Legislative Issues Affect Direct Marketers

In the past few months there has been a great deal of movement in legislative and regulatory circles which can affect direct marketers, particularly in the online commerce arena. We have identified the following bills/activities that you will want to keep on your radar; since their outcomes can have wide ranging ramifications for the way ecommerce is conducted. The action has been in primarily two arenas: Privacy and State Sales Tax.

Privacy
There are three different bills which have been proposed before Congress and in the California legislature right now which include Do Not Track regulations, limiting an online company’s ability to capture site visitor data only to that which is relevant to the visit/transaction. Otherwise, site visitors must be informed that data are being collected and visitors must be given an opportunity to opt out of having their information collected. None of these bills are currently being discussed on the floor. California has a bill which has been passed by committee but not yet scheduled for a vote.

• Privacy Bill of Rights Act of 2011 (Commercial Privacy Bill of Rights) from Senators Kerry and McCain additionally requires that collectors of information must implement security measures to protect the information they collect and maintain and there must be robust and clear notice to an individual of his or her ability to opt-out of the collection of information to transfer to third parties. Individuals also must have either the ability to access and correct their information, or to request cessation of its use and distribution.
• Do-Not-Track Online Act of 2011 (Do Not Track) put forward by Senator Rockefeller has a slightly different slant on the same issues as the Privacy bill adding online companies must destroy or ‘‘anonymize” the transaction information once it is no longer needed and naming the Federal Trade Commission as the enforcer against any company that does not honor consumer preference.
• H.R. 1895, Do Not Track Kids Act of 2011 – Introduced a month ago focuses on children, up to and including age 12. It requires parental consent before the collecting of a child’s information. The bill also calls for a “digital marketing bill of rights for teens” prohibiting collecting geolocation data from mobile devices and curtailing advertising directed at children and teens online. Websites must offer an “eraser button” to let users eliminate information online.
• California SB-761 requires consumers to be notified of the collection of their personal data for marketing use and give them the option and a simple method to opt out. It would require the state’s Attorney General to deploy regulations by July 1, 2012 forcing any business that uses, collects, or stores online data to offer California consumers “a method to opt out of that collection, use, and storage of such information.”

State Sales Tax has updates on the legislation. We encourage all merchants who may potentially be affected by these laws to review their obligations with their legal and accounting counsel. It should be noted that many of the states that have laws conferring “nexus” (physical presence) on an ecommerce retailer with affiliates but no operations or employees in the state only affect a limited number of larger retailers, from 30-100, depending on the amount of sales needed to be generated by an affiliate. Below is a recap of recent legislative activity.

• South Dakota – The state has passed a law which goes into effect July 1, 2011. Out of state retailers are required to notify South Dakota purchasers that they owe tax on their purchases. The notification must be prominent. The retailers are not required to collect the “use” tax. The law is very similar to legislation passed by Colorado which was stayed by a federal district court as part of a suit brought by the Direct Marketing Association claiming the law violates the commerce clause in the Constitution.
• Connecticut – in May 2011, Connecticut passed a law that requires ecommerce retailers to collect and remit state sales taxes if they generate more than $2,000 in sales a year through sales affiliates based in the state.
• Illinois – Illinois passed a law in March 2011 that requires ecommerce retailers to collect and remit sales taxes if they generate more than $10,000 in sales per year through affiliates in the state.
• Arkansas – Arkansas (Act 1001) passed a law in March 2011 that requires ecommerce retailers to collect and remit sales taxes if they generate more than $10,000 in sales per year through affiliates in the state.
• South Carolina – South Carolina passed SB36, a bill that in fact provides a temporary exemption to certain companies with distribution facilities in the state from being considered to have nexus until January 2, 2016, if these distribution centers do not have retail sales and represent at least $125 million investment and creation of at least 2000 jobs.
• California – Two weeks ago, AB 153 was passed in the California House, requiring remote sellers to collect sales tax if over $500,000 of revenue was a result of in-state referrals. This bill is now headed to the Senate, but no hearing date has been set.
• New York – In 2008, New York enacted a measure that requires any online retailer that generates more than $10,000 in sales via in-state sales affiliates is considered to have “nexus” (physical presence) in the state and must collect New York sales tax. The measure considers sales affiliates based in the state as constituting nexus. On November 4, 2010, a New York state appellate court ruled that New York’s law does not violate the commerce or due process clauses of the U. S. Constitution.
• Rhode Island – in 2009, Rhode Island enacted a law that established nexus for all ecommerce retailers that generate more than $5,000 in sales through sales affiliates based in the state, and thereby are obligated to collect and remit state sales taxes.
• North Carolina – The state enacted a law in August 2009 that requires ecommerce retailers to collect and remit sales taxes if they generate more than $10,000 in sales per year through affiliates in the state.

Updates on legislation can also be found on the DMA website at www.dmaaction.org

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