As we reported last month, on June 5, Missouri Governor Jay Nixon vetoed a bill that included an Internet affiliate nexus provision. What a difference a month makes. On July 5, Governor Nixon signed a different bill, S.B. 23, that amends Missouri’s definition of “engages in business activities in this state” under Mo. Stat. § 144.605(2) to add a presumption of nexus for retailers with “click-through” online advertising agreements with residents of the state. Under the Missouri statute, “a vendor shall be presumed to engage in business activities within this state if the vendor enters in an agreement with one or more residents of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers” to the vendor by an Internet link or otherwise, so long as the vendor realizes at least $10,000 in sales from such referrals. The presumption may be rebutted by submitting proof that the affiliates were not engaged in activities that were significantly associated with the retailer’s ability to make or maintain a market for sales in the state. In particular, such proof may consist of “sworn written statements from all of the residents with whom the vendor has an agreement stating that they did not engage in any solicitation in the state on behalf of the vendor during the preceding year.” See Mo. Stat. 144.605(e), (f).
The Missouri statute continues a disturbing trend among state “click-through” Internet affiliate nexus laws under which a presumption of nexus is created regardless of whether the compensation paid to the in-state affiliate is based on sales completed by the retailer. Statutes recently enacted in Kansas, Maine, and Minnesota contain similar language, as do statutes already on the books in Arkansas, North Carolina, Rhode Island, and Vermont (although Vermont’s statute is not yet in effect). By the plain terms of such statutes, a passive “pay-per-click” advertising arrangement would be sufficient to create a presumption of nexus. Such a presumption is inconsistent with the reasoning of the New York Court of Appeals’ decision upholding the New York affiliate nexus law. See Overstock.com, Inc. v. Department of Taxation and Finance, 20 N.Y.3d 586 (2013). In Overstock, the Court emphasized that “no one disputes that a substantial nexus would be lacking if [in-state] residents were merely engaged to post passive advertisements on their websites.” 20 N.Y.3d at 596. These several states’ affiliate nexus statutes are at odds, on their face, with this fundamental principle.
Showing posts with label Minnesota. Show all posts
Showing posts with label Minnesota. Show all posts
Tuesday, July 9, 2013
Friday, June 7, 2013
Affiliate Nexus Law Update: Minnesota and Maine Approve New Statutes, Missouri Governor Vetoes Bill
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.
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.
Tuesday, February 26, 2013
February 2013: An Eventful Month In The Debate Regarding Use Tax Collection By Internet Retailers
If it seems like there has been a lull in the debate regarding whether ecommerce vendors should be required to collect sales and use tax, this month has seen a series of developments that demonstrate the conflict continues apace.
On February 6, 2013, New York’s highest courtheard oral arguments by attorneys for Amazon.com, Overstock.com, and the state Department of Taxation and Finance in the Internet retailers’ respective constitutional challenges to the New York affiliate nexus law enacted in 2008. (The cases are captioned Amazon.com v. New York State Department of Taxation and Finance, Court of Appeals Case No.APL-2012-00045, and Overstock.com v. New York State Department of Taxation and Finance, Court of Appeals Case No. APL-2012-0001.) Recall that, under the New York law, an out-of-state retailer is presumed to be soliciting sales through representatives in the state if it enters into a contract with a New York resident for the placement of a link on the resident’s website that refers internet users to the out-of-state retailer’s website, pays the New York resident compensation based on sales to customers completed through the link, and makes a minimum $10,000 in such sales to New York customers. See N.Y.Tax Law § 1101(b)(8)(vi). A retailer with an in-state representative that solicits sales is required under New York law to collect and remit use tax on sales to New York customers. The state prevailed before the trial court and intermediate appellate court finding that the law was not unconstitutional on its face. According to reports, the Justices on the Court of Appeals appeared somewhat receptive to Amazon’s arguments that (1) the law violates the Due Process Clause because the presumption cannot be effectively rebutted and (2) the law violates the Quill “physical presence” standard of nexus. That said, the state has the advantage of having prevailed below. Decisions by a state high court are usually issued several months after argument, and we will continue to monitor the case.
