As we’ve written previously (here, here, and here), the California legislature has been considering legislation that may impose potentially unconstitutional requirements on out-of-state retailers selling to California customers.
On May 6, the State Assembly passed AB 2078, Colorado-style legislation that would require out-of-state retailers to provide notice to California customers via the retailers' websites and in their catalogues of the customers’ potential use tax obligations. Previous versions of the Assembly Bill had required such retailers to file quarterly reports with the names, addresses and amounts purchased by California customers, and also created a rebuttable presumption that for any controlled group of corporations, if one member was engaged in business in California, all members would be deemed to be engaged in business in California. As passed by the Assembly, however, only the Bill’s provisions requiring that notice of use tax obligations be provided to California customers survived.
The State Senate has since taken up consideration of the Bill and made its own amendments. In the Bill currently before the Senate, the presumptions regarding controlled groups were reinserted, and the notice provisions were kept in. The Senate did not reinsert the reporting requirements of the original Assembly Bill.
However, the State Senate has yet to vote on the Bill. Instead, yesterday, the Senate moved the Bill to the Senate’s inactive file on a motion by one of the State Senators, likely because today marks the last day on the Senate calendar for any bill to be passed before the Senate’s final recess begins. Although the Bill may be moved off the inactive file, it appears that the California Senate will not be voting on it any time soon. In the meantime, we’ll continue tracking any action on the Bill and keep you posted of developments as they arise.
UPDATE, Jul. 5, 2011: California has enacted a new nexus law.
Tuesday, August 31, 2010
Monday, August 30, 2010
Bernanke Speech in Jackson Hole, Wyoming
In case you missed it, Ben Bernanke spoke at the Kansas City Federal Reserve annual meeting in Jackson Hole, Wyoming (see transcript). The bottom line: Bernanke is not too concerned about the slowdown in growth and we should expect some relief in 2011 and beyond in the economy. Basically, just wait it out and hope for the best.
For a recap of the speech,
-JSM
For a recap of the speech,
Visit msnbc.com for breaking news, world news, and news about the economy
-JSM
Magazine Publishers Beware of the New Washington B&O Tax Law
As previously discussed in our blog post dated May 24, 2010, several states have taken the position that the Quill nexus standard applies only to sales and use tax. State courts in New Jersey (Lanco, Inc. v. Director, Division of Taxation, 188 N.J. 380, 908 A.2d 176 (2006)), West Virginia (Tax Commissioner v. MBNA America Bank, 220 W.Va. 163, 640 S.E.2d 226 (2006)), and South Carolina (Geoffrey, Inc. v. South Carolina Tax Commission, 313 S.C. 15, 437 S.E.2d 13 (1993) (cert denied, 114 S.Ct. 550 (1993)) have held that economic presence (i.e., sales to the state without a physical presence in the state) is sufficient to establish nexus for state income tax. As written in the May 24 blog post, there are other decisions (e.g. Commonwealth Edison v. Montana, 453 U.S. 609, 101 S.Ct. 2946 (1981)) that apply the Quill/Bellas Hess physical presence test to taxes other than sales tax.
By legislation, other states have adopted a gross receipts tax based on economic presence. The Ohio Commercial Activity Tax, the Michigan Business Tax and the Texas Margin Tax are examples. Recently, the State of Washington amended its B&O Tax, which is a gross receipts tax, with regard to the “service classification,” to require an economic nexus standard, based upon the level of service revenues to Washington. Washington has taken an expansive view of businesses subject to the service revenue classification, which now includes businesses that publish periodicals or magazines with respect to the advertising income that such publications derive. Since the nexus standard is quite low, this is likely to be a “sleeping dog” for most publishers.
Perhaps the limiting feature for national publications is the fact that the sourcing provisions of the new law would source advertising revenues to Washington for B&O purposes only on the basis of where the purchase orders for such advertisements were issued. Sourcing is not based on traditional apportionment factors such as payroll and property costs.
Publishers who do not have a physical presence in Washington would have a potential constitutional challenge to the new statute. In particular, as discussed in the prior blog post, Quill/Bellas Hess should be read to apply to gross receipts taxes, so (we would argue) that the physical presence test of Quill/Bellas Hess should apply. Indeed, in Tyler Pipe Industries, Inc. v. Washington State Department of Revenue, 483 U.S. 232, 107 S.Ct. 2810 (1987), the U.S. Supreme Court found that the B&O Tax could be imposed on an out-of-state company because it had sales representatives operating in Washington and therefore was making a market in Washington. While the Court did not cite to Quill or its predecessor Bellas Hess, it did cite as support for its holding National Geographic Society v. California Board of Equalization, 430 U.S. 551 (1977), which in turn relied on Bellas Hess. Sales representatives under Quill and Bellas Hess create a physical presence. Thus, if a publisher does not have sales representatives who operate in Washington, it should consider a potential constitutional challenge to any imposition of B&O tax on its advertising revenues.
