While the Marketplace Fairness Act sits in committee in Congress awaiting hearings, two more states have enacted affiliate nexus statutes imposing tax on remote sellers. The governor of another state, however, declined to add his state to the list of jurisdictions enacting counterproductive, and arguably unconstitutional, “click through” nexus laws. Below is a quick round up of recent news in Minnesota, Maine, and Missouri:
Last week, Minnesota Governor Mark Dayton signed into law a click-through nexus bill which creates a rebuttable presumption for out-of-state retailers with in-state affiliates and which goes into effect for sales made after June 30, 2013. The new law states that an out-of-state seller is presumed to be soliciting sales in the state if it enters into an agreement with a resident for a commission or other similar consideration for referrals of potential customers, whether by a link of a website or otherwise. The presumption only applies if the seller has at least $10,000 of gross receipts in the 12 month period preceding the calendar quarter in which the sale is made. Sellers can rebut this presumption with proof that the resident did not engage in any solicitation on behalf of the seller that would satisfy the nexus requirement under the Constitution. The same bill also imposes tax on certain specified digital products which previously were exempt from sales tax.
Meanwhile, on June 5, Maine Governor Paul LePage signed into law a bill that creates a rebuttable presumption for out-of-state sellers with affiliates in Maine. Under Maine’s new law, sellers are required to register if they have an affiliate with a substantial physical presence in the state (other than a common carrier) if the affiliate sells similar products under a similar name, maintains a facility to help deliver property or services sold by the seller, shares trademarks with the seller, or provides various services to the seller’s customers. Out-of-state sellers can rebut this presumption by demonstrating that the affiliate’s activities do not help establish or maintain a market in Maine.
Maine’s new law also establishes click-through nexus for out-of-state sellers, similar to the Minnesota bill. As in Minnesota, the seller’s gross receipts must be in excess of $10,000 for the law to apply. Additionally, sellers can rebut the presumption by showing that the seller’s in-state referrer did not engage in any activity “significantly associated with the seller’s ability to establish or maintain the seller’s market” in the preceding 12 months. Proof can include signed, written statements obtained in good faith from referrers that they did not engage in solicitation on behalf of the seller. The Maine law is scheduled to go into effect on September 17, 2013.
Finally, also on June 5, Missouri Governor Jay Nixon vetoed a bill that would have added affiliate nexus and click through nexus provisions to Missouri’s tax code and would have required the Missouri DOR to enter into the Streamlined Sales and Use Tax Agreement. Legislators will have a chance to overturn the veto in September.
Showing posts with label Internet Affiliate. Show all posts
Showing posts with label Internet Affiliate. Show all posts
Friday, June 7, 2013
Monday, April 30, 2012
Yet Another State (Georgia) Adopts a Click-Through Nexus Law
On April 20, 2012, Georgia Governor Nathan Deal signed legislation revising the definition of “dealer” in the Georgia statute. Under Georgia law, a dealer is required to collect and remit sales/use tax on all taxable sales to Georgia residents.
The first change to the dealer definition is to adopt a so-called “click-through nexus” law (or “Internet affiliate nexus” law), along the lines of the New York statute enacted in 2008. Georgia is now the eighth state to adopt a click-through nexus law. As previously reported in this blog, New York was the first state to adopt a nexus click-through statute, followed by Rhode Island, North Carolina, Arkansas, Illinois, Connecticut, California and Pennsylvania. (The California statute is effective only if federal legislation is not adopted, and will go into effect on January 1, 2013). (The Pennsylvania “law,” which is an administrative rule, does not commence until September 1, 2012).
*As previously reported in our blog, on April 25, 2012, the Illinois Circuit Court ruled from the bench that the Illinois “click-though nexus” (or “Internet affiliate nexus”) statute is unconstitutional under the substantial nexus requirement of the Commerce Clause and also violates the federal Internet Tax Freedom Act’s moratorium against discriminatory state taxes on electronic commerce.* (As a ruling of a court in a different state, the Illinois court’s decision striking down the Illinois statute has no direct effect on the Georgia click-through nexus law, but certainly would have some relevance in any review of the statute. )
Much like the New York law, the Georgia statute, HB 386 (LC 34 3484S/AP), provides that a retailer that enters into an agreement with one or more persons who are residents of Georgia under which the resident, for a commission or other consideration based on completed sales, directly or indirectly refers potential customers to the retailer, if the retailer’s cumulative gross receipts from sales by such persons exceed more than $50,000 during the preceding twelve months. (Under the New York law, the threshold is $10,000.) If the retailer enters into such an agreement, a presumption is created that the retailer is a dealer required to collect the Georgia sales and use tax. However, the presumption may be rebutted by submitting proof that the residents with whom the person has an agreement do not engage in any activity within Georgia that is significantly associated with the person’s ability to establish or maintain a market in Georgia during the preceding twelve months. The proof may consist of sworn written statements with the residents attesting to the fact that they have not engaged in any solicitation in the state on behalf of the retailer. It is somewhat unclear when this portion of the statute goes into effect; the earliest date is July 18, 2012 but it may be as late as December 30, 2012.
