The Voice of the eCommerce Industry

Congressman Hodes Hits a Home Run for Small Business

Congressman Paul Hodes stepped up to the plate for small online retailers, and took a swing at a proposed law that would force new tax collection burdens on even the smallest of businesses who use catalogs or websites to serve their customers.

Hodes' resolution is titled “Supporting the Preservation of Internet Entrepreneurs and Small Businesses,” and its main provision is:

Congress should not impose any new burdensome or unfair tax collecting requirements on small on-line businesses, which would ultimately hurt the economy and consumers in the United States.

It’s good to see that Rep. Hodes was joined by colleagues from both parties, including Reps Capito, Lungren, Pitts and Schrader. 

The Hodes resolution is a direct response to legislation from Rep. Bill Delahunt that would force small retailers—those doing just $100K in annual remote sales -- to act as tax collectors for thousands of state and local tax jurisdictions where they have no physical presence.

Curiously, the legislation is titled the “Main Street Fairness Act” and is being sold as good for small business.   But main street small retailers have been getting clobbered by Walmart and big-box stores – not by the Internet.  In fact, main street is learning that the internet is their best hope for finding low-cost supply and finding new customers around the world.

So what would the Delahunt legislation really mean for small retailers who are staking a claim in the online world?

The bill Rep. Delahunt just introduced sets no level for the small seller exception. Instead, it leaves that to the tax collectors running the Governing Board of the Streamlined Sales Tax Project (SSPTP).   On April 30 of this year, this Governing Board voted to cut the small seller exception from remote sales level of $5 Million to just …  $100,000.

But wait, that $100K is just for starters.   The Governing Board amendment included this prescription for driving the small seller exception even lower:

The exemption threshold shall be set at a relatively low level and over time adjusted downward so that only sellers making isolated or occasional sales are excluded from the collection requirement.

Run the numbers:  $100,000 in gross sales is about $8,000 per month.  After expenses for cost of goods, marketing, accounting, communications, travel, etc. there’s not much left to pay for the owner's time, let alone costs of collecting taxes for 46 states.

And what kinds of costs will SSTP bring? Advocates of SSTP say that Certified Service Providers (CSPs) have software that makes it trivial for even the tiniest businesses to collect sales tax for everyone. But again, a little investigation shows just how big these costs would be be.

A Cost of Collection study sponsored by the SSTP Governing Board shows that small sellers (under $1M) spend almost 17 cents for every dollar they collect for states. And even if CSP software works as promised, that only helps with 2 cents of the 17 cents in costs per dollar collected.  That leaves small sellers with a 15% cost burden on every dollar they collect, for things like:

• Paying computer consultant to integrate CSP software into the seller’s home-grown or customized software
• Training for customer support and back-office personnel
  Answering questions from customers who claim they should be tax-exempt
• Answering calls and emails from customers questioning the taxability of items, or sales tax holidays in remote jurisdictions.
• Handling audit questions from 46 states, since the CSP will inevitably pass those questions along to the small seller for resolution
• Paying accountants and computer consultants to help find the answers to all these questions.

These collection burdens will be a huge problem for catalog and online sellers who are collecting only their home-state sales tax today.    Ask any small business, on Main Street or online, and you’ll learn it’s hard enough to collect sales tax for one state, let alone all 46 states with sales tax laws of their own.

With a full picture of what small online retailers would face from Rep. Delahunt’s proposal, we can see why Rep. Hodes and his colleagues were ready to go to bat for internet entrepreneurs and small online sellers.

A close look at the facts show that the SSTP would impose big collection burdens on small businesses, while adding less than three-tenths of one percent of state and local tax revenues. 

Sounds like Delahunt's pitch for SSTP ought to be returned deep into the center field seats.   Swing away, Rep. Hodes!

--Steve DelBianco

When it comes to Internet taxes, where you sit determines where you stand

There's a wise adage that goes "Where you sit determines where you stand."   Keep that in mind when you hear someone advocate a new sales tax collection mandate on small out-of-state retailers.

In a post at BNET last week, Chris Dannen described how big retailers are supporting the so-called “streamlined sales tax”:

“Brick-and-mortar retailers — many of whom have operations online — are some of the most vocal proponents of the new online tax laws. The members of the pro-tax lobby, which includes Best Buy, WalMart ,Target and others, already collect sales tax online, regardless of the buyer’s state, and see Web-only retailers as having an unfair advantage.

from How to Tax E-Commerce without Killing Entrepreneurship (and eBay)”

Big-box stores like Walmart and Target support a federal mandate that forces everyone to collect sales tax, even for states where they have zero presence.  So why would these giant chains  -- who already have to collect taxes on their web sales -- stand for this? 

Because from where Walmart sits, any simplification – even a little – helps reduce their costs.  And because these big boys want to impose new tax collection costs on their small online competitors.