By legislation, other states have adopted a gross receipts tax based on economic presence. The Ohio Commercial Activity Tax, the Michigan Business Tax and the Texas Margin Tax are examples. Recently, the State of Washington amended its B&O Tax, which is a gross receipts tax, with regard to the “service classification,” to require an economic nexus standard, based upon the level of service revenues to Washington. Washington has taken an expansive view of businesses subject to the service revenue classification, which now includes businesses that publish periodicals or magazines with respect to the advertising income that such publications derive. Since the nexus standard is quite low, this is likely to be a “sleeping dog” for most publishers.
Perhaps the limiting feature for national publications is the fact that the sourcing provisions of the new law would source advertising revenues to Washington for B&O purposes only on the basis of where the purchase orders for such advertisements were issued. Sourcing is not based on traditional apportionment factors such as payroll and property costs.
Publishers who do not have a physical presence in Washington would have a potential constitutional challenge to the new statute. In particular, as discussed in the prior blog post, Quill/Bellas Hess should be read to apply to gross receipts taxes, so (we would argue) that the physical presence test of Quill/Bellas Hess should apply. Indeed, in Tyler Pipe Industries, Inc. v. Washington State Department of Revenue, 483 U.S. 232, 107 S.Ct. 2810 (1987), the U.S. Supreme Court found that the B&O Tax could be imposed on an out-of-state company because it had sales representatives operating in Washington and therefore was making a market in Washington. While the Court did not cite to Quill or its predecessor Bellas Hess, it did cite as support for its holding National Geographic Society v. California Board of Equalization, 430 U.S. 551 (1977), which in turn relied on Bellas Hess. Sales representatives under Quill and Bellas Hess create a physical presence. Thus, if a publisher does not have sales representatives who operate in Washington, it should consider a potential constitutional challenge to any imposition of B&O tax on its advertising revenues.
Monday, August 23, 2010
More New Credit Card Rules Take Effect
New credit card rules under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act took effect this week (See Federal Reserve Press Release)! The Fed, in its effort to be more consumer friendly, has put out another "What You Need to Know" about the rules. One of the big improvements is in the area of late payment fees. Under the old system, card issues could charge basically whatever fee they wanted, whether the card holder was late on a $20 payment or a $100 payment. Now, the fee is set at $25, but the card issuer can charge $35 if one of the last six payments was also late or a larger amount if the company can justify the cost for the higher fee. In any event, the fee cannot be higher than the minimum payment due. For instance, if the minimum due was $20, then the fee cannot exceed $20.
Other new rules eliminate fees for inactivity and extra fees for violating more than one part of the cardholder agreement on a single transaction.
Another twist is requiring card companies to reevaluate rate increases every six months after an increase and to reduce the rate 45 days after an evaluation, if appropriate. Remember all those rate increases companies passed onto card holders prior to the CARD Act's implementation in 2009? Issurers are supposed to lower rates for consumers if the reason for the increase no longer exists. Basically, the Fed is supposed to monitor compliance. I've not heard of any credit card issuers widespread lowering interest rates, but here's to hoping.
Other new rules eliminate fees for inactivity and extra fees for violating more than one part of the cardholder agreement on a single transaction.
Another twist is requiring card companies to reevaluate rate increases every six months after an increase and to reduce the rate 45 days after an evaluation, if appropriate. Remember all those rate increases companies passed onto card holders prior to the CARD Act's implementation in 2009? Issurers are supposed to lower rates for consumers if the reason for the increase no longer exists. Basically, the Fed is supposed to monitor compliance. I've not heard of any credit card issuers widespread lowering interest rates, but here's to hoping.
- JSM
Tuesday, August 10, 2010
New Rules of Bank Fees Now In Effect
Now that August has come around, there are new rules coming online to benefit consumers. One of my favorites is the overdraft protection rules for debit cards coming into effect on August 15, 2010 for existing bank customers (See FRB: New Overdraft Rules). In the past banks often charged a $34+ fee to consumers who use their card for debit purchases or ATM withdrawals when they do not have enough money in their account to cover the cost of the purchase or withdrawal. The new rules require banks to get consumer's consent (which they should not give) for these "programs."
While the big accomplishment here is disclosure with an opt-in system to benefit consumers using debit cards, as always, consumers can still make financial mistakes that result in fees (see, WSJ, Getting Going: Ferreting Out Those Hidden Fees). For instance, just because you don't opt-in to overdraft protection, that doesn't mean you cannot overdraw your account or be charged a fee for doing so. The new rules apply to debt and ATM transaction, so consumers can still overdraw their accounts and be charged fees for check and automatic bill payments. While this system may be much superior to the previous one, consumers must still mind their balances. The new rules don't eliminate overdrafts completely, leaving some protection for transactions that consumers typically want overdraft protection.
Is this enough? One worry is that banks may push consumers into opting in or consumers may simply not understand (see, USA Today, Bank Overdraft Fees). When opening an account at Chase Bank recently, I was asked to opt-in to overdraft on my debit card. While the clerk was not pushy, I was asked if I was "sure" and did I really understand. Oh, yes, I told them. While I did not opt-in, if a consumer does opt-in the rules may not go far enough. A consumer who opts-in won't get the warning at the counter that their account is low. They will just get the fee, even for the $4 cup of coffee, rather than the ability to choose another form of payment.
All and all, this is all good news for consumers, but banks will take a hit in revenue. Wells Fargo is expecting a $500 million loss in revenue for 2010 as a result of the overdraft rules (see, Wells Fargo Sees $500 Mln). Of course, banks will find other ways to make up the lost revenue. Hopefully, the banks will clearly disclose any new fees to consumers and keep fees manageable While simple fee disclosure for me is important, those with low incomes can be faced with the choice of paying fees or not having a checking account. Some have chosen not to have accounts at all. (see, USA Today, Many Shun Bank Accounts). Consumers opting out of banking completely because the fees are either undisclosed or too high is a lingering problem beyond the reach of the new rules.
While the big accomplishment here is disclosure with an opt-in system to benefit consumers using debit cards, as always, consumers can still make financial mistakes that result in fees (see, WSJ, Getting Going: Ferreting Out Those Hidden Fees). For instance, just because you don't opt-in to overdraft protection, that doesn't mean you cannot overdraw your account or be charged a fee for doing so. The new rules apply to debt and ATM transaction, so consumers can still overdraw their accounts and be charged fees for check and automatic bill payments. While this system may be much superior to the previous one, consumers must still mind their balances. The new rules don't eliminate overdrafts completely, leaving some protection for transactions that consumers typically want overdraft protection.
Is this enough? One worry is that banks may push consumers into opting in or consumers may simply not understand (see, USA Today, Bank Overdraft Fees). When opening an account at Chase Bank recently, I was asked to opt-in to overdraft on my debit card. While the clerk was not pushy, I was asked if I was "sure" and did I really understand. Oh, yes, I told them. While I did not opt-in, if a consumer does opt-in the rules may not go far enough. A consumer who opts-in won't get the warning at the counter that their account is low. They will just get the fee, even for the $4 cup of coffee, rather than the ability to choose another form of payment.
All and all, this is all good news for consumers, but banks will take a hit in revenue. Wells Fargo is expecting a $500 million loss in revenue for 2010 as a result of the overdraft rules (see, Wells Fargo Sees $500 Mln). Of course, banks will find other ways to make up the lost revenue. Hopefully, the banks will clearly disclose any new fees to consumers and keep fees manageable While simple fee disclosure for me is important, those with low incomes can be faced with the choice of paying fees or not having a checking account. Some have chosen not to have accounts at all. (see, USA Today, Many Shun Bank Accounts). Consumers opting out of banking completely because the fees are either undisclosed or too high is a lingering problem beyond the reach of the new rules.
- JSM
Monday, August 9, 2010
Finally a Homeowner in Florida
Yes, I finally closed on a home in South Florida. Now that the boxes are unpacked (well, mostly), some thoughts on the process. Not to deter any wanting to purchase a home, the real estate market in South Florida is particularly daunting if you are wanting a mortgage (See, South Florida Mortgage Rates At Record Lows, but Who Can Get Them?). And, I was moving to a new area to start new employment adding complication to any mortgage application. The loan approval came less than a week before closing, and I breathed a great sigh of relief that the worst part was over (the tax returns, w-2s, document requests, interviews, etc.).
By the time I closed, though, new lending requirements meant a change in lending product and another round of documents! The closing was also delayed a few days. Since our family's belongings were already en route from two far reaching parts of the country (Oregon and Massachusetts), we were faced with the prospect of furniture arriving before the home closed. While it all worked out well in the end, there was much stress and the specter that it might not close at all. The lender's agent seemed unprepared for the changes in requirements for home mortgages that are ever changing, so that the lender was working last minute on details that should have been addressed much earlier in the process (i.e., calling for employment verifications for all employers for the last 5 years the day before closing). I thought to myself, with all this headache, who would actually want to buy a home in South Florida!
So, what does this all say? It seems to me a sign that changing, strict credit standards will impede the real estate market. (See, Borrowers Hit New Home-Loan Hurdles). While credit standards for home loans may have been too easy, they might now be too hard. Of course, the Florida market still has signs of distress, so it may be one of the last markets to see easing of credit standards in real estate. An excess of care and caution of lenders, though, impedes their own business and the real estate market as a whole, making recovery further off. When I listen to NPR on the drive to the office in the morning and hear reports of the sluggish real estate market, I am not surprised. The core of the problem is confidence in borrowers and the real estate market as a whole. While those in the real estate industry attempt to be optimistic, more marked recovery would seem to require a level of confidence that does not permeate South Florida at this time.
As for me, I'll be finishing off the last of my boxes for another week or so . . . glad that I can now send in that first mortgage payment next month!
- JSM
Subscribe to:
Posts (Atom)