Presenting a live 110 ‐ minute webinar with interactive Q&A Sales Tax Affiliate Nexus Stemming From Sales Tax Affiliate Nexus Stemming From Online Business Presence Meeting the Challenges of Tough State Laws and Court Rulings THURSDAY, DECEMBER 9, 2010 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: T d ’ f l f Arthur Rosen, Partner, McDermott Will & Emery , New Y ork Pat Derdenger, Tax Partner, Steptoe & Johnson , Phoenix J Christian Tennant Attorney McGuireWoods Richmond Va J. Christian Tennant , Attorney, McGuireWoods , Richmond, Va. Adam Thimmesch, Faegre & Benson , Minneapolis The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Sales Tax Affiliate Nexus Stemming From Online Business Presence F O li B i P Webinar Dec. 9, 2010 Arthur Rosen, McDermott Will & Emery Adam Thimmesch, Faegre & Benson arosen@ mwe.com athimmesch@ faegre.com J. Christian Tennant, McGuire Woods Pat Derdenger, Steptoe & Johnson ctennant@ mcguirewoods.com pderdenger@ steptoe.com
Today’s Program Background On Attributional Nexus Slide 6 – Slide 12 [Art hur Rosen] The New Y ork "Amazon Tax" Slide 13 – Slide 18 [Art hur Rosen] Recent S tate Actions In This Area Slide 19 – Slide 42 [Adam Thimmesch] Relevant Court Actions Slide 43 – Slide 54 [J. Christ ian Tennant ] Slide 55 – Slide 57 Other State Developments [J. Christ ian Tennant ] Slid 58 Slid 79 Slide 58 – Slide 79 Practical Tax, Business Planning Approaches [Pat Derdenger]
Arthur Rosen, McDermott Will & Emery BACKGROUND ON BACKGROUND ON ATTRIBUTIONAL NEXUS
History Of Attempts At Taxing Remote Businesses Nelson v. Sears, Roebuck & Co. 1942 Nelson v. Montgomery Ward & Co. Northwestern States 1959 1959 Portland Cement P l d C 1967 National Bellas Hess, Inc. v. Department Company v. Minnesota of Revenue of the State of Illinois 1980s States break the law 1992 Quill Corporation v. 1992 North Dakota Geoffrey v. SC 1993 Late 1990s ate 990s Late Late 1990s 1990s E-Commerce E Commerce Advisory Commission Advisory Commission on Electronic Advisory Commission on 1999 - 2000 1999 - 2000 Commerce Electronic Commerce 2000 - Present 2000 - Present ??? 2004 2004 MTC Factor Nexus Proposal 2005 OH Commercial Activity Tax 2007 MBNA v. West Virginia 2009 Capital One v. MA DDR Capital One v. MA DDR 2009 CA enacts econ. nexus 2009 CT enacts econ. nexus 7
A Attributional Nexus ‐ Background ib i l N B k d Scripto, Inc. v. Carson (1960) An agent may create nexus for an out-of-state corporation, even if the agent is an independent co po at o , eve t e age t s a depe de t contractor and not a fulltime employee. Tyler Pipe v. Washington Department of Revenue (1987) The test for determining whether an in-state person creates nexus for an out-of-state person is whether the actions of the in-state person are “ significantly associated with the taxpayer’s ability to establish and maintain a market in the state.” 8
Attributional Nexus – Background (Cont.) Sales and use taxes –Attribution 1990s “ bricks and mortar” affiliate cases • SF SF A F li A Folio v. OH (1995) OH (1995) • Bloomingdale’s By mail v. P A (1989) Online booksellers cases Online booksellers cases • Borders Online v. CA (2005) • BarnesandNoble.com v. CA (2007) BarnesandNoble.com v. CA (2007) • St. Tammany Parish v. BarnesandNoble.com (2007) 9
Attributional Nexus – Background (Cont.) Sales and use taxes –Attribution (Cont.) School teacher cases • S h l Scholastic Books v. KS (1996) ti B k KS (1996) • Scholastic Books v. CT (2009) Warranty repair services Warranty repair services • Dell v. CT (2003) • Dell v. NM (2008) Dell v. NM (2008) 10
Attributional Nexus – Hypothetical Situation Flyers being distributed indiscriminately on street corner Coupon given with receipt by store cashier C i ith i t b t hi Advertisement printed on receipt given by store cashier Telemarketing company in-state making/taking no intrastate Telemarketing company in-state making/taking no intrastate calls Telemarketing company in-state making/taking instrastate calls 11
Affili Affiliate Nexus Statutes N S • A number of states have enacted affiliate nexus statutes that label remote sellers as vendors required to collect sales/ use tax, on the basis of there being a related in-state party that uses common trademarks or that has common management or a common business plan. • Ala. Code Ann. § 40-23-190; Ark. Code § 26-53-124; Ga. Code Ann. § 48-48-2; Idaho Code § 63-3611; Indiana Code 6-2.5-8-10; Iowa Code § 423.1(43); Kan. Stat. Ann. § 79-3702; Ky. Rev. St at. C d § 423 1(43) K § 79 3702 K R I St t A St t Ann. § 139.340; Minn. Stat. § 297A.66; N.Y . Tax Law § 1101(b)(8); Ohio Rev. Code Ann. § 5741.01(l); Utah Code Ann. § 59-12-107; Wis. Stat. § 7751(13g)(d). 12
Arthur Rosen, McDermott Will & Emery THE NEW YORK “AMAZON THE NEW YORK AMAZON TAX”
N New York Amazon Statute Y k A S The statute presumes that a seller is a ”vendor” required to collect sales/use tax if the seller: (1) enters into an agreement with a New York resident or residents for consideration, (2) the New York resident or residents link to Amazon’s Web page, and (3) the cumulative gross receipts from sales through Amazon s Web page, and (3) the cumulative gross receipts from sales through the links to customers in New York exceeds $10,000. The presumption can be rebutted if the seller can establish that ”the only activity” of in-state representatives consists of advertising through a Web y p g g page. TSB-M-08(3)S (May 8, 2008). The presumption can also be rebutted if the seller includes in its business-referral agreements a provision prohibiting associates from engaging in solicitation activities and requiring each associate to submit a signed certification stating that he/she/it engaged in no in state to submit a signed certification stating that he/she/it engaged in no in-state solicitation during the prior year. TSB-M-08(3.1)S (June 30, 2008) The statutory presumption is triggered by commission-based referral agreements, but not by flat-fee agreements. TSB-M-08(3)S (May 8, 2008) agreements, but not by flat fee agreements. TSB M 08(3)S (May 8, 2008) 14
A Amazon Statutes: Legislative Activity S L i l i A i i • Amazon legislation was enacted in Rhode Island (R.I. Gen. Laws § 44-18-15(a)(2)) and North Carolina (N.C. Gen. Stat. § 105-164.8(b)(3)). • Other states that considered or are considering such legislation in 2010 include: CA CO CT FL IA IL MD MN MS NM OK in 2010 include: CA, CO, CT , FL, IA, IL, MD, MN, MS, NM, OK, TN, TX, VA, VT , and WI. 15
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Amazon.com (N.Y. Supreme Court, App. Div. 2010) A Di ) The Appellate Division upheld the lower court’s decision that the statute is constitutional on its face, because there are at least some grounds on which the statute could be constitutional (specifically, if Amazon’s associates perform in-state solicitation activities). A ’ i t f i t t li it ti ti iti ) The Appellate Division concluded that the presumption contained in the statute is not unconstitutional, because it is reasonable to expect that associates will want to increase their earnings by soliciting people to purchase items through their Web sites. The court remanded the Commerce Clause and Due Process Clause as-applied challenges to the lower court with a command to ”develop a record which establishes, actually, rather than theoretically, whether [the associates] are soliciting business or merely advertising on their behalf.” 18
Adam Thimmesch, Faegre & Benson RECENT STATE ACTIONS IN THIS AREA
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