In his comment on the BNET post, David Campbell tells us where his company stands on these new tax collection burdens:

Our company, FedTax.net, is launching a completely FREE service named TaxCloud, which automatically calculates accurate local sales tax for every jurisdiction in the United States. Internet merchants can point their existing e-commerce systems at TaxCloud for sales tax calculation, the same way they point at USPS/FedEx/UPS for calculation of shipping rates. For those states which have come into compliance with the Streamlined Sales Tax Agreement, TaxCloud will also automatically remit collected sales taxes, file periodic sales tax returns, and FedTax.net will act as the primary responder in the event of a jurisdictional audit. - again all for FREE.

Now, think about where FedTax sits and you'll understand why they are also standing for this new tax law.  FedTax stands to gain millions in new revenue Congress forces small businesses to seek help  -- from services like FedTax. 

But don't think for a minute that a small retailer is going to find relief from the lookup and remit functions that FedTax would provide.   The real cost for small sellers starts when they have to integrate FedTax tools into their home-grown and customized online shopping carts. And after they swallow that cost, small sellers will spend loads of time and accounting fees handling exceptions, exchanges, and state tax audits.

Meanwhile, FedTax collects their fees from state tax collectors, just for giving a band-aid to small sellers suffering from mortal wounds to their cost structure.

WalMart and Target are happy, too, while they watch small online competitors follow main street retailers into the dustbin of American business history.

If you think about this from where small businesses sit, there's just no way Congress should stand for a new tax scheme like this.

--
Steve DelBianco

California Bill Prevents Social Networking Sites from Displaying Home Address & Telephone # – How can this be…bad?

There’s a bill moving in California (SB 1361) that restricts how social networking sites display the personal information of 13 to 17 yr olds. It’s billed as a privacy bill and at first glance seems relatively harmless -- after all, kids don’t need to be broadcasting their contact information, right? Maybe. It all depends.  

It depends on the situation, obviously. We teach our kids to recognize risky situations and to react appropriately.  

But whether or not teens are at risk by publishing their telephone numbers is not the threshold question here. The law presumes such and I’m not aware of any specific findings offered in testimony about the bill.

Instead, the issue at hand is whether we need a law to restrict social networking websites from publishing certain information from teenagers. And with any law, there’s always the corresponding principle of unintended consequences.  

A bit more about the bill. It restricts a social networking website from displaying the home address and telephone numbers of minors who self-identify as being under 18. It only applies to “web fields specifically designated to display the registered user’s home address or telephone number” – recognizing the impracticality of having hundreds of thousands of websites police every area where kids can share information.

Arguing against bills that aim to protect children is really hard work – who can be against the children (or in this case, adolescents)? But I truly believe this bill has serious unintended consequences and sets a bad precedent for how minors are allowed to share information on the Internet. 

Here’s why SB 1361 shouldn’t become law:

• It’s a one-size-fits-all approach that encourages kids to lie about their age. If a teen can't share this info in a pre-prescribed field, they will either share it in a general space, share it via text or email, or lie about their age in order to share the info.---thereby circumventing a site’s safety features.
• It undercuts existing safety solutions and the sort of “teachable moments” endorsed by the NTIA OSTWG and Berkman Internet safety reports.
• It wrongly assumes that predators discover a kid’s home address or telephone number through the Internet and then contact them offline (instead, we know that at-risk kids are groomed online, not offline).
• It provides a false sense of security to parents.
• Finally, it’s better to educate teens on how to properly give out their contact information than to have the government do it for them.

The bill is before the Assembly, having been referred to the Arts/Entertainment committee. It will likely be heard in the next week or two, and has already passed the Senate.

-Braden Cox

On Tax Day, a Taxing Year (Already) on Internet Commerce

It’s April 15, so hopefully nobody’s waiting in long lines at the post office (though we think you should be using the Internet to file electronically). Unfortunately, it’s only April but already it has been a taxing year for online commerce.

We’ve seen six tax-related categories of bills that have been introduced in state legislatures this year: (1) Privacy-invading purchase reporting laws; (2) Bounty hunter bills; (3) affiliate advertising as a nexus for requiring sales tax collection; (4) imposing hotel taxes on online travel companies; (5) expanding Internet sales taxes based on inadequate simplification; and (6) new taxes on digital downloads.  

Colorado law turns online companies into the purchasing police (and snitch)

Colorado passed HB 1193 earlier this year (it takes effect in May), and in an effort to get consumers to pay the use tax on Internet purchases it requires out-of-state companies to share purchasing data with the state Dept of Revenue.

Out-of-state retailers must track and report the purchases of Coloradans and: (a) file an annual statement with purchase data for each purchaser to the Department of Revenue; (b) send buyers a summary statement of all their purchases so they know how much use tax to pay (like a 1099 form we receive on investments, only would it be called “Form 1984”?); and (c) on every invoice and receipt, notify Colorado purchasers of their need to file a sales and use tax return with the state; Colorado’s Department of Revenue will now know all the vendors where residents made online or catalog purchases from remote sellers. This would include sensitive items of a particular kind of merchandise -- sex items, specialty books, items that reveal political views, etc.

