law to address a second kind of “affiliate.” This time, the definition of affiliate is based upon the more common usage of the term in which the affiliate is related to the out-of-state company by an ownership interest. The law is found in Tax Law §1101(b)(8)(i)(1). In particular, the statute, when enacted, provided two separate “conditions” or situations for establishing that a remote seller is deemed a vendor required to collect sales and use tax based upon the activities of the seller’s New York affiliate. In the first condition, the out-of-state seller is deemed a vendor required to collect sales and use tax if any person or entity owns, directly or indirectly, more than 5% of the retailer, and a New York sales tax vendor uses a trademark, service mark or trade name in New York that is the same as that used in New York by the remote seller. This condition is designed to address multi-channel vendors, and is similar to statutes adopted in other states.
In the second situation, the person or entity must own directly or indirectly at least 50% of the equity of the remote seller and a company with nexus in New York (the New York affiliate). If the New York affiliate engages in activity in New York that benefits the remote seller in its development or maintenance of a market for its goods or services in New York, to the extent that those activities are sufficient to satisfy the nexus requirement of the U.S. Constitution, then the out-of-state seller is deemed a vendor required to collect the New York sales tax. TSB-M-09(3)(s) outlines the kind of activities that relate to the development or maintenance of a market for the remote seller’s products, They include the affiliate: referring New York customers to the remote seller; accepting merchandise returns on behalf of the remote seller’s customers; distributing catalogs on behalf of the remote seller; and accepting orders on behalf of the out-of-state company.
Recently, the Assembly adopted a law, Chapter 57 of the Laws of 2010, that amended the 2009 law on affiliates, to narrow the definition of companies that are deemed sales tax vendors. Specifically, the 2010 statute provides that if the in-state New York affiliate only provides accounting or legal services or advice, or directs the activities of the remote seller insofar as making decisions about strategic planning, marketing, inventory, staffing, distribution or cash management, the remote seller will not be deemed a vendor required to collect sales and use tax. TSB-M-10(12)(S), issued on August 19, 2010, provides an informational statement about the Department of Taxation and Finance’s views on the 2010 law.
Under the 2010 clarification, therefore, if a New York-based holding company of a direct marketer with facilities located outside of New York were to provide traditional administrative and management services to the remote seller, the remote seller would not be deemed to have nexus under New York law. This, of course, is a significant, favorable clarification for New York-based enterprises that wish to own and control remote sellers located outside of New York without creating nexus in New York.
The Newest Identity Thief: Grandma
Identity theft by relatives appears to be on the rise. One young lady was shocked to find out that her 71 year old grandmother opened a credit card in the grand-daughter's name: and did not pay the bill (See, Family Credit Card Fraud). While wrong, the difficulty of the whole matter is obvious. Who wants to put grandma in jail for fraud? Other common identity victims are children, whose parents sometimes open accounts in their names and don't pay (See The Newest Identity Thieves: Parents; All in the Family). Crime and wrong-doing in one's own family is not unheard of. After all, I just taught Gimpel v. Bolstein this week where the family ousted one relative from employment at the family farm after he embezzles some $80,000+. The thief ultimately sues on a claim that his stock is worthless in a company without a job or dividends and the court agrees (at least as to dividends or buying him out). So, stealing in one's own family . . . yes it happens.
Here though, the problem is not only might the relative have to shoulder the financial loss, but sustain damage to their credit score if they don't turn in grandma. Most card issuers require a police report in order to document the account fraud. There is definitely a heavier loss here than presented in Gimpel where the thief lost his job but was not prosecuted . . . and the family farm just lost the money. While I condemn the thieves here, card issuers have some responsibility as well for issuing cards in children's names in the first place. While card issuers have responsibility for fraud, they seem to find clever ways to shift it back to consumers (See credit card skimming).
Here though, the problem is not only might the relative have to shoulder the financial loss, but sustain damage to their credit score if they don't turn in grandma. Most card issuers require a police report in order to document the account fraud. There is definitely a heavier loss here than presented in Gimpel where the thief lost his job but was not prosecuted . . . and the family farm just lost the money. While I condemn the thieves here, card issuers have some responsibility as well for issuing cards in children's names in the first place. While card issuers have responsibility for fraud, they seem to find clever ways to shift it back to consumers (See credit card skimming).
- JSM
Tuesday, October 5, 2010
DOJ Sues AmEx, MasterCard, and Visa
The United States Department of Justice, Antitrust Division, has sued American Express, MasterCard, and Visa, alleging that each credit card network imposes anticompetitive rules prohibiting merchants from (1) encouraging customers to use a different form of payment or brand of credit card by offering a discount or any other incentive; and (2) expressing a preference for a particular brand, or informing their customers about the merchant's relative cost to accept, particular card brands. The complaint further alleges that each defendant independently possesses market power and that the merchant restraints thus constitute anticompetitive vertical agreements violating Section 1 of the Sherman Act.Along with the complaint, the Division filed a proposed consent decree with Visa and MasterCard that broadly prohibits blanket rules that would bar a merchant from incentivizing its customers to use a particular credit card brand or, interestingly, card type. The consent decree defines card type as a category of credit card such as "traditional cards, reward cards, or premium cards." The decree would thus empower merchants not only to steer customers to a particular card brand, but also to steer customers to particular types of cards within a card brand. For example, merchants might attempt to steer card users toward lower priced (for the merchant) traditional cards and away from reward cards. The decree explicitly permits Visa and MasterCard to continue to prohibit merchants from discriminating among particular bank issuers. It also allows the settling defendants to negotiate individual merchant agreements that include the prohibited restraints, so long as acceptance of the card brand is not conditioned on the merchant's agreement to the restraints.