On Valentine’s Day, proposed federal legislation that would authorize states to require remote sellers with no physical presence in the state to collect the state’s sales and use taxes was introduced in both the United States Senate (S. 336) and House of Representatives (H.R. 684). The two bills, each entitled the “Marketplace Fairness Act,” are identical. Like similar legislation introduced in Congress last year, the current “Marketplace Fairness Act” does not require meaningful uniformity or simplification by states of their complex sales and use tax systems as a precondition for imposing a tax collection obligation on retailers with no physical presence in the state. S. 336 was referred to the Senate Finance Committee, and H.R. 684 was referred to the House Committee on the Judiciary. Some members of Congress, including chairpersons of each of the relevant committees (Senator Baucus (D-MT) and Representative Goodlatte (R-VA)), have expressed concerns about the bill.
On February 22, 2013, the Performance Marketing Association (“PMA”) filed its brief with the Illinois Supreme Court in response to the appeal taken by the Director of the State Department of Revenue from the ruling of the Cook County Circuit Court issued in May 2012. The Circuit Court’s Order, entered in the PMA’s favor, struck down the 2011 Illinois affiliate nexus law as unconstitutional and preempted by the Internet Tax Freedom Act (“ITFA”). The Illinois statute creates a conclusive rule of law imposing a use tax collection obligation on an out-of-state Internet retailer that enters into a contract with an affiliate located in Illinois for the placement of a link on the affiliate’s website that refers internet users to the retailer’s website, pays the affiliate compensation based on sales to customers completed through the link, and makes a minimum $10,000 in such sales to customers (regardless of location). See 35 ILCS 105/2 (para. 1.1). The Circuit Court for Cook County agreed with the PMA that the statute, on its face, violates the Quillphysical presence standard of substantial nexus under the Commerce Clause, and is preempted under the Supremacy Clause by virtue of the ITFA moratorium on discriminatory state taxes against electronic commerce. The state appealed and filed its brief late last year. The PMA again emphasized the Act’s fundamental shortcomings, and the weaknesses in the state’s arguments in defense of the law, in its brief filed on February 22. After the state files its reply March, oral argument in the appeal is likely this fall. George Isaacson and Matt Schaefer of Brann & Isaacson represent the PMA in the case.
Finally, during February 2013, legislators in four more states--Maine, Michigan, Minnesota and Mississippi--introduced bills proposing New York style affiliate nexus provisions. They join at least four other states that introduced similar measures in January 2013, including Florida, Hawaii, Indiana and Kansas. Affiliate nexus bills have failed to pass in several of these states in prior legislative sessions.
If this month is any indicator, 2013 may be an active year for developments regarding the states’ authority to require use tax collection by Internet retailers and other remote sellers. Please stay tuned for updates and further analysis in this area.
On February 6, 2013, New York’s highest courtheard oral arguments by attorneys for Amazon.com, Overstock.com, and the state Department of Taxation and Finance in the Internet retailers’ respective constitutional challenges to the New York affiliate nexus law enacted in 2008. (The cases are captioned Amazon.com v. New York State Department of Taxation and Finance, Court of Appeals Case No.APL-2012-00045, and Overstock.com v. New York State Department of Taxation and Finance, Court of Appeals Case No. APL-2012-0001.) Recall that, under the New York law, an out-of-state retailer is presumed to be soliciting sales through representatives in the state if it enters into a contract with a New York resident for the placement of a link on the resident’s website that refers internet users to the out-of-state retailer’s website, pays the New York resident compensation based on sales to customers completed through the link, and makes a minimum $10,000 in such sales to New York customers. See N.Y.Tax Law § 1101(b)(8)(vi). A retailer with an in-state representative that solicits sales is required under New York law to collect and remit use tax on sales to New York customers. The state prevailed before the trial court and intermediate appellate court finding that the law was not unconstitutional on its face. According to reports, the Justices on the Court of Appeals appeared somewhat receptive to Amazon’s arguments that (1) the law violates the Due Process Clause because the presumption cannot be effectively rebutted and (2) the law violates the Quill “physical presence” standard of nexus. That said, the state has the advantage of having prevailed below. Decisions by a state high court are usually issued several months after argument, and we will continue to monitor the case.