In short, the Georgia statute is modeled after the New York statute. Like the New York statute, a retailer can overcome the presumption of nexus by a showing that the resident does not engage in any activity in the state to maintain a market in the state. (This is in contrast to the Connecticut and Illinois statutes, which create a per se finding of nexus if the requisite relationship is found to exist).
The new Georgia law also provides for “affiliate nexus,” similar to the recently adopted Utah statute concerning companies related through common ownership, as discussed in my article in this blog dated April 2, 2012. This part of the law goes into effect on October 1, 2012. In particular, if a retailer and any other company under common ownership or control that has substantial nexus in Georgia sells a similar line of products in the state under a similar business name or use substantially similar trademarks or service marks, then a presumption of nexus is created. Again, this presumption can be rebutted by a showing that the in-state affiliate does not engage in any in-state activities on behalf of the retailer that are significantly associated with the retailer’s ability to establish a market.
The new Georgia law does provide a safe harbor for participation in trade show activities of five days or less and if the retailer “did not derive more than $100,000 of net income from those activities during the prior calendar year.” It is unclear whether the term “deriv[ation] . . . of net income” means sales less expenses made at the trade show or whether it means sales remotely made.
In sum, online retailers and other direct marketers should carefully scrutinize their existing relationships to make sure that their companies are not vulnerable to a finding of nexus under the new Georgia law. While such review does not necessarily mean discontinuance of click-through relationships, it does require making sure that any agreement with affiliates is tailored to overcome the presumption if sales through such affiliates are greater than $50,000.
The first change to the dealer definition is to adopt a so-called “click-through nexus” law (or “Internet affiliate nexus” law), along the lines of the New York statute enacted in 2008. Georgia is now the eighth state to adopt a click-through nexus law. As previously reported in this blog, New York was the first state to adopt a nexus click-through statute, followed by Rhode Island, North Carolina, Arkansas, Illinois, Connecticut, California and Pennsylvania. (The California statute is effective only if federal legislation is not adopted, and will go into effect on January 1, 2013). (The Pennsylvania “law,” which is an administrative rule, does not commence until September 1, 2012).
*As previously reported in our blog, on April 25, 2012, the Illinois Circuit Court ruled from the bench that the Illinois “click-though nexus” (or “Internet affiliate nexus”) statute is unconstitutional under the substantial nexus requirement of the Commerce Clause and also violates the federal Internet Tax Freedom Act’s moratorium against discriminatory state taxes on electronic commerce.* (As a ruling of a court in a different state, the Illinois court’s decision striking down the Illinois statute has no direct effect on the Georgia click-through nexus law, but certainly would have some relevance in any review of the statute. )
Much like the New York law, the Georgia statute, HB 386 (LC 34 3484S/AP), provides that a retailer that enters into an agreement with one or more persons who are residents of Georgia under which the resident, for a commission or other consideration based on completed sales, directly or indirectly refers potential customers to the retailer, if the retailer’s cumulative gross receipts from sales by such persons exceed more than $50,000 during the preceding twelve months. (Under the New York law, the threshold is $10,000.) If the retailer enters into such an agreement, a presumption is created that the retailer is a dealer required to collect the Georgia sales and use tax. However, the presumption may be rebutted by submitting proof that the residents with whom the person has an agreement do not engage in any activity within Georgia that is significantly associated with the person’s ability to establish or maintain a market in Georgia during the preceding twelve months. The proof may consist of sworn written statements with the residents attesting to the fact that they have not engaged in any solicitation in the state on behalf of the retailer. It is somewhat unclear when this portion of the statute goes into effect; the earliest date is July 18, 2012 but it may be as late as December 30, 2012.
In short, the Georgia statute is modeled after the New York statute. Like the New York statute, a retailer can overcome the presumption of nexus by a showing that the resident does not engage in any activity in the state to maintain a market in the state. (This is in contrast to the Connecticut and Illinois statutes, which create a per se finding of nexus if the requisite relationship is found to exist).
The new Georgia law also provides for “affiliate nexus,” similar to the recently adopted Utah statute concerning companies related through common ownership, as discussed in my article in this blog dated April 2, 2012. This part of the law goes into effect on October 1, 2012. In particular, if a retailer and any other company under common ownership or control that has substantial nexus in Georgia sells a similar line of products in the state under a similar business name or use substantially similar trademarks or service marks, then a presumption of nexus is created. Again, this presumption can be rebutted by a showing that the in-state affiliate does not engage in any in-state activities on behalf of the retailer that are significantly associated with the retailer’s ability to establish a market.
The new Georgia law does provide a safe harbor for participation in trade show activities of five days or less and if the retailer “did not derive more than $100,000 of net income from those activities during the prior calendar year.” It is unclear whether the term “deriv[ation] . . . of net income” means sales less expenses made at the trade show or whether it means sales remotely made.
In sum, online retailers and other direct marketers should carefully scrutinize their existing relationships to make sure that their companies are not vulnerable to a finding of nexus under the new Georgia law. While such review does not necessarily mean discontinuance of click-through relationships, it does require making sure that any agreement with affiliates is tailored to overcome the presumption if sales through such affiliates are greater than $50,000.
Thursday, April 26, 2012
Court Rules that the Illinois Internet Affiliate Nexus Law is Unconstitutional and Violates the Internet Tax Freedom Act
Yesterday (April 25, 2012), Judge Robert Lopez Cepero of the Illinois Circuit Court for Cook County granted summary judgment in favor of the Performance Marketing Association (“PMA”) in its constitutional challenge to the Illinois "Internet affiliate nexus" statute, Public Act 96-1544 (the “Act”), which took effect in July 2011. Judge Cepero ruled from the bench, after oral argument by the parties’ counsel, that the Illinois law is both unconstitutional under the “substantial nexus” requirement of the Commerce Clause and violates the federal Internet Tax Freedom Act's moratorium against discriminatory state taxes on electronic commerce. The Court will enter a formal order encapsulating its rulings, although Judge Cepero indicated that he does not plan to issue a written opinion, separate from his remarks made on the record at the hearing. The Defendant, the Director of the Illinois Department of Revenue, is said to be reviewing his options, but is expected to appeal the ruling directly to the Illinois Supreme Court. (George Isaacson and Matt Schaefer of Brann & Isaacson represent the PMA in the case.)
Like other “Internet affiliate nexus” laws, the Illinois statute seeks to impose a use tax collection obligation upon out-of-state Internet retailers who enter into contracts with affiliates located in the state, under which the affiliate places a link on its website connecting Internet users to the retailer’s website, and receives commissions or other compensation based on sales made to such customers. Under the terms of the Act, any Internet retailer that realized $10,000 in annual sales from customers who reached its website through links on the sites of Illinois Internet affiliates would be required to collect Illinois use tax. The Court held, however, that the activity described in the Illinois law was not sufficient to create use tax nexus with Illinois for purposes of the Commerce Clause. The Court also held that imposing a use tax collection obligation upon Internet retailers engaged in such online linking relationships, but not on other retailers engaged in similar offline adverting arrangements, is “premature” in light of the ITFA's moratorium, which remains in effect until November 1, 2014.
Like other “Internet affiliate nexus” laws, the Illinois statute seeks to impose a use tax collection obligation upon out-of-state Internet retailers who enter into contracts with affiliates located in the state, under which the affiliate places a link on its website connecting Internet users to the retailer’s website, and receives commissions or other compensation based on sales made to such customers. Under the terms of the Act, any Internet retailer that realized $10,000 in annual sales from customers who reached its website through links on the sites of Illinois Internet affiliates would be required to collect Illinois use tax. The Court held, however, that the activity described in the Illinois law was not sufficient to create use tax nexus with Illinois for purposes of the Commerce Clause. The Court also held that imposing a use tax collection obligation upon Internet retailers engaged in such online linking relationships, but not on other retailers engaged in similar offline adverting arrangements, is “premature” in light of the ITFA's moratorium, which remains in effect until November 1, 2014.
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