American Express has vowed to fight the case.
By seeking to promote a competitive solution to what many consider unjustifiably high merchant card acceptance fees, the Division has staked out an alternative ground to the regulatory approach to merchant fees that Congress recently imposed for debit cards. The relief sought is cautious, however, in that the card networks may continue to prohibit (1) surcharges for particular brands or card types, and (2) efforts by merchants to discriminate in any way against particular card-issuing banks within the Visa and MasterCard systems.
New York Tax Department “Clarifies” Sales Tax on Reports Derived from Public Documents
The New York Department of Taxation and Finance recently issued a “clarification of existing Tax Department interpretation,” concerning the application of New York’s sales and use tax on “information services” to reports derived from publicly-available documents. For many companies, this “clarification” may well constitute a complete reversal of prior Department advice, as the Department itself has acknowledged.
New York tax law has, for many years, included a broadly-worded tax on “information services” that, by its terms, and under much of the Department’s prior authority, made the service of providing information reports (whether written, electronic, or even oral) taxable, unless the reports were comprised of information that was uniquely “personal” to the recipient. See N.Y. Tax Law § 1105(c)(1). In that regard, even if the particular compilation of information would be of interest only to the recipient, when the source data used to create the report was information that would be useful to many different entities or persons (such as public documents), a report was not deemed to be sufficiently “personal” to be exempt from tax.
Per to the Department’s new “clarification,” which took effect on September 1, 2010 (see TSB-M-10(7)S (July 19, 2010), the Department had previously articulated its policy that “the sale of public documents by private entities” does, indeed, constitute the sale of a taxable information service. See State Farm Mutual Automobile Insurance Co., Adv. Op. Comm. T&F, TSB-A-04(29)S (December 28, 2004). However, as the Department went on to explain in its recent clarification:
In light of this express mea culpa from the Department, the Department has determined that it “will not assess any sales tax due that was not collected, or any related penalty and interest, for sales of public documents made during” tax periods prior to September 1, 2010. Thus, while sellers of information services must begin (or continue) to collect sales and use tax on such information services as of September 1, 2010, companies will not be exposed to liability for uncollected/unpaid tax for prior periods.
New York tax law has, for many years, included a broadly-worded tax on “information services” that, by its terms, and under much of the Department’s prior authority, made the service of providing information reports (whether written, electronic, or even oral) taxable, unless the reports were comprised of information that was uniquely “personal” to the recipient. See N.Y. Tax Law § 1105(c)(1). In that regard, even if the particular compilation of information would be of interest only to the recipient, when the source data used to create the report was information that would be useful to many different entities or persons (such as public documents), a report was not deemed to be sufficiently “personal” to be exempt from tax.
Per to the Department’s new “clarification,” which took effect on September 1, 2010 (see TSB-M-10(7)S (July 19, 2010), the Department had previously articulated its policy that “the sale of public documents by private entities” does, indeed, constitute the sale of a taxable information service. See State Farm Mutual Automobile Insurance Co., Adv. Op. Comm. T&F, TSB-A-04(29)S (December 28, 2004). However, as the Department went on to explain in its recent clarification:
“Despite the issuance of this Advisory Opinion in 2004, some taxpayers may have continued to reasonably rely on correspondence from the Tax Department predating this Advisory Opinion. That correspondence, which gave advice to the contrary, also indicated that the Tax Department would provide notification if the advice in the letter was reversed.”Thus, the Department acknowledges that it was actively advising companies in a manner that it now admits is contrary to New York tax law and its own existing policy, and that, despite such advice, tax is due on the sale of information services derived from public documents. It is not entirely clear what prompted the Department to “clarify” its policy on the sale of information culled or compiled from public documents at this time. But, the recent TSB suggests that the Department feels the clarification serves to “better reflect controlling judicial case law and administrative decisions.”
In light of this express mea culpa from the Department, the Department has determined that it “will not assess any sales tax due that was not collected, or any related penalty and interest, for sales of public documents made during” tax periods prior to September 1, 2010. Thus, while sellers of information services must begin (or continue) to collect sales and use tax on such information services as of September 1, 2010, companies will not be exposed to liability for uncollected/unpaid tax for prior periods.
Making Deposits by Phone
No need to drive to the bank? Making bank deposits using your phone is here for some banks. Chase has been advertising its service (See, Chase IPhone App) and USAA also has it (See USAA Takes Mobile Banking). While the other large banks haven't yet offered the service, it is sure to be the next big thing. The process takes a few minutes since you have to take a photo of the front and back of the check, so I would not recommend it if you have a few of these to do. And, if the photo is not quite clear enough, it can be unsuccessful. But overall, the draw is clear in terms of saving the run to the bank.Of course, Check 21 makes the digital image of a check the same as the paper version. The digital imaging of checks by consumers will not prevent the banks from processing the check just like any other as the paper check is not needed in any event already. While the process cuts down the float time for the person writing the check, the advantage of saving time at the bank is a draw. I couldn't find the app on the Blackberry, but would bet that it will come along as well in time.
So, how do you do it? See this video on how to deposit on an IPhone.
- JSM
Monday, October 4, 2010
Piracy in Mexico takes a Different Twist
One of the aspects or piracy near the Gulf of Aden has been its lucrative commercial nature, the taking of cargo and hostages for ransom (see Fighting Piracy With Private Security Measures). The commercial nature of the piracy has often led to substantial ransoms paid with crews and cargo released afterwards. The possible favorable outcome for individuals lives has led to a sort of capitalistic approach by some pirates (See Ploch, Piracy Off the Horn of Africa). The protocol of piracy off Africa certainly affects the response of governments to the problem of piracy there.
This weekend, though, drug cartel pirates in Mexico killed a jet-skier on a border lake (See, jet-skier and Fox News, Pirates). While this new hot-spot of piracy surely affects businesses on the ground where customers steer clear of the area, it also serves as a reminder of the brutal nature of piracy and that is not a "business"). Pirates, historically, are the enemy of the human race - hostes humani generis - posing a longtime threat to shipping and commerce. The violence in Mexico-U.S. waters is a reminder.
This weekend, though, drug cartel pirates in Mexico killed a jet-skier on a border lake (See, jet-skier and Fox News, Pirates). While this new hot-spot of piracy surely affects businesses on the ground where customers steer clear of the area, it also serves as a reminder of the brutal nature of piracy and that is not a "business"). Pirates, historically, are the enemy of the human race - hostes humani generis - posing a longtime threat to shipping and commerce. The violence in Mexico-U.S. waters is a reminder.
- JSM
Friday, October 1, 2010
Small Business and the Recession
The New York Times did a short piece on small businesses in New York during the recession, focusing on the problems the current environment presents.
- JSM
Tuesday, September 28, 2010
Check Processing Statistics
I head off to a faculty meeting today for final approval on my Payment Systems course, formerly Commercial Paper here at St. Thomas University. So, I thought being armed with some Federal Reserve statistics could be handy or at least a conversation topic. With the multitude of payment methods available, it seems obvious that the Federal Reserve is processing less checks than it did in the past. But how much less? In 2009, commercial checks processed through the Federal Reserve dropped 10.1% (See Federal Reserve History) to a volume of 8,585 (million items). The 2010 Federal Reserve volume is also down on the year. While not the largest annual drop in recent times (a drop of 12.1% was measured in 2005), the decline does underscore the importance of alternative payment methods. Yet, the death of checks is not in sight, as the amount of checks processed by the Federal Reserve still amounted to $13,759 (billion) in 2009.So, check processing is down, but still important.
- JSM
Monday, September 27, 2010
Spring Contracts Conference - Reminder
Mark your calendar: The annual spring conference on contract law will be held on February 18 and 19, 2011, at the lovely Stetson Law School. Save the Date!
- JSM
St. Thomas University Looking for Business Faculty
A plug for my school. With Florida now also testing UCC Articles 3 and 9, I suspect there is more room commercial law as well as traditional corporate subjects.
ST. THOMAS UNIVERSITY SCHOOL OF LAW in Miami, Florida, invites applications from experienced and entry-level candidates for tenure-track positions beginning in the 2011/2012 academic year. The Law School especially seeks candidates in the areas of Business Associations, Wills and Trusts, Constitutional Law, Securities Regulations, Property and Civil Procedure. Applicants must possess a distinguished academic record, a dedication to excellence in teaching, and a demonstrated commitment to scholarship. Consistent with the Law School’s tradition of diversity, members of minority groups and women are especially encouraged to apply. Applicants should send a letter of application and a resume. CONTACT: Professor Tamara Lawson, Chair of the Faculty Recruitment Committee, St. Thomas University School of Law, 16401 NW 37th Avenue, Miami Gardens, Florida 33054. E-MAIL: tlawson@stu.edu. FAX: (305) 623-2390.
ST. THOMAS UNIVERSITY SCHOOL OF LAW in Miami, Florida, invites applications from experienced and entry-level candidates for tenure-track positions beginning in the 2011/2012 academic year. The Law School especially seeks candidates in the areas of Business Associations, Wills and Trusts, Constitutional Law, Securities Regulations, Property and Civil Procedure. Applicants must possess a distinguished academic record, a dedication to excellence in teaching, and a demonstrated commitment to scholarship. Consistent with the Law School’s tradition of diversity, members of minority groups and women are especially encouraged to apply. Applicants should send a letter of application and a resume. CONTACT: Professor Tamara Lawson, Chair of the Faculty Recruitment Committee, St. Thomas University School of Law, 16401 NW 37th Avenue, Miami Gardens, Florida 33054. E-MAIL: tlawson@stu.edu. FAX: (305) 623-2390.
- JSM
Sunday, September 26, 2010
Wall Street: Money Never Sleeps
Is greed still good?
The new movie, Wall Street: Money Never Sleeps never quite answers that one, though Gordon Gekko now dubs it "legal." Went to see this over the weekend and found it great. Perhaps out of sheer nostalgia I would have liked it, but Gekko's condemnation of "speculation" and references to tulip mania reminded me of John Galbraith. Set in the time of the current financial crisis, the movie emphasises the decisions that individuals (such as Susan Sarandon's nurse turned over-leveraged real estate investor) and banks (such as the investment firms peddling bad paper) made that led us to the crisis. Though Gekko, without cash and out peddling a book, is still Gekko, the new twist of creating even larger "bad guys" makes him a bad guy to cheer for. Definitely worth seeing.
The new movie, Wall Street: Money Never Sleeps never quite answers that one, though Gordon Gekko now dubs it "legal." Went to see this over the weekend and found it great. Perhaps out of sheer nostalgia I would have liked it, but Gekko's condemnation of "speculation" and references to tulip mania reminded me of John Galbraith. Set in the time of the current financial crisis, the movie emphasises the decisions that individuals (such as Susan Sarandon's nurse turned over-leveraged real estate investor) and banks (such as the investment firms peddling bad paper) made that led us to the crisis. Though Gekko, without cash and out peddling a book, is still Gekko, the new twist of creating even larger "bad guys" makes him a bad guy to cheer for. Definitely worth seeing.