On Valentine’s Day, proposed federal legislation that would authorize states to require remote sellers with no physical presence in the state to collect the state’s sales and use taxes was introduced in both the United States Senate (S. 336) and House of Representatives (H.R. 684). The two bills, each entitled the “Marketplace Fairness Act,” are identical. Like similar legislation introduced in Congress last year, the current “Marketplace Fairness Act” does not require meaningful uniformity or simplification by states of their complex sales and use tax systems as a precondition for imposing a tax collection obligation on retailers with no physical presence in the state. S. 336 was referred to the Senate Finance Committee, and H.R. 684 was referred to the House Committee on the Judiciary. Some members of Congress, including chairpersons of each of the relevant committees (Senator Baucus (D-MT) and Representative Goodlatte (R-VA)), have expressed concerns about the bill.
On February 22, 2013, the Performance Marketing Association (“PMA”) filed its brief with the Illinois Supreme Court in response to the appeal taken by the Director of the State Department of Revenue from the ruling of the Cook County Circuit Court issued in May 2012. The Circuit Court’s Order, entered in the PMA’s favor, struck down the 2011 Illinois affiliate nexus law as unconstitutional and preempted by the Internet Tax Freedom Act (“ITFA”). The Illinois statute creates a conclusive rule of law imposing a use tax collection obligation on an out-of-state Internet retailer that enters into a contract with an affiliate located in Illinois for the placement of a link on the affiliate’s website that refers internet users to the retailer’s website, pays the affiliate compensation based on sales to customers completed through the link, and makes a minimum $10,000 in such sales to customers (regardless of location). See 35 ILCS 105/2 (para. 1.1). The Circuit Court for Cook County agreed with the PMA that the statute, on its face, violates the Quillphysical presence standard of substantial nexus under the Commerce Clause, and is preempted under the Supremacy Clause by virtue of the ITFA moratorium on discriminatory state taxes against electronic commerce. The state appealed and filed its brief late last year. The PMA again emphasized the Act’s fundamental shortcomings, and the weaknesses in the state’s arguments in defense of the law, in its brief filed on February 22. After the state files its reply March, oral argument in the appeal is likely this fall. George Isaacson and Matt Schaefer of Brann & Isaacson represent the PMA in the case.
Finally, during February 2013, legislators in four more states--Maine, Michigan, Minnesota and Mississippi--introduced bills proposing New York style affiliate nexus provisions. They join at least four other states that introduced similar measures in January 2013, including Florida, Hawaii, Indiana and Kansas. Affiliate nexus bills have failed to pass in several of these states in prior legislative sessions.
If this month is any indicator, 2013 may be an active year for developments regarding the states’ authority to require use tax collection by Internet retailers and other remote sellers. Please stay tuned for updates and further analysis in this area.
Monday, March 7, 2011
Additional States Introduce Affiliate-Nexus Legislation
On March 2, an Internet-affiliate nexus bill was introduced in the Arkansas State Senate (SB 738). Arkansas joins Arizona, California, Connecticut, Hawaii, Illinois, Massachusetts, Minnesota, Mississippi, New Mexico, Tennessee, Texas, and Vermont, as the thirteenth state this legislative season to consider such a measure. Nearly all of the bills -- with the exception of Illinois’s HB 3659, which was passed by the Illinois legislature and is now awaiting signature or veto by Governor Quinn, and Connecticut’s SB 5545 -- are patterned directly upon the New York affiliate nexus law enacted in 2008 and challenged in court, so far unsuccessfully, by Amazon.com. In other words, 11 of the 13 proposed laws create a rebuttable presumption that an out-of-state Internet retailer is obligated to collect and remit the state’s sales and use taxes if the retailer enters into an agreement with an in-state resident (an “affiliate”) pursuant to which the affiliate places a link from the affiliate’s website to the retailer’s site, and the retailer realizes at least $10,000 in sales to customers referred to it by the affiliate’s links. The presumption can be negated by proof that the in-state affiliates did not engage in any in-state solicitation on behalf of the retailer.
In its November 2010 ruling, the Appellate Division of the New York Supreme Court found that the ability of a retailer to rebut the presumption of solicitation was an important factor in determining that the New York law is not unconstitutional on its face. The Court, however, remanded the case for further proceedings on the issue of whether the law violates the Commerce Clause and Due Process Clause as applied to specifically to Amazon. As the ongoing proceedings in the New York case make clear, the constitutionality of such “New York-style” affiliate-nexus legislation is far from resolved.
At the same time, it is worth noting that the Illinois and Connecticut bills differ from the New York law in that neither bill provides that the presumption that a retailer must collect sales and use tax as a result of having in-state Internet affiliates may be rebutted. Imposing an irrebuttable presumption of nexus is highly suspect under both the Commerce Clause and Due Process Clause. Without a rebuttable presumption in place to protect retailers, Illinois and Connecticut would subject Internet retailers to burdensome state tax collection obligations when the retailers are effectively doing nothing more than advertising. For that reason, the progress of each of these bills bears watching. Stay tuned.
In its November 2010 ruling, the Appellate Division of the New York Supreme Court found that the ability of a retailer to rebut the presumption of solicitation was an important factor in determining that the New York law is not unconstitutional on its face. The Court, however, remanded the case for further proceedings on the issue of whether the law violates the Commerce Clause and Due Process Clause as applied to specifically to Amazon. As the ongoing proceedings in the New York case make clear, the constitutionality of such “New York-style” affiliate-nexus legislation is far from resolved.
At the same time, it is worth noting that the Illinois and Connecticut bills differ from the New York law in that neither bill provides that the presumption that a retailer must collect sales and use tax as a result of having in-state Internet affiliates may be rebutted. Imposing an irrebuttable presumption of nexus is highly suspect under both the Commerce Clause and Due Process Clause. Without a rebuttable presumption in place to protect retailers, Illinois and Connecticut would subject Internet retailers to burdensome state tax collection obligations when the retailers are effectively doing nothing more than advertising. For that reason, the progress of each of these bills bears watching. Stay tuned.
Friday, April 30, 2010
Update: Status of 2010 Affiliate Nexus Legislation
As we reported on March 9, New York-style “Amazon” affiliate nexus legislation was introduced in the 2010 legislative sessions of multiple states. Even as the North Carolina Department of Revenue has introduced a program intended to entice retailers to register for sales and use tax purposes under its existing affiliate nexus statute (see our recent post for further discussion of the issue), other states are moving closer to adopting similar laws. At the same time, affiliate nexus legislation has died, for this legislative season at least, in several states. Here’s an update with regard to such legislation in a number of states:
Moving Forward:
Dead (it appears) for 2010:
Moving Forward:
- Connecticut: Bill favorably reported out of committee with recommendation that it “ought to pass”
- Minnesota: Committee hearing on bill scheduled for April 20
- Tennessee: Bill recommended for passage by Tax Subcommittee of Ways & Means, but Tennessee Department of Revenue has indicated that it does not believe mere affiliate relationship would be adequate for nexus
- California: Last action (re-referral to Committee on Appropriations) was April 28, 2010
- Illinois: Last action (referral) was March 19, 2010
Dead (it appears) for 2010:
- Iowa: General Assembly adjourned without acting on the bill
- Maryland: General Assembly adjourned without the bill getting out of committee
- Mississippi: Bill died in committee
- New Mexico: Bill tabled
- Vermont: Ways and Means Committee voted not to include affiliate nexus measure in tax legislation
- Virginia: Affiliate nexus legislation tabled in committee
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