Today, Saturday April 25,  the House of Representatives voted to pass the Omnibus Tax Bill, HF2323. The vote was 68-65. This bill includes the Minnesota version of the Internet tax. The Omnibus Tax Bill will now move to the Senate. The proposed law closely mimics the NY Internet version with a similar threshold and the ability to rebut the presumption of nexus. Since it is a different state they might have different requirements on how to rebut but I would urge affiliates to begin to find counsel to see if the NY solution will work. At the very least, the documents and work done by our NY sales tax attorney will serve as a good starting point.

It is critical to be proactive. As we saw last year with NY, it is up to affiliates to push the issue. Although there is more attention on the issue this year, do not forget what happened to NY Affiliates last year. Think back to even a couple of weeks ago when Connecticut affiliates were removed from some programs before the law passed (it still hasn’t been signed).

 Affiliates are the ones with the most to lose but everyone stands to  lose if actions are taken without full understanding of the law.

Minnesota Omnibus Tax Bil HF2323

 Sec. 27. Minnesota Statutes 2008, section 297A.66, is amended by adding a subdivision to read:
Subd. 4a. Solicitor. (a) “Solicitor,” for purposes of subdivision 1, paragraph (a), means a person, whether an independent contractor or other representative, who directly or indirectly solicits business for the retailer.
(b) A retailer is presumed to have a solicitor in this state if it enters into an agreement with a resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site, or otherwise, to the seller. This paragraph only applies if the total gross receipts from sales to customers located in the state who were referred to the retailer by all residents with this type of agreement with the retailer is at least $10,000 in the 12-month period ending on the last day of the most recent calendar quarter before the calendar quarter in which the sale is made.
c) The presumption under paragraph (b) 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 retailer that would satisfy the nexus requirement of the United States Constitution during the 12-month period in question. Nothing in this section shall be construed to narrow the scope of the terms affiliate, agent, salesperson, canvasser, or other representative for purposes of subdivision 1, paragraph (a).
(d) For purposes of this paragraph, “resident” includes an individual who is a resident of this state, as defined in section 290.01, or a business that owns tangible personal property located in this state or has one or more employees providing services for it in this state.
EFFECTIVE DATE.This section is effective for sales and purchases made after June 30, 2009.

 

I will continue to follow as it now moves to Senate.

Status of HF 2323

As May 31 is approaching,  many New York affiliates will begin to receive requests to sign the annual “proof of compliance” certificates I wanted to pass along some information I received.  According to our lawyer’s office, the New York State Tax Department is requesting that a line be added to the annual certifications. The line to be added is -
“This certification and all information herein is subject to verification and audit by the New York State Tax Department.”  While it should be evident that this is the case, NYS requests it be made perfectly clear.

I have updated the documents on line to reflect this request.  Please see the revised version of the Letter to Merchants  explaining the law and the ability to rebut. I have also updated the Sample Documents on How to Rebut the Nexus in NY.  Remember these documents are a guide, please consult your own sales tax attorney.

To read more about how to implement the documents and Three Step Solution please see the following posts:

Rebut the Nexus in NY  Step 1

Rebut the Nexus in NY Step 2

Rebut the Nexus in NY Step 3

I have received several emails from merchants and affiliates asking what should be a plan of action.  Before I give you the lists of suggested action you need to realize that Legislation already exists in many states requiring the sales tax be collected. Other states are passing new legislation or quietly rewriting definitions. I urged everyone months ago to read through their current legislation and to stay on top of proposed legislation.  Judging by the surprise expressed over the past few days I doubt many looked at the laws until now. Many states already define a nexus as including “independent contractors”, “solicitors” “representatives” and dozens of other words. The word nexus means substantial physical presence. Once there is a nexus, the tax is due.  Online taxes are inevitable. I do not want to discourage anyone, but I doubt that these laws can be stopped. Two main reasons being it is a sales and use tax so the tax is already due, and two, State governments need the revenue. It is easier to collect the use tax from merchants than it is to go after all the citizens.

Now on to the question, what do affiliates and merchants do next? Answer-  LEARN, PREPARE , ADJUST and PREPARE again. Learn what the situations is, prepare for it, adjust and then prepare for changes.

Affiliate Plan of Action

• Every affiliate in every State needs to prepare. Identify those merchant relationships that are at risk. Just as I explained in my post  How California Affiliates Can Prepare  affiliate need to identify the merchants that do not collect tax online. These are your vulnerable relationships.  If a tax is collected online or items are not taxable it is a safe merchant. Please read that post on preparing carefully, just substitute your State name where ever the word California appears. Be sure the tax is collected ONLINE;  do not assume that because the store has a brick and mortar store in your state that the tax is collected online.
• Read through your State’s nexus definition; know where your State stands in regards to what defines a nexus. If there is any doubt you will need to consult a sales tax attorney or a very knowledgeable accountant to clarify for you. Be sure the attorney specializes in sales tax. Be sure the accountant is fully informed on sales tax and laws, this is not a time to save a penny by asking the guy down the block who just does tax returns and simple bookkeeping. If several band together and chip in the cost should be a manageable fee.  If your State is currently safe, be sure to keep on top of the legislative hearings. Subscribe to a feed from State Assembly and Senate.
• Do NOT do anything that will or may result in fraud or criminal charges. This includes using a false or misleading address. Tax evasion and avoidance is a serious crime.
• If the law currently exists or is passed, contact every merchant. Discuss what their plans are.  Communicate the message that the tax is due, the customer owes it one way or the other. Isn’t it better to keep a customer, keep an affiliate and just collect and remit the taxes?
• Maintain professional and business attitude. The bottom line is everyone will have to make their own business decision. It will best if you assume more of a proactive educated role than to go on the attack.  Work together with merchants and program managers. NY Affiliates were able to work out solutions in many cases because we used this approach.
• Keep lines of communication open.

Merchant Plan of Action

• Realize that affiliates are business people just like you are. Just as I urge affiliates to use a professional and businesslike approach,  use this same approach.
• Respond to affiliates questions regarding your stance. If you are still examining the situation and do not have any concrete answers,  just let them know. They will appreciate your desire to make educated business decisions. If you ignore or do not respond the situation becomes filled with negative energy.
• Consult a sales tax attorney in the State that has defined you as having a nexus; this will give you the best information
• Seriously consider collecting the taxes.  Is it worth losing affiliates and potentially customers every time a State declares you have a nexus?  Software is available to simplify. Realize that many merchants will just start collecting and remitting the tax. If you sever relationships with affiliates from a particular State, not only will those affiliates start promoting your competitors, affiliates from other states will be sympathetic and also switch to competitors. Amazon decided to collect the tax and they have earned the respect and loyalty of many affiliates because of that stance.  Think long term. At first it will take some organization and more time to handle the extra paperwork but with software the process is a bit easier. But the long term result is very loyal affiliates who realize they are valued business associates.
• Keep lines of communication open.

I think we all learned a bit from the NY Affiliate Tax situation, and hopefully we are better prepared to handle everything that will happen this year.

I am not a lawyer or an accountant but if you have questions or want suggestions on how to handle any of this, post your questions, I am more than happy to share our NY experience.