amazon advertising tax

Amazon Sales Tax Legislation

BENNET KELLEYBENNET KELLEYBENNET KELLEYBENNET KELLEY

April 14, 2009April 14, 2009April 14, 2009April 14, 2009

NEW YORK SOLUTIONNEW YORK SOLUTIONNEW YORK SOLUTIONNEW YORK SOLUTION

CALIFORNIACALIFORNIACALIFORNIACALIFORNIA PROBLEMPROBLEMPROBLEMPROBLEM

Today’s Story

POT OF GOLDPOT OF GOLDPOT OF GOLDPOT OF GOLD

NEW YORK SOLUTIONNEW YORK SOLUTIONNEW YORK SOLUTIONNEW YORK SOLUTION

Part 1Part 1Part 1Part 1The ProblemThe ProblemThe ProblemThe Problem

Californians are known for thinking big and doing things on a grand scale.

Both the good . . .

Combined FY09-10 Budget($MM)

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

. . . . and . . and the not so the not so good.good.

$60,000

$40,000

$20,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

Original Budget Special Session

Revenue

Expenditures

Balance

Source: Governor’s 2009-10 Budget

Projected Deficits FY09-10($BB)

CA

$27

$30

$33

$36

All states combined - $100.6B

NY IL

VA NC CT MN MD TN

$0

$3

$6

$9

$12

$15

$18

$21

$24

California Constitutional Limitations

• Two-thirds legislative approval required for tax increaseincrease

• Democratic majority two votes shy in each house – as a result any tax increase requires GOP votes

U.S. Constitutional LimitationsU.S. Constitutional LimitationsU.S. Constitutional LimitationsU.S. Constitutional Limitations

• Quill Corp. v. North Dakota(1) – Due Process and Commerce Clauses limit state taxing authority to entities with a physical presence in state.

• Borders Online, LLC v. State Bd. of Equalization(2)- Borders Online subject to sales tax since it was merely agent for Borders brick and mortar operations.

(1) 504 U.S. 298 (1992)

(2) 29 Cal. Rptr. 3d 176 (Cal. Ct. App. 2005)

Part 2: NEW YORK’S

“AMAZON TAX”“AMAZON TAX”

California has often looked to New York California has often looked to New York for talent and resources for talent and resources –– with great success.with great success.

THIS INCLUDES INDUSTRY . . .

ARTISTS . . .

AND ENTERTAINMENT

AND ENTERTAINMENT

OK . . . OK . . . OK . . . OK . . . Nobody’s Nobody’s Nobody’s Nobody’s perfectperfectperfectperfectperfectperfectperfectperfect

NY’s Amazon TaxNew York Tax Code Section 1101(b)(8)

• Seller of tangible or personal property subject to sales tax if:

– the seller enters into an agreement with a resident ofseller enters into an agreement with a resident ofseller enters into an agreement with a resident ofseller enters into an agreement with a resident ofthis state under which the residentunder which the residentunder which the residentunder which the resident, , , , for a commissionfor a commissionfor a commissionfor a commission or other consideration . . . refers potential customersrefers potential customersrefers potential customersrefers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by by by by the seller, if the cumulative gross receipts from sales by by by by the seller to customers in the state who are referred to the seller to customers in the state who are referred to the seller to customers in the state who are referred to the seller to customers in the state who are referred to the sellerthe sellerthe sellerthe seller by all residents with this type of an agreementby all residents with this type of an agreementby all residents with this type of an agreementby all residents with this type of an agreementwith the seller is in excess of [$10,000]in excess of [$10,000]in excess of [$10,000]in excess of [$10,000] during the preceding [four quarters].

– This presumption may be rebutted by proof that the resident with whom the seller has an agreement did not engage in any solicitation in the state on behalf of the seller that would satisfy the nexus requirement of the United States constitution . . .

Amazon Complaint DismissedAmazon.com v. New York State Dept. of Taxation & FinanceAmazon.com v. New York State Dept. of Taxation & FinanceAmazon.com v. New York State Dept. of Taxation & FinanceAmazon.com v. New York State Dept. of Taxation & Finance, No. 60124/08 (Jan. 12, 2009), No. 60124/08 (Jan. 12, 2009), No. 60124/08 (Jan. 12, 2009), No. 60124/08 (Jan. 12, 2009)

The New York law:

requires a substantial nexus between an out-of-state seller and New York through a contract to pay commissions for referrals with a New York resident along with with a New York resident along with realization of more than $10,000 of revenue from New York sales earned through the arrangement. The neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax collection burden when using New Yorkers to earn profit from other New Yorkers.

Assembly MemberAssembly MemberAssembly MemberAssembly MemberAssembly MemberAssembly MemberAssembly MemberAssembly MemberSkinner’s IdeaSkinner’s IdeaSkinner’s IdeaSkinner’s IdeaSkinner’s IdeaSkinner’s IdeaSkinner’s IdeaSkinner’s Idea

• AB 178 – Mirrors NY Bill

• “I introduced Assembly Bill 178 for two reasons: to create a level playing field for our brick and for two reasons: to create a level playing field for our brick and mortar businesses and to collect sales tax that is rightfully owed, thereby helping our budget shortfall.”