- JSM
Thursday, September 23, 2010
Credit Card Skimming and Card Issuers Behaving Badly
This past June I attended the CALI Conference, hosted by Rutgers University - Cambden. I stayed in the Philadelphia area for about ten days, since my sister lives there. I have a credit card that I often use for business and did on this particular trip. Not having used the card, which is currently in a locked box in Florida, since that trip, there should be no new charges. Yet, on August 20, 2010 two new charges appeared on my card from convenience stores located well outside of the Philadelphia area. Moreover, the record indicated that the user presented my card for the transactions, which I later learned were made at gas pumps with no receipt or documentation. As the card is here with me in Florida, I know I did not present it in Pennsylvania and that someone replicated my card.Counterfeiters can replicate your credit card by "skimming" the data information from the card's magnetic strip during an ordinary transaction. (See Visa, Credit Card Fraud). They then use the information to make replica cards and engage in fraudulent transactions. The skimming behavior is just one way that fraud occurs. Of course, TILA 133(a)(1)(B) (Regulation Z 226.12(b)(1))limits the cardholder's liability for unauthorized charges to a maximum of $50 and network rules typically protect the cardholder (me) from liability. See Visa's Zero Liability Policy.
I notified the card issuer, Household Bank, of the unauthorized transactions right away. Within 24 hours, one of the vendors, Wawa, reversed the charge. The other merchant, Turkey Hill gas did not and within 24 hours I received the following email from the card issuer:
This charge represents an automated gas terminal charge. At the time of the
transaction, your credit card was not reported lost or stolen, and this type of
transaction required that your card be present.
In addition, your Account history indicates that this charge is consistent with your spending pattern. For these reasons, we consider this charge to be valid. Although we are unable to assist you, you may pursue this matter further with the merchant.
Note that because the transaction was electronic, we are unable to
provide a receipt.
Unfortunately, we have no recourse to pursue your dispute. Although we are unable to credit your Account, you may still pursue this matter further with the merchant.
If you require additional information, please reply to this message or call us at 1-503-293-4037 and one of our Customer Service Representatives will be glad to help you. To ensure a quick response, please refer to the following reference number: XXXXXXXXX.
For your records, you will receive a separate confirmation letter via
the U.S. Mail.
Sincerely,
Customer Service Department
Knowing I did not authorize the charge, I called the issuer to dispute this denial and to request a new card number. You see, issuers bear the loss generally under network rules in "face-to-face" transactions for unauthorized charges as long as the merchant follows the requisite procedures (often signature and authorization for the transaction). My suspicion is that the issuer would bear the loss in this case, so they wanted to force it back on the consumer. When I called, they told me initially there was nothing they could do, the "documentation" showed that I was in PA and made the charge. I reminded them their own letter said that there was no receipt and the back peddling began. Now, they admitted they were still waiting on a response from the merchant. They had no documentation. They would "reopen" the investigation right away. In addition to talking to them on the phone, I should also respond to the email confirming the conversation.
This type of issuer behavior really gets me going! They knew they did not investigate the transaction, but sent a denial right away of the claim I did not authorize the transaction. The "game" here is to send the denials on fraud claims knowing that only some consumers will pick up the phone and complain. Moreover, when I responded to their email as invited, it turned out to be a "no reply" email address. Since the issuer provides no fax number, I submitted yet another message through their online system. Surely this will take my time in following up on a $25 transaction, but I cannot give a pass to a card issuer attempting to avoid its responsibility under TILA and the Visa network rules regarding fraud. And some wonder why we need a Consumer Financial Protection Bureau . . .
- JSM
Tuesday, September 21, 2010
Elizabeth Warren spoke to CBS
Elizabeth Warren spoke to CBS about the Consumer Financial Protection Agency this morning.
- JSM
Monday, September 20, 2010
Warren on the New Consumer Agency
Elizabeth Warren has been speaking about the new role of the Consumer Financial Protection Agency. Who should be scared? Businesses want to know whether they should be worried about her role. For those that are making money from tricking and trapping people, the new agency will be a problem for them. She's been reaching out to business to let them know that she wants to learn about what will work and wants to "get it right." Basically, we cannot re-build an economy where families cannot pay for goods and services. She's ready to get to work getting the agency up and running.
- JSM
Friday, September 17, 2010
The Conservative Approach of Over-Collection of Sales Tax Is Perilous
Many companies (and their advisors) believe there is no harm in “over-collecting” sales tax and, therefore, erring on the side of collection of tax in gray areas. But that is a very risky course of action, as AT&T recently found out.
It seems that AT&T was collecting sales and use tax on Internet service it provided to customers. It did so, despite the federal Internet Tax Freedom Act, 47 U.S.C. § 151 n. (1998), as extended and amended by the Internet Tax Nondiscrimination Act, P.L. 108-435 (2004) and the Internet Tax Freedom Act Amendments Act of 2007, P.L. 110-108 (2007), which prohibits states from imposing taxes on Internet access, with the exception of certain grandfathered states. Even a company of the size of AT&T apparently got it wrong, since it continued to collect tax on Internet access in all states. Its customers reacted, and commenced a class action law suit against AT&T.
AT&T recently settled the lawsuit with the class action plaintiffs at significant expense to AT&T. See In re AT&T Mobility Wireless Data Services Sales Litigation, MDL No. 2147, Case No. 10 C 2278 (N.D. Ill. Aug.11, 2010). While AT&T is not obligated to refund to the plaintiffs any amounts not refunded to AT&T by a state, it is required to seek such refunds. If it obtains a refund, AT&T, of course, must distribute the amounts it receives to its customers, but it doesn’t have to dip into its own pocket to do so.
So, you say, what is the harm to AT&T? As part of the settlement, AT&T is required to pay the cost of notice to each member of the class. Given the size of the class, this likely will be a substantial cost. In addition, AT&T must pay a contingency fee to the lawyers for the class action plaintiffs, which is generally based on the value of the settlement, and can be millions of dollars. Thus, far from being an income neutral proposition for AT&T, AT&T’s decision to collect tax created a large expense to it.
The conclusion to be drawn is that retailers need to be very careful to make sure they get it right. To simply err on the side of over-collection may prove to create substantial exposure. Rather, the true amount due must be collected. If a retailer gets in a bind by over-collecting, the state will not compensate the retailer for its additional expenses.
It seems that AT&T was collecting sales and use tax on Internet service it provided to customers. It did so, despite the federal Internet Tax Freedom Act, 47 U.S.C. § 151 n. (1998), as extended and amended by the Internet Tax Nondiscrimination Act, P.L. 108-435 (2004) and the Internet Tax Freedom Act Amendments Act of 2007, P.L. 110-108 (2007), which prohibits states from imposing taxes on Internet access, with the exception of certain grandfathered states. Even a company of the size of AT&T apparently got it wrong, since it continued to collect tax on Internet access in all states. Its customers reacted, and commenced a class action law suit against AT&T.
AT&T recently settled the lawsuit with the class action plaintiffs at significant expense to AT&T. See In re AT&T Mobility Wireless Data Services Sales Litigation, MDL No. 2147, Case No. 10 C 2278 (N.D. Ill. Aug.11, 2010). While AT&T is not obligated to refund to the plaintiffs any amounts not refunded to AT&T by a state, it is required to seek such refunds. If it obtains a refund, AT&T, of course, must distribute the amounts it receives to its customers, but it doesn’t have to dip into its own pocket to do so.
So, you say, what is the harm to AT&T? As part of the settlement, AT&T is required to pay the cost of notice to each member of the class. Given the size of the class, this likely will be a substantial cost. In addition, AT&T must pay a contingency fee to the lawyers for the class action plaintiffs, which is generally based on the value of the settlement, and can be millions of dollars. Thus, far from being an income neutral proposition for AT&T, AT&T’s decision to collect tax created a large expense to it.
The conclusion to be drawn is that retailers need to be very careful to make sure they get it right. To simply err on the side of over-collection may prove to create substantial exposure. Rather, the true amount due must be collected. If a retailer gets in a bind by over-collecting, the state will not compensate the retailer for its additional expenses.
Thursday, September 16, 2010
Opportunity for Self Regulation?
The Financial Crisis Inquiry Commission is examining the causes underlying our current financial crisis. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling is charged with examining the causes and circumstances surrounding the BP oil spill in the Gulf this year. The Consumer Financial Protection Agency's job might be so large that we can only guess what it might tackle first, including credit scoring, student loans, overdrafts and payday loans (See, Six Problems the Consumer Financial Protection Agency Should Tackle First). Business interests oppose government involvement and oversight pretty broadly across the board (see, Fight Over Consumer Agency Looms, Business Groups, Obama Administration Spar Over Corporate Governance, The Case Against Corporate Social Responsibility, Businesses Buy Ads vs. Health Overhaul, US Must Control Deficit).
Yet, isn't there an opportunity here for businesses to engage in increased self oversight and regulation? One of those the best offense is a defense line of thinking. The Financial Services Forum states relative to financial oversight "[t]he Forum will continue to work constructively with the regulators charged with implementation of the legislation to create a financial supervisory framework that ensures institutional safety and soundness and systemic stability, while also meeting the financial needs of American businesses, workers, consumers, and investors." The Business Roundtable's list of Initiatives stresses outright that corporate leadership is the best way to foster trust in corporations. The Business Roundtable's list includes health care and retirement, education, fiscal policy, globalization and environmental concerns.
An aggressive list of priorities without dispute. But has business come through on these fronts? And, I mean not individual companies, but as a group? Despite the commissions investigating, new agencies and increased regulation, there is always an opportunity for business to head off looming problems, whether it is speculation, an innovation like credit derivative swaps poised to cause the next financial crisis or plain overreaching by businesses with consumers.
Self regulation and coordination is not unknown to business generally or to specific industries. Anil Gupta and Lawrence Lad commented "Researchers generally have viewed non-market regulation of firm behavior as synonymous with direct regulation by the government." Industry Self-Regulation: An Economic, Organizational, and Political Analysis. See also, Toffel, Industry Self-Regulation: What's Working (and What's Not)?. The whole idea, of course, is that self-regulation can either supplement or take the place of government regulation. While industries can engage in self-regulation more or less and in different manners, it has its effectiveness.
When I hear of businesses opposed to government regulation of a perceived problem, a common complaint is that government regulation hampers business growth generally, costs a lot and stifles innovation. While I understand that businesses want to make money off of the newest innovation, self regulation would seem to allow the financial community for instance to head off some of the systemic risks of the "innovation," such as the credit derivative swaps. Just because there is money to be made does not mean that it should be made if the "innovation" will lead to over-speculation causing a financial crisis. Yet, government regulation would not seem to always be the most efficient in these cases due to the time involved in establishing oversight of newer financial products.
Michael Toffel argues there are four main facets to self-regulation: "how the rules are designed, who adopts them, whether and how compliance is monitored, and whether these rules actually achieve what they purport to achieve." I agree that these considerations dictate whether the laudatory goals of the Business Roundtable and Financial Services Forum will have any effect on market participant behavior. Self regulation must be meaningful. While the door is open for financial services companies to show leadership on many open regulatory issues, movement is slow. With so much attention being given to opposing Elizabeth Warren as the new head of the Consumer Financial Protection Agency, perhaps business might be better served by turning to the issues (See, Warren's New Job).
Yet, isn't there an opportunity here for businesses to engage in increased self oversight and regulation? One of those the best offense is a defense line of thinking. The Financial Services Forum states relative to financial oversight "[t]he Forum will continue to work constructively with the regulators charged with implementation of the legislation to create a financial supervisory framework that ensures institutional safety and soundness and systemic stability, while also meeting the financial needs of American businesses, workers, consumers, and investors." The Business Roundtable's list of Initiatives stresses outright that corporate leadership is the best way to foster trust in corporations. The Business Roundtable's list includes health care and retirement, education, fiscal policy, globalization and environmental concerns.
An aggressive list of priorities without dispute. But has business come through on these fronts? And, I mean not individual companies, but as a group? Despite the commissions investigating, new agencies and increased regulation, there is always an opportunity for business to head off looming problems, whether it is speculation, an innovation like credit derivative swaps poised to cause the next financial crisis or plain overreaching by businesses with consumers.
Self regulation and coordination is not unknown to business generally or to specific industries. Anil Gupta and Lawrence Lad commented "Researchers generally have viewed non-market regulation of firm behavior as synonymous with direct regulation by the government." Industry Self-Regulation: An Economic, Organizational, and Political Analysis. See also, Toffel, Industry Self-Regulation: What's Working (and What's Not)?. The whole idea, of course, is that self-regulation can either supplement or take the place of government regulation. While industries can engage in self-regulation more or less and in different manners, it has its effectiveness.
When I hear of businesses opposed to government regulation of a perceived problem, a common complaint is that government regulation hampers business growth generally, costs a lot and stifles innovation. While I understand that businesses want to make money off of the newest innovation, self regulation would seem to allow the financial community for instance to head off some of the systemic risks of the "innovation," such as the credit derivative swaps. Just because there is money to be made does not mean that it should be made if the "innovation" will lead to over-speculation causing a financial crisis. Yet, government regulation would not seem to always be the most efficient in these cases due to the time involved in establishing oversight of newer financial products.
Michael Toffel argues there are four main facets to self-regulation: "how the rules are designed, who adopts them, whether and how compliance is monitored, and whether these rules actually achieve what they purport to achieve." I agree that these considerations dictate whether the laudatory goals of the Business Roundtable and Financial Services Forum will have any effect on market participant behavior. Self regulation must be meaningful. While the door is open for financial services companies to show leadership on many open regulatory issues, movement is slow. With so much attention being given to opposing Elizabeth Warren as the new head of the Consumer Financial Protection Agency, perhaps business might be better served by turning to the issues (See, Warren's New Job).
- JSM
Wednesday, September 15, 2010
Teaching Statute of Frauds
Today in Contracts we covered the Statute of Frauds. The casebook, by Burton, includes the case of Cloud Corp. v. Hasbro, Inc., 314 F.3d 289 (7th Cir. 2002), a Posner decision. The case involves a toy, the Wonder World Aquarium, governed by our beloved UCC 2-201's Statute of Frauds. Posner, wanting to find that either the parties satisfied the statute of frauds or some exception applied, lays out a multitude of reasons to find an enforceable contract. Surely a delightful opinion helping the students to see that sometimes the formalism of a rule gives way to the realities of business practices. The dispute involved excess gelled filling produced by Cloud for the Hasbro aquariums, which had no other use. Alas, the Wonder World Aquarium was a passing fad.
- JSM
Washington State Partially Modifies Unreasonable “Trailing Nexus” Rule
The Washington Department of Revenue (“DOR”), based on a very thin reed of statutory support, has long taken the position that once an out-of-state business has engaged in activity in Washington sufficient to create nexus with the State, even if it thereafter ceases all activity in the State, the out-of-state company continues to have nexus with Washington for a period of at least four years after ceasing activity there (the remainder of the calendar year plus four more years), for purposes of both Washington’s sales tax and its Business & Occupation (“B&O”) tax. See WAC 458-20-193(7), (8). This “trailing nexus” rule is fundamentally inconsistent with the Commerce Clause’s requirement that an out-of-state company must have a physical presence in a state in order for the state to impose tax collection and reporting obligations on it, as the Supreme Court affirmed in Quill Corp. v. North Dakota, 504 U.S 298 (1992).
This summer, the Washington State legislature revised the Washington B&O tax statute to include a provision which makes it clear that a company which stops doing business in Washington state will now be deemed to have “trailing nexus” for B&O purposes for only the remainder of the calendar year in which it stops doing business and for one additional year. See RCW 82.04.220. Although even a one-year trailing nexus rule is highly suspect as a matter of constitutional law, it is certainly an improvement over the DOR’s four-plus year rule, which the DOR has announced it intends to continue to apply to the Washington sales tax. See DOR Special Notice (September 10, 2010).
Online and multi-channel direct marketers should be aware of this unreasonable, extended nexus provision as creating additional risks and burdens with regard to any business activity or connection involving Washington.
This summer, the Washington State legislature revised the Washington B&O tax statute to include a provision which makes it clear that a company which stops doing business in Washington state will now be deemed to have “trailing nexus” for B&O purposes for only the remainder of the calendar year in which it stops doing business and for one additional year. See RCW 82.04.220. Although even a one-year trailing nexus rule is highly suspect as a matter of constitutional law, it is certainly an improvement over the DOR’s four-plus year rule, which the DOR has announced it intends to continue to apply to the Washington sales tax. See DOR Special Notice (September 10, 2010).
Online and multi-channel direct marketers should be aware of this unreasonable, extended nexus provision as creating additional risks and burdens with regard to any business activity or connection involving Washington.
Commerce Hums Along Even in Hard Economic Times
We hear much news about the trouble with the economy. In today's news alone, there were concerns about cooling in auto manufacturing, losses in technology, slower manufacturing in New York, and double dip risks in Europe. Alongside the financial turmoil and worries, Bloomberg yesterday ran a piece on parents who must not be overly concerned about such things. Apparently, there is quite the market for designer clothing for children, including a $750 Burberry trench coat! Sale of designer coats and jackets for children is expected to be up a whopping 12% this year. Luxury goods generally are expected to be up 10%. Apparently, there are nice Gucci lines for pets as well . . . Not bad in a year with worldwide GDP quite low (see, EU Raises Italian 2010 GDP, Canada's GDP Growth Sets, China's GDP Slows, Oil Spill May End Up Lifting GDP Slightly).While I am a believer in doing my part for the economy, my group of three kiddos (3, 5 and 13) are not partaking in these really cool clothing options! Not only is this a really lot of money, but my kids grow way too fast for this extravagance! Hope that those who are buying designer children's clothing are not financing the purchases on a credit card. Consumers living beyond their means certainly contributed to the current financial downturn.
- JSM
Tuesday, September 14, 2010
Two Debit Fee Regulation Issues Emerge as The FED Gathers Information
The financial reform legislation enacted this summer included the Durbin Amendment requiring the FED to regulate fees that banks charge to merchants when consumers use debit cards to make purchases. The legislation gave the FED until April of next year to come up with the specifics of a plan that will ensure that debit card fees reasonably and proportionally reflect the actual costs of running the banks' debit card programs. Bankers have reported that the FED has begun an information gathering process designed to gather information about the banks' debit businesses. Although the situation is sure to evolve in the coming months, there are two questions that are now drawing a lot of attention.
First, the legislation included the cost of fraud protection in the costs that the banks should be permitted to recover. Banks are arguing that fraud costs should include the costs of data protection and claims investigation in addition to actual losses. Merchants are questioning the propriety of including costs beyond losses. Another question involves how the FED will deal with the differences across institutions with respect to fraud losses. Will it use average costs, stimulating competition among the banks to lower fraud costs. Or will it try to implement a system that will tie recovery more closely to specific institutions.
Second, the legislation exempts banking institutions with less than $10 billion in assets from the regulation. But most small banks issue debit cards using the Visa and MasterCard system. Will those systems, dominated by larger banking institutions, permit the smaller institutions to recover higher merchant fees than the big banks recover? Small banks became part of the Visa and MasterCard systems for complex reasons. Initially, they played a crucial role developing a critical mass of credit cardholders and especially merchants willing to accept credit cards. By the time the debit card systems became serious business, the smaller banks were less important to the systems' success. But by that time, Visa and MasterCard had grown sufficiently that trying to exclude smaller banks would have been seen as a group boycott potentially violating the antitrust laws. The large banks were content to charge the small banks somewhat higher network fees. Small bankers expect that the Visa and MasterCard networks will limit their debit card merchant fees to the same extent as the large banks. It will be interesting to see, however, if one of the major networks, or perhaps one of the on-line ATM networks, makes a competitive play for smaller banks by offering higher debit card merchant fees than the big banks are permitted to charge. SS
Why Do We Teach Commercial Law?
Among other courses, my new law school home, St. Thomas University in Miami, will have me begin teaching commercial law courses in the spring. St. Thomas has not had a commercial law "die-hard" as regular faculty, but several faculty have taught Sales, Secured Transactions and Commercial Paper from time to time in addition to other courses (for a recent study of course offerings in commercial law, see Mark Roark's Commercial Law Course Survey). Without the dedication of a commercial law faculty member, the course descriptions were not surprisingly out of date.
So, today, I will be off to a curriculum committee meeting to discuss revised course descriptions for the commercial law offerings. This process brings to mind not only Mark's survey of what is being taught, but also Larry Garvin's The Strange Death of Academic Commercial Law, where Larry advocates the rescuing of academic commercial law lest it fall into a void of nothingness crowded out by other new seminars and other nouveau studies. Florida just added articles 3 and 9 to its bar exam (See Florida Bar News), giving commercial law more footing at my law school and more draw to students generally. I hesitate to advocate that we teach a variety of commercial law courses merely because it is examined at bar time. Yet, surely the bar examiners also must believe there is something important here as well.
It is well recognized that so long as we have commerce, there is a need for commercial law. Bar exam or not. We have an obligation to prepare our students for the commercial transactions and disputes that arise naturally in our world of business. Law schools are in "partnership" with the community of judges, businesses, legislatures and communities that expect attorneys who will continue to improve the law and promote new ideas. While there is a temptation in states such as Florida that now test commercial law on the bar exam to teach only what is required on the bar, or for schools in states like Pennsylvania which dropped much of commercial law from its bar exam to not teach it at all, we should resist this urge. There is a richness to the study that goes beyond bar requirements, and is a service to students and community alike.
For my part, I will make my case that the course descriptions here at St. Thomas should go beyond what is required for the Florida bar exam. One of my proposed changes is to rename "Commercial Paper" "Payment Systems," reflecting a course that would go beyond the bar exam's UCC Article 3 to include the multiple ways in which we pay for things in commerce. An intelligent study should include checks, credit cards, debit cards, letters of credit, wire transfers and electronic payment devices, as well as promissory notes and guaranties. Thankfully, I expect the faculty here believes that while we need to prepare students to take a bar exam, our obligation goes deeper than that.
Once I get the course descriptions in order, my next job will be to convince the students that the study is important. I hope to teach Payment Systems here at St. Thomas this Spring. On that score, the bar exam looming before them will help. Once in class, though, I hope they see the richness of the study that affects their own every day lives each time they write a check, pull a card out of their wallet or obtain a student loan. The client needs become more clear to them once they appreciate the importance to ordinary transactions.
So, why do we teach commercial law? The answer is simple. Our students need it personally and professionally. And, the wider community needs them to know it.
So, today, I will be off to a curriculum committee meeting to discuss revised course descriptions for the commercial law offerings. This process brings to mind not only Mark's survey of what is being taught, but also Larry Garvin's The Strange Death of Academic Commercial Law, where Larry advocates the rescuing of academic commercial law lest it fall into a void of nothingness crowded out by other new seminars and other nouveau studies. Florida just added articles 3 and 9 to its bar exam (See Florida Bar News), giving commercial law more footing at my law school and more draw to students generally. I hesitate to advocate that we teach a variety of commercial law courses merely because it is examined at bar time. Yet, surely the bar examiners also must believe there is something important here as well.
It is well recognized that so long as we have commerce, there is a need for commercial law. Bar exam or not. We have an obligation to prepare our students for the commercial transactions and disputes that arise naturally in our world of business. Law schools are in "partnership" with the community of judges, businesses, legislatures and communities that expect attorneys who will continue to improve the law and promote new ideas. While there is a temptation in states such as Florida that now test commercial law on the bar exam to teach only what is required on the bar, or for schools in states like Pennsylvania which dropped much of commercial law from its bar exam to not teach it at all, we should resist this urge. There is a richness to the study that goes beyond bar requirements, and is a service to students and community alike.
For my part, I will make my case that the course descriptions here at St. Thomas should go beyond what is required for the Florida bar exam. One of my proposed changes is to rename "Commercial Paper" "Payment Systems," reflecting a course that would go beyond the bar exam's UCC Article 3 to include the multiple ways in which we pay for things in commerce. An intelligent study should include checks, credit cards, debit cards, letters of credit, wire transfers and electronic payment devices, as well as promissory notes and guaranties. Thankfully, I expect the faculty here believes that while we need to prepare students to take a bar exam, our obligation goes deeper than that.
Once I get the course descriptions in order, my next job will be to convince the students that the study is important. I hope to teach Payment Systems here at St. Thomas this Spring. On that score, the bar exam looming before them will help. Once in class, though, I hope they see the richness of the study that affects their own every day lives each time they write a check, pull a card out of their wallet or obtain a student loan. The client needs become more clear to them once they appreciate the importance to ordinary transactions.
So, why do we teach commercial law? The answer is simple. Our students need it personally and professionally. And, the wider community needs them to know it.
- JSM
Monday, September 13, 2010
Oklahoma Adopts a Gross Receipts Tax Providing for “Economic Presence” Nexus
Oklahoma has been in the news recently because of its enactment of a controversial sales tax statute, similar to the Colorado statute, that requires companies which do not collect and remit the Oklahoma sales and use tax because of their lack of physical presence to provide notification to Oklahoma purchasers of the purchasers’ obligation to remit sales and use tax. (See our related blog posts of June 24, July 1, and July 9.) In addition, Oklahoma has recently adopted a Business Activity Tax, which is in lieu of the franchise tax, and which requires any company with sales greater than $500,000 to Oklahoma destinations, regardless of the company’s physical presence in Oklahoma, to pay a tax of 1% of its gross sales revenue to Oklahoma residents. The Business Activity Tax legislation, like the sales tax legislation, ignores the Quill physical presence test, and bases nexus on the “economic presence” of an out-of-state company; i.e., greater than $500,000 of gross receipts from an Oklahoma source. The Business Activity Tax, insofar as the tax on gross receipts, does not go into effect until calendar year 2013.
As we wrote in our prior blog posts with regard to other state statutes based on an economic presence, the Oklahoma statute raises significant constitutional concerns. There is good U.S. Supreme Court precedent that stands for the proposition that the Quill/Bellas Hess physical presence standard of nexus applies to gross receipts taxes. See Tyler Pipe Industries, Inc. v. Washington Department of Revenue, 483 U.S. 232, 107 S.Ct. 2810 (1987); Commonwealth Edison Company v. State of Montana, 453 U.S. 609, 101 S.Ct. 2946 (1981).
As we wrote in our prior blog posts with regard to other state statutes based on an economic presence, the Oklahoma statute raises significant constitutional concerns. There is good U.S. Supreme Court precedent that stands for the proposition that the Quill/Bellas Hess physical presence standard of nexus applies to gross receipts taxes. See Tyler Pipe Industries, Inc. v. Washington Department of Revenue, 483 U.S. 232, 107 S.Ct. 2810 (1987); Commonwealth Edison Company v. State of Montana, 453 U.S. 609, 101 S.Ct. 2946 (1981).
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