"The Difference"

May 28th, 2008

BULLETIN FROM MARKETSMITH

Dear Colleagues,

We are at a critical point in our industry - technology is changing; regulation is changing; and our strategies need to respond. We at Marketsmith wanted to share insight and avenues for change with you on three touch points which affect us all significantly:

1.	Postal Rates and Advocacy
2.	New York State Sales Tax
3.	From ACCM - The Value of Matchbacks

Postal Rates and Advocacy - Advocating for postal rate changes through the American Catalog Mailers Association, the only organization whose entire focus is serving the needs of catalog mailers, in particular working with the USPS and postal regulators to identify ways to ease the burden of increased postal rates and preserve access to the mail. The ACMA is sponsoring a forum in Washington next month, June 26-27 in Washington, D.C., which I urge you all to attend. Details of the forum follow:

The National Catalog Advocacy and Strategy Forum will address:
	"Do Not Mail"
	ACMA's Efforts on "How Preference Requests are Handled by Catalogers"
	The Regulatory and Legislative Environment that controls the USPS
	Future of the US Postal Service and Catalogs in the Mail
	What's Coming Next in Postal Affairs
	ACMA's work to advocate for catalogers.

We have assembled the "Who's Who" of postal policy decision makers, including the Postmaster General and the Chairman of the Postal Regulatory Commission, to discuss our future in the mail. It is critical that our industry have a strong showing. Every cataloger has it in his/her direct self interest to get to know those who control our access to, cost in, and future for the mail. The ACMA Washington Forum is an excellent way to do this.

Come, participate, and build a relationship with those who matter. More information and registration is available at www.catalogmailersforum.org. Attending allows your organization to affect and understand the future of the offline channel.

New York Sales Tax - Many internet retailers are concerned about the new law in New York that requires "vendors" who meet certain requirements to register for and pay sales taxes. Marketsmith has been reviewing the details of the law in order to recommend a prudent policy toward it. Below we present our understanding of the law. However, we urge all retailers who may be affected by the provisions of the law to check with the DMA and/or their attorneys to ensure they respond appropriately for their individual business models.

First we must say that we believe no retailer should flaunt existing laws, however unpleasant or onerous they might be. It is also true that the law may require fleshing out in the courts because several of its requirements are not specific enough.

The law defines two basic conditions which must be met by a retailer in order to obligate the merchant with respect to sales tax. The law seems to be geared toward internet retailers with no physical presence in New York State. The following details the conditions necessary to cause compliance:

The retailer has no physical presence in New York and directly uses New York residents to solicit sales or make or maintain a market in return for commissions, referral fees, or other types of compensation. If the retailer uses a third party who uses NY state residents to solicit sales etc. for compensation, that is also considered as meeting the first requirement.

The retailer has no physical presence in New York and must have generated at least $10,000 in sales to customers in New York as a result of the agreements with residents to solicit sales etc. (as described in #1) for the last four tax quarters. At this time the period of March 1, 2007 through February 29, 2008 is considered the last four quarters since the law was passed in April (tax quarters end February, May, August, and November).

If the retailer has customers in New York and uses the post office or common carriers to deliver the products but does NOT have a physical presence in New York, AND has no relationships with NY residents to solicit sales or make or maintain a market in return for commissions, referral fees, or other compensation, the merchant has no obligation to register or pay sales taxes in New York, according to New York State Department of Taxation and Finance, Office of Tax Policy Analysis, Taxpayer Guidance Division, TSB-M-08(3)S, Sales Tax issued May 8, 2008.

If the retailer has no physical presence in New York and places advertisements on local New York websites such that when someone clicks on the ad that person is taken to the e-tailers site, there is also no obligation to pay sales tax. If the local site takes a commission on the sale, however, then there is an obligation to pay taxes (assuming the $10,000 threshold is met).

The law requires registration for compliance by June 1, 2008.

It is important to note that New York State presumes that internet retailers will owe sales tax and therefore a retailer must be able to provide proof that it has no tax liability if it is audited.

To provide that proof, the retailer must be able to show that it has no vendors in New York and that it did not meet the conditions stated above for the previous four tax quarters.

The law was passed on April 23, 2008. If a retailer paid a vendor in New York for sales it generated since the law was passed AND that retailer had sales of $10,000 in the previous four tax quarters, the company IS liable for taxes.

HOWEVER, the State provides an amnesty for previous liability for retailers that register with the State for tax compliance by June 1, 2008 and begin to collect taxes as of that date.

Retailers must determine the value of the sales generated through New York vendors to decide whether to continue those relationships or not. And retailers can notify all affiliate site providers that the retailers no longer wish to do business with sites that have a New York presence. According to a session provided by the DMA, that notification should be helpful in making the argument that the retailer does not have a New York tax liability. But we strongly urge retailers that are unsure of their tax status due to the nature of affiliate site provider agreements and sales activity since April 23, 2008 to review the details of their individual situations with competent legal counsel to determine if they should register with the State or not.

n a related note, Amazon is suing the State of New York stating that it does not have a right to collect sales tax from a vendor that does not have a physical presence in the State, based on the 1992 Supreme Court case of Quill v. North Dakota, the ruling from which stated that retailers do not have to pay sales tax in any locale where they do not have a physical presence. Also, Overstock.com Inc. has notified its more than 3,400 New York-based affiliates that as of June 1, they can no longer provide advertising for Overstock.com until New York changes its web sales tax law or the courts declare it unenforceable.

The current conflict is just the tip of the iceberg. There are existing legislation and pending bills that will keep this issue of collecting sales tax when there is no physical presence in the forefront for perhaps months or years to come. In our next newsletter we will explore these issues in more detail.

From ACCM - The Value of Matchbacks - Recently I attended an industry forum where I asked the question: "how many of you are doing matchbacks?" Of the 50 retailers/catalogers attending, not one raised a hand. Meanwhile, at the poorly attended ACCM, there was not much more interest shown for matchbacks.

In today's environment, matchbacks are not an option, they are mandatory! Understanding a customer's "path to purchase" through performing matchbacks is the single most effective way to determine the value of customer contact.

For those of you who missed Susan Pizzano's actionable presentation on matchbacks at the ACCM, we are presenting two key slides below. Susan discussed a number of methodologies for performing matchbacks from the straightforward last contact process after a mailing is completed to the various dynamic processes using order curves and fractional analysis. If you would like a copy of Susan's presentation, give me a call or email and we will email it to you.

Look for further discussion of these important issues in our next newsletter July 1.

My Very Best Always,

M-

Monica C. Smith

"Making our clients better than they were the day before"