Declan McCullagh wrote a good article on this yesterday. California has an almost identical bill pending (AB 2078). So does Tennessee (HB 1947).

Deputizing plaintiff’s lawyers to sue for uncollected taxes

Georgia (SB 512) was a “bounty hunter” bill that would give the state revenue commissioner broad authority to to hire contractors on contingency to go after uncollected sales taxes. It would authorize payment of contingency fees to lawyers who successfully sue remote online retailers to enforce collection obligations. The bill failed to meet the legislature’s crossover deadline, so it’s effectively dead this year.

Affiliate nexus laws are an unconstitutional expansion of sales tax burdens to out-of-state businesses.

Colorado (SB 1193), Connecticut (HB 5481), Illinois (SB 3353), Maryland (SB 824), New Mexico (HB 50), Virginia (SB 660) and Vermont (HB 661) introduced bills declaring that some forms of Internet advertising are equivalent to having sales agents in their states. California’s Senate Budget and Fiscal Committee passed a budget report that includes an advertising nexus tax. All these states want to force out-of-state advertisers to collect and remit sales tax on sales to their residents.

Advocates believe the measures will raise tax revenue, but that’s a false hope, as seen in states that enacted this law in 2009. Moreover, fewer advertising dollars would flow to in-state websites, costing income and jobs. State laws that use Internet advertising as a proxy for an in-state sales representative will stunt the growth of new business models and distort the evolution of Internet marketing.

Imposing hotel taxes on services provided by Online Travel Companies—the wrong tax for the wrong jurisdiction

Local governments want to levy their double-digit hotel occupancy taxes on service fees charged by online travel websites. New York City passed an ordinance, the state of Florida considered legislation and sued Expedia and Orbitz, and 67 other municipalities have filed lawsuits.

In Jan-2009, the Multistate Tax Commission recommended a model bill to impose hotel taxes on service fees charged by travel agents. But treating online intermediaries as hotels is the wrong approach — service fees should not be taxed the same way as a hotel room charge.

NetChoice is now working with the Streamlined Sales Tax Governing Board and with NCSL to evaluate an alternative proposal that taxes agent services as a service rendered to the traveler booking the room.

Expanding Internet sales taxes, based on inflated expectations and inadequate simplification

Overblown tax revenue estimates are luring states into a system where costs could outweigh benefits. Florida and Virginia are the latest states betting on inflated tax collection estimates if they embrace a nationwide sales tax regime called the Streamlined Sales Tax (SST).

For a decade, the SST sought to reduce the burden of sales tax collection on interstate commerce, as held by the Supreme Court’s Quill decision. However, the SST is not nearly simple enough.  Moreover, recent research proves that the lost revenue from taxes on out-of-state purchases is grossly overstated.

New taxes on digital downloads of music, movies, books, games, and software 

Colorado (HB 1192), Indiana (SB 250), Wyoming (HB 29) and Vermont introduced legislation—and Oklahoma introduced a budget proposal—that would impose new sales taxes on digital downloads.

States are looking everywhere for new revenue, but it doesn’t make sense to add taxes to digital downloads, the greenest way you can get music, movies, books, games, and software. Instead, states should be encouraging behavior that avoids round trips in the car, warehousing, and the use of plastic and packaging.

Moreover, some state tax administrators wrongly contend that digital goods are the equivalents of offline products.  Just ask the Kindle users whose books were ‘recalled’ by Amazon. Finally, these bills place in-state businesses at a disadvantage to out-of-state competitors, who wouldn’t have to collect the sales tax when selling the same downloads to in-state customers.

-Braden Cox

Check out PFF’s “Super-Sizing the FTC” event on Friday

On Friday, April 16 the Progress and Freedom Foundation will host a Capitol Hill briefing on Super-Sizing the FTC & What It Means for the Internet, Media & Advertising. Berin Szoka will moderate a panel of FTC veterans and observers who will discuss the growing powers of the Federal Trade Commission. This is an important issue for NetChoice members – we’ve discussed why the FTC is like a kid in a candy store and needs parental (Congressional) supervision and should not have expanded rulemaking powers (this proposal is #1 on the NetChoice iAWFUL list of bad legislation).

We recommend you attend and register here for this 12-2 pm briefing in the Capitol Visitor Center.

Rocky Mountain Low: Colorado’s New “Track & Tax” Law Invades Consumer Privacy

 

He climbed cathedral mountains, he saw silver clouds below
He saw everything as far as you can see
And they say that he got crazy once and he tried to touch the sun
And he lost a friend but kept his memory

-John Denver, Rocky Mountain High

We know that states are increasingly looking to tax anything and everything, including on the Internet. As Declan McCullagh reported earlier this week, Colorado and “fifteen other states have considered or are considering enacting laws targeting Amazon and other e-commerce companies that typically do not charge sales tax for shipments sent outside their home state.” These nexus taxes are #2 on the NetChoice iAWFUL list of bad legislation.

But Colorado’s recent “track and tax” law marks the most privacy-egregious Internet-related tax law we’ve seen. 