• Support from offline retailers

A Double SolutionA Double SolutionA Double SolutionA Double Solution

• Not treated as tax increaseincrease

• Two-thirds vote not required

Now BoardingNow Boarding

�� ConnecticutConnecticut

�� HawaiiHawaii

�� MarylandMaryland

North CarolinaNorth Carolina�� North CarolinaNorth Carolina

�� MinnesotaMinnesota

�� TennesseeTennessee

�� VirginiaVirginia

Part 3: Part 3: Part 3: Part 3: The Pot of GoldThe Pot of GoldThe Pot of GoldThe Pot of Gold

California has a history of being at the center of Gold Rushes

(actual and metaphoric)

TOTAL REVENUES TOTAL REVENUES TOTAL REVENUES TOTAL REVENUES ($MM)($MM)($MM)($MM)

SALES TAXSALES TAXSALES TAXSALES TAX

CACACACA

$405,610.0$405,610.0$405,610.0$405,610.0

$831.5$831.5$831.5$831.5

$19,170 $19,170 $19,170 $19,170

$0$0$0$0

Why Amazon?

CACACACA

Sales tax avoidance isSales tax avoidance isSales tax avoidance isSales tax avoidance ispart of Amazon’s business modelpart of Amazon’s business modelpart of Amazon’s business modelpart of Amazon’s business model.

-------- Assmb. Member SkinnerAssmb. Member SkinnerAssmb. Member SkinnerAssmb. Member Skinner

The Pot of Gold

$68MMNY: FY 2010

NY: FY 2009

$68MM

$61.3MM

$50MMNY: INITIAL PROJ.

CA: INITIAL PROJ.$55MM

v.

• 7,500 taxing jurisdictions make collecting sales tax too burdensome,

• Amazon provides back-end (including collection of sales tax) for sites such as too burdensome,

complex

• NY law unfair since don’t always know what state affiliates are from

tax) for sites such as Target.com

• Amazon threatened to terminate its Hawaii affiliates if state enacted NY type law

Who Opposes AB 178

Arguments Against

• Place California companies at competitive disadvantage

• Chill state’s leadership • Chill state’s leadership in e-commerce

• Harm small business growth

Costs of Amazon Tax

Result in a net loss of revenue

– Expensive litigation

– CA Affiliates will be terminated

• eBay is threatening to terminate • eBay is threatening to terminate California affiliates

– Loss of 16,000 jobsLoss of 16,000 jobsLoss of 16,000 jobsLoss of 16,000 jobs

– $1 billion in revenue$1 billion in revenue$1 billion in revenue$1 billion in revenue

(Source: Performance Marketing Alliance)

Publishers Terminating NY AffiliatesPublishers Terminating NY AffiliatesPublishers Terminating NY AffiliatesPublishers Terminating NY Affiliates

Acorn Media

Amerimark

Baby Universe

Backcountry.com

Binoculars.com

Checks Unlimited

Collectors' Choice Music

Compact Appliance

CSN Stores

Garden's Alive

Geeks.com

Gurneys

Henry Fields

Home Shopping

LinenSource

Luggage.com

Michigan Bulb

Musicians Friend

MyTwinn

Red Envelope

ReStock It

Ritz Camera

ShopNBC

ShoppersChoice Binoculars.com

Blair.com

Bodybuilding.com

Brecks

CafePress

CCVideo

Celebrate Express

Checks In The Mail

CSN Stores

Deep Discount

DVD Planet

Eastwood Company

Fingerhut

FirstStreet

Footsmart

Gaiam.com

eToys

Home Shopping Network

Jewelry Television

J&P Cycles

Justflowers

Karmaloop

KB Toys

LampsPlus

Leaps And Bounds

NetShops

Northern Tool

One Step Ahead

OnlineShoes.com

Oriental Trading

Overstock

Palo Alto Software

Silhouettes

Spilsbury

Spring Hill

Thompson Cigars

Tirerack

uBid.com

US Toy Co

Meet California Affiliates

Status

CaliforniaAB 178 – hearing postponed (again) until April 27

ConnecticutSB 806 – Senate vote as early as today.

HawaiiHB 1405 – Stripped from bill

Maryland

SB 1071 – Still in Committee

Status

MinnesotaSF 282/ HF 401 – hearing set for April 16

North Carolina

TennesseeSB 1741 / HB1947 stalled in committee, opposed by Dept. of Revenue

North CarolinaSB 487/HB 558 –no action (combined with download tax)

100 Wilshire Blvd., Suite 950Santa Monica, CA 90401www.internetlawcenter.net

THANK YOU!THANK YOU!THANK YOU!THANK YOU!

www.internetlawcenter.net

Bennet Kelley(310) 452-0401bkelley@internetlawcenter.net