Here’s the rub:  The Colorado state tax department will now have a listing of all purchases its citizens make from out-of-state companies. Why? So it can enforce its tax on purchases by way of the use tax that each of us owes to our government when sales tax isn’t collected.

HB 1193 was enacted last month as part of a package of revenue raising legislation. It originally started as an advertising nexus bill, but turned into a reporting bill when a lot of in-state companies that rely on affiliate advertising revenue complained that they would be harmed. Now it is consumer privacy that is harmed.

HB 1193 forces out-of-state retailers to track and report the purchases of Coloradans: (a) must file an annual statement with purchase data for each purchaser to the Department of Revenue; (b) must send buyers a summary statement of all their purchases so they know how much use tax to pay (like a 1099 form we receive on investments); and (c) on every invoice and receipt must notify Colorado purchasers of their need to file a sales and use tax return with the state;

The state revenue department just issued emergency regulations to resolve some but not all of the questions from retailers. Unfortunately, the department assumes that the legislature wanted notices shown on every single invoice — effective as of last week.  And the state hasn’t yet told online retailers how they would send snail mail reports to purchasers for whom they have no mailing address.

So that it can earn a few more bucks in sales tax, Colorado’s Department of Revenue will now know all the vendors where residents made online or catalog purchases from remote sellers. This would include sensitive items of a particular kind of merchandise -- sex items, specialty books, items that reveal political views, etc.

When Colorado residents learn that this law makes them pay more taxes, they’re not going to be happy.  And they’ll be positively perturbed when they learn that the state is collecting information about their personal purchases. I would hope that other states will wait to see the blow-back from Colorado voters before copying Colorado’s law.

I see a new version of John Denver’s song:

He climbed the capitol dome, he saw silver dollars below
He saw every out-of-state purchase as far as you can see
And they say that he got crazy once and invaded consumer privacy
And he lost voter confidence but kept his memory—don’t do this again.

-Braden Cox

NetChoice Takes a Plane to Maine to Testify—Againe

Yesterday, NetChoice joined the Center for Democracy & Technology and the Maine Civil Liberties Union (and PFF, who submitted written testimony) before the Maine legislature to oppose a bill that would restrict how health-related products can me marketed to minors under age 17.

The bill, LD 1677, is a repeal and replacement for current law passed last year that was the subject of strong opposition from the online industry. As I previously blogged, NetChoice was a lead plaintiff in last year’s lawsuit to enjoin the law. Though well intentioned, this law was overly-broad and wrought with constitutional concerns. As a result, Attorney General Mills agreed not to enforce the statute. In October last year, NetChoice joined others in testifying before Maine Joint Standing Committee on the Judiciary regarding this law. In short, the conclusion of all parties involved was that the current legislation could not stand and that the legislature should move to quickly repeal.

So we all arrived in Augusta, ready for the next round – after all, this bill is #9 on the NetChoice iAWFUL list! But when we arrived, we were treated to a surprise amendment from the bill sponsor and this became the focus for discussion and testimony. Here’s the amended prohibition:

A person may not knowingly collect and use personal information collected on the Internet from a minor residing in this State for the purposes of pharmaceutical marketing prescription drugs to that minor, unless the minor specifically requests that information about the prescription drug be provided to them

John Morris at CDT gave great testimony and generally welcomed the amendment. However, he cautioned the committee that it should make sure that website intermediaries would not have liability for merely displaying ads. Or for displaying ads to minors that have previously registered with the site, and the ad display was unrelated to the information contained in the registration.

While the bill’s language is better for online companies, it remains to be proved why it’s needed in the first place. There seems to be a sweeping fear among many people that advertising is bad and tries to persuade us to do things we don’t need. Magnify this fear times ten when it comes to advertising and children, and pharmaceuticals.

I understand the thoughts that we’re an overly-medicated society, but that view often ignores the many benefits of modern medicine. Regardless, when it comes to prescription drug marketing and children, there are firm checks and balances in place with what parents must consent to and what doctors will ethically prescribe.

Keep your eyes and ears open for next week’s work session on Tuesday. That’s when there will be a vote, and we’ll see whether I need to board another plane to Maine, not that it’s that much of a pain.

-Braden Cox

Like a Kid in a Candy Store, Parental Supervision Still Needed for FTC Rulemakings

Congress gets dinged a lot for slowing down innovation, but sometimes that is just what the doctor ordered. Thirty-five years ago, a Democratically controlled Congress passed the Magnuson-Moss Act in an attempt to check a hyperactive FTC.

Like a kid set loose in a candy store, the FTC at the time had gone on a binge of overreaching and harmful regulation. The core enabler of this action is the exceptionally broad mandate bestowed on the agency to regulate all “unfair” consumer activity. Unlike regulating the structural stability of bridges or safety in food, “fairness” is a subjective concept.

Congress’ prudent action to place special restrictions on FTC rulemaking [15 U.S.C. Sect. 57a(b)(2)(A)] was in direct response to the agency’s overreach and regulation of activities that would have included advertising children’s products – in essence, acting like a kid in a candy store. Magnuson-Moss was the equivalent of putting the candy behind the counter, providing Congress and courts control over how much candy was appropriate. 

Now, 35 years later, the FTC has that 'unfairness feeling' again. In a NY Times interview last month, FTC Chairman Jon Leibowitz signaled his intent to change standard marketing tactics of disclosure and opt-out, by requiring users to opt-In for collection of information for targeting ads.   They are concerned about what's "fair" in advertising, but we know that low rates of opt-in will reduce ad revenue. If the change were put into effect, free online services might have to charge a "fare" to users.

At the same time, the FTC is seeking to shed what the Chair called "medieval restrictions" on its rulemaking powers.  A change that would allow the FTC to move quickly to require opt-in. Taken together, these threats to online services and e-commerce are #1 on the 2010 iAWFUL list.

Earlier in the 111th Congress, legislation was passed in the House to reform financial services regulatory mechanisms. The bill expanded FTC rulemaking authority, even though the FTC wasn't blamed for failing to regulate trade that contributed to the financial crisis.

A similar Senate bill addressing financial regulatory reform did not change FTC rulemaking powers.  Fortunately, at a Senate Commerce hearing on February 4, several Senators challenged Chairman Leibowitz as he made the case for an expedited rulemaking process.

The specific purpose of the Magnuson-Moss Act was to enact safeguards that restrain the FTC’s ability to unilaterally deem certain practices “unfair” and, in turn, to expand its authority in many areas including banning broad categories of advertising.

These safeguards include important procedures that allow for enhanced stakeholder participation, require a detailed evidentiary record before the FTC can create new rules, and enable courts to scrutinize rulemakings as a valuable check to ensure proper process and evidentiary support.     

The current process through which the FTC promulgates rules, as established by the long standing Magnuson-Moss Act, is a proven and effective vehicle for the regulation of business that provides the Commission with authority to punish businesses that act in a deceptive manner.

Chairman Leibowitz argued that his agency strains to make timely rules. But Congress has demonstrated time and again that when it wants the FTC to move quickly, it will direct the FTC to do so. For example, both the COPPA and CAN-SPAM laws gave the FTC rulemaking authority – under the expedited APA process [5 U.S.C. Sect 553] – allowing the FTC to issue regs quickly.

The bottom line is that new regulations are not necessary to hold legitimate businesses accountable for their actions. Outlaws who spam and scam are STILL spamming and scamming after the FTC issued regulations.  

A new era of increased regulatory promulgation at the FTC would harm law-abiding competitors and consumers while failing to address those who operate outside the law. To address these individuals, aggressive enforcement seems more relevant than expanded regulation.

This is why the FCC’s campaign for an expedited rulemaking process is the equivalent of handing a child the keys to a candy store, and the reason why it tops the 2010 iAwful list.

New Year, New Slate of “AWFUL” Internet Laws

It was an awfully bad snowfall that paralyzed Washington, DC last week. While we may curse Old Man Winter, ‘tis the season for snow.  Unfortunately, it’s also the season for bad legislation – and we have to to worry about digging out the Internet from a pile of bad proposed state and federal laws.

Today NetChoice released its first iAWFUL list of 2010, taking stock of the most serious legislative threats facing the global Internet. The Internet Advocates’ Watchlist for Ugly Laws (iAWFUL) is our top ten – or more accurately, “bottom ten” – list of the worst proposed Internet laws in America.

For the first time since we started keeping the iAWFUL list in 2009, a federal proposal has taken the infamous number one spot. The Federal Trade Commission is telling Congress to scrap long-established checks on its already extensive power. The FTC wants the power to impose burdensome regulations on communications between online retailers and consumers without answering to Congress.

State legislatures have typically had a monopoly on proposing the most outrageous and extreme burdens on Internet commerce and communication, but this effort in Congress has the potential to do serious damage to the Internet and innovation throughout the nation.

When Congress passed the Magnuson-Moss Act in 1975, it recognized that a more transparent rulemaking process must temper the FTC’s exceptionally broad consumer protection powers over all forms of trade and commerce. A repeal of Magnuson-Moss rules would let the FTC create new restrictions on longstanding retailer relationships that deliver free and targeted benefits to consumers.

But while a federal measure may have taken over the top spot on our list, statehouses from Hawaii to Virginia own the next nine spots on this year’s iAWFUL.

Colorado, Illinois, Maryland, New Mexico, Virginia, and Vermont also made the iAWFUL list for their attempts to force out-of-state advertisers to collect and file sales tax returns for sales to their residents.

Online companies and content providers are still experimenting with new models for advertising and distribution. State laws that use online advertising as a proxy for an in-state sales representative will stunt the growth of new business models and distort the evolution of Internet marketing.

But we don’t keep the iAWFUL list just to remind ourselves of all the bad laws out there. We keep it to rally the efforts of advocates around the country working to protect the Internet. In that respect, the real story of the iAWFUL list is not what’s on it, but what fell off.

The top legislation on the August 2009 iAWFUL release was a Maine bill attempting to restrict marketing to teens online. But in response to the publicity created by iAWFUL – and thanks to a lot of hard work by Internet advocates -- Maine's House and Senate Judiciary committees unanimously recommended repeal of the law in the next legislative session.

Another high-profile item on the last iAWFUL –trio of federal bills regarding organized retail crime, made a remarkable improvement and fell from the Top 10. Again, thanks to the efforts of NetChoice and other Internet advocates, lawmakers began to get the message that law enforcement needed resources – not new laws – to fight organized retail crime.

The name of iAWFUL says it all. This is a list of ugly, ugly laws. But anytime we get tired of sorting, ranking and listing them, we remind ourselves that iAWFUL is a key tool to blunting their dangerous effects.

Call it our snow shovel to dig the Internet out from a blizzard of bad legislation.

[photo above: AP Photo/Evan Vucci]

Maine Committee Does the Right Thing, Recommends Repeal of Marketing Law

Sometimes legislators vote along political party interests, sometimes in their self interest, and as we saw in Maine--sometimes legislators will have the constitutional interests of free speech and the commerce clause in mind.

NetChoice traveled to Augusta last week to testify at a joint judiciary committee hearing of the Maine legislature. Our mission: persuade the committee members to repeal the Predatory Marketing Act, which became law just two months ago--and a law so bad that it ranked #1 on NetChoice's iAWFUL top ten list of worst legislation.

The law's potentially sweeping (negative) impact is a big deal. So big that the Maine legislature met out-of-session to re-consider it. It dedicated a webpage to the hearing and received over 30 comments from various interests, including comments from NetChoice.

The Act seriously restricts the exchange of information between Web 2.0 services and their users by making it unlawful to knowingly collect or receive health-related or personal information for marketing purposes from a minor, without first obtaining verifiable parental consent. In effect, the Act restricts advertising that is most relevant to user interests.

We arrived confident but with a "tail between our legs" feeling -- after all, we had just sued the state of Maine and agreed to a court order that said very favorable words about our chances to win on the merits. In the court case, NetChoice was joined by Reed Elsevier, the Maine Independent Colleges Association, and the Maine Press Association in calling for an injunction against the law, arguing that it tramples First Amendment rights while wreaking havoc with interstate commerce.

So here we were, with but a day or two to show how the existing law broadly harms a number of online services. We urged the Committee that any law should focus on actual harm to minors, without prohibiting the legitimate marketing and advertising that makes free content and Web 2.0 services possible. In addition to NetChoice, the committee heard from constitutional scholars, companies, and providers of health-related services.

The committee carefully considered all the testimony, but the right response was evident. Even the bill sponsors agreed that the law needed to be fixed (though there was disagreement as to how much). The committee unanimously recommended to repeal the existing law.

Although there still seems to be a lot of ambiguity about the original intent of the bill, the committee agreed that there are concerns with some marketing practices of healthcare products that are targeted to minors, and that the primary focus of the original bill  was the collection and transfer of personal information of minors for healthcare product marketing. Changes to the bill broadened the bill (it was already very broad) which made it obvious that the bill was unconstitutional and not fixable in present form.

The committee made the following recommendations:

• Leadership should find the earliest available opportunity to allow removal of the entire existing statute
• Should the bill be introduced, there may be ways to make it constitutional if it only applies to the personal information of children 12 and under, follows the requirements of COPPA, is narrowly tailored, and is based on full public hearings to create a sound public record and clear legislative intent.

So we're on track to see the law repealed sometime in January. But we'll also see the introduction of a new bill at that time, too. It is likely that enforcement of existing federal and state laws can address a great deal of the marketing tactics of concern to the bill sponsors.

Still, even after careful consideration of existing laws, there may be some unsavory marketing practices that fall through the gaps of existing regulation. NetChoice and its member companies stand ready to help craft legislation to close those gaps while preserving Maine residents’ access to helpful information and valued online services.

-Braden & Steve

The Worst Internet Laws in America, Take Two

Back in June, we introduced iAWFUL (the Internet Advocates' Watchlist for Ugly Laws) as part of a broader effort to push back against America's worst Internet legislation. Two months have passed, and while many of the bills in the top 10 have changed, they remain every bit as AWFUL.

Earlier today NetChoice unveiled the first major update of iAWFUL, which lists the 10 worst Internet bills/laws in America. The updated list includes five new items, with new laws in the top 2 slots.

But before I get to the truly AWFUL measures in the new list, it's worth mentioning a few that fell off the list, in large part thanks to the pressure that Internet advocates exerted through iAWFUL:

#2 on the June iAWFUL list was a California bill that would have forced unworkable technical restrictions on the posting of photos to social networking pages. The bill's sponsor responded by working with Internet advocates to fix problems with the measure.

#3 on the June iAWFUL list was a bill in Connecticut that would have required sales tax collection by out-of-state businesses that pay commissions to in-state affiliates. The Governor heard our concerns about the impact on in-state publishers and school charities, and has thus far kept this measure off the table in budget negotiations.

#5 on the June iAWFUL list was a Connecticut bill to let police conduct searches of homes where goods were being stored by online dealers – without having to obtain a search warrant. Thanks to iAWFUL publicity, this bill stalled in the House.

This is what iAWFUL is all about: creating positive change through informed advocacy.

Now for the bad news. For every measure that fell off the iAWFUL list, we found a truly AWFUL replacement.

Toping the list is a Maine law that will limit teens’ access to online services and expose valuable websites to a rash of lawsuits. At the end of its last session, the Maine legislature voted to require Web sites to obtain “verifiable parental consent” before asking Maine teenagers to enter just their name and age.

As is so often the case with bad Internet legislation, it seems to have been drafted without any consideration to the unintended consequences it would impose on important, socially valuable websites that provide content, communications and commerce for millions of consumers.

Web sites have no workable way to obtain "verifiable parental consent," so the real impact of the legislation is that teenagers in Maine will be denied access to valuable online tools and services ranging from college finders to the companies that sell class rings. And given the borderless nature of the Internet, its impact could be felt far outside of Maine. On a list of bad laws, this Maine measure takes the top spot.

Another new law follows closely at #2 in the new iAWFUL list. New York City is set to impose its 20% tax rate on hotel reservation service fees charged by travel agents and online travel websites. The city already rakes in 20% on the hotel room charges, but now they want 20% of any fees collected by travel agents, too. As I wrote last month, this is awful for hotels, travelers, and agents who’d have to start filing returns in every city that followed the New York’s iAWFUL example.

Beating back bad Internet laws is like playing whack-a-mole. There always seems to be a new one rearing its AWFUL head.

--Steve DelBianco

The full iAWFUL list for August-2009 is posted here and below:

1. Maine Predatory Marketing Law – What’s wrong? Creates an unprecedented prohibition on collecting information about and marketing to teenagers. At the very end of its session, the Maine legislature passed a sweeping law that regulates a company’s marketing and data collection practices.  Ostensibly modeled from the federal Children’s Online Privacy Protection Act, the Maine law (10 MRSA c.1055) requires “verifiable parental consent” before any company collects or receives personal information of anyone under 18 years old . This law will impact all sorts of websites where teenagers can provide their names and other personal information. It also flat-out prohibits using that information for marketing products to minors. The law imposes strict liability that would prevent common marketing practices used to serve teens information on colleges, test prep services, class rings, etc. Moreover, the law enables private rights of action and sets minimum statutory damages that will encourage frivolous lawsuits where there is no actual harm whatsoever. The law becomes effective on September 12, 2009, but we’re advocating for a stay to examine constitutional questions and unintended consequences. See http://www.mainelegislature.org/legis/bills/bills_124th/chapters/PUBLIC230.asp

2. Hotel Taxes on Online Travel Companies. What’s wrong? Travel sites are being threatened with the wrong tax rate in the wrong jurisdiction.  Local governments want to levy their hotel occupancy taxes on service fees charged by online travel websites.  New York City recently passed an ordinance to impose its 20% tax on these fees, a move that’s opposed by over 100 NYC hotels and by the American Society of Travel Agents. The state of Florida also considered bills to tax service fees as hotel rentals. This is the wrong approach. Service fees should not be taxed the same as a hotel room charge.  If these service fees were to be taxed at all, they would be taxed as a service rendered to the traveler booking the room -- a new tax that would have to be levied by the jurisdiction where the traveler resides. See http://blog.netchoice.org/2009/07/discount-hotel-rooms-a-great-deal-for-you-but-a-disappointment-for-tax-collectors.html

3. New Jersey Social Networking Bill (A 3757) – What’s wrong? It turns social networking sites into social networking police. This bill requires social networking websites to promptly review user allegations of harassment and abusive language, and to provide a report of the result of any review "upon request" from the user. Many sites already have “report abuse” buttons and they already revoke abusive users. However, faced with adverse publicity and cost of lawsuits, many websites will be forced to lower the bar for kicking-off users. This isn’t confined to websites based in New Jersey—it will regulate any website, anywhere, that can be used by New Jersey residents. For more information, see http://blog.netchoice.org/2009/04/new-jersey-bill-requires-myspace-to-be-mypolice.html

4. Revenue Rulings by Colorado and Washington State Tax Administrators Create New Digital Download Taxes – What’s wrong? Discriminates against goods and services sold online versus offline. The Colorado Department of Revenue recently issued a ruling that would impose sales tax on any service or subscription where users can download or print documents or web pages. Services aren’t taxed in Colorado, but this ruling makes them taxable if the service is provided online. Just emailing a document to a customer would make an otherwise nontaxable service into a taxable digital good.

In addition, the Washington Department of Revenue issued a draft rule that taxes all digital products, regardless of how they are accessed (downloaded, streamed, subscription service, networking, etc.). Washington broadly defines “digital good” to encompass a variety of things, even digital schematics of a lawnmower transferred electronically to a repair shop! What’s more troubling is that the ruling suggests that payments for displaying online advertising would suddenly become a taxable event.

5. North Carolina Digital Downloads Tax Bill (HB 558/S 487) – What’s Wrong? Discourages the Greenest Way to Purchase Music and Other Content. This bill would discourage the most environmentally friendly way for consumers to purchase movies, music, and software by applying a sales tax to the digital download of these goods. The bills would also place local businesses that sell these goods at a disadvantage to out-of-state competitors. For more information, see http://blog.netchoice.org/2009/06/yes-north-carolina-lets-be-fair-about-digital-downloads.html

6. North Carolina Tickets Tax Bill (SB 99) – What’s wrong? Taxes the Internet (and only the Internet) resale of tickets. SB 99 violates federal law because it explicitly targets Internet—and only Internet—ticket sales. The Internet Tax Freedom Act Amendment Acts of 2007 (Public Law No: 110-108) provides a moratorium through November 1, 2014 on any “multiple or discriminatory taxes on electronic commerce.” This law bars federal, state and local governments from imposing discriminatory Internet-only taxes such as bit taxes, bandwidth taxes, and email taxes. It also prohibits the sort of prima facie discrimination exhibited by SB 99—“Reselling or offering to resell admission tickets on the Internet…”). For more information, see http://blog.netchoice.org/2009/05/north-carolina-bill-could-be-first-law-to-be-a-multiple-or-discriminatory-tax-on-the-internet.html

7. Federal & State Bills on Organized Retail Crime – What’s wrong? They create unwarranted, extraordinary burdens on online marketplaces. Federal: The Combating Organized Retail Crime Act of 2009 (S 470), the Organized Retail Crime Act of 2009 (HR 1173) and the E-Fencing Enforcement Act of 2009 (HR 1166). State: Massachusetts HB 1344. These bills would mandate online and off-line marketplaces to investigate suspicious sales, place disclosure requirements on online marketplaces, impose obligations upon online marketplaces to police small retailers absent evidence of criminal activity. The Massachusetts bill provides for the forfeiture of any property used or intended to be used to commit or facilitate a violation, and is so broad that it could encompass a company's servers and domain names. For more information, see http://blog.netchoice.org/2009/02/everything-old-is-new-again-big-retailers-going-after-ecommerce-again.html

8. Massachusetts Online Advertising Bill (HB 313) – What’s wrong? It threatens the viability of new business models on the Web. Massachusetts seeks to regulate “online preference marketing” in which information is stored from consumers’ online searches and used by advertisers to target specific advertisements toward them. But there is nothing nefarious or dangerous to consumers about advertising that is more relevant to them. The bill is unnecessary because industry is already working toward self-regulatory best practices. Consumers—not legislators—should decide whether or not this type of service succeeds in the marketplace.

9. North Carolina Advertising Nexus Proposal. What’s wrong? Unconstitutionally expands sales tax burdens to out-of-state businesses. North Carolina is the latest state (after New York and Rhode Island) to rule that Internet advertising triggers a nexus for sales tax collection and remitting obligations for out-of-state businesses. States think that they are expanding their revenue base, but they are wrong—fewer advertising dollars would flow to in-state publishers and websites. Online companies and content providers are still experimenting with new models for advertising and distribution. State laws that use Internet advertising as a proxy for an in-state sales representative will stunt the growth of new business models and distort the evolution of Internet marketing.

10. New York Online Employment Services Taxation Issue – What’s wrong? Discriminates against services provided over the Internet. The New York Tax Department asserts that online job-seeking and resume services may be subject to sales taxation. New York currently taxes “information services” and maintains that the providing of employment information falls within this definition. We disagree. Online companies fulfill the traditional role of a "headhunter" (which is a non-taxable service) only using non-traditional means. The fact that information is provided or utilized digitally does not change the fact that their service is designed to establish an employment relationship between an employer and a job seeker. 

NRF Peddles Organized Retail Crime Survey; We’re Not Buying

Yesterday, the National Retail Federation came out with its annual Organized Retail Crime survey of big box retailers. Once again, it’s a monument to the old adage about “lies, damn lies, and statistics.”This one’s our favorite – straight from the study:

“According to the survey, one-third of retailers believe that more than 50 percent of “new in box” merchandise sold through online auction sites is stolen or fraudulently obtained”

Think about this – the NRF asked its members, who are big box retailers that view online marketplaces as the competition, to guess what percentage of new in-box goods are stolen. Their responses are biased beyond belief and backed with zero evidence or analysis. And despite the retailers’ belief that most goods online are stolen, they reported a big drop in the number who have identified stolen goods sold online.

Other thoughts we had in response to the NRF “study”:

·     Despite retailers’ claims that theft is getting worse, nearly 6 in 10 retailers say they now spend less on loss prevention compared to last year. Yet while cutting spending on loss prevention, these same retailers doubled their spending on lobbying over the last three years, according to the Center for Responsive Politics. And they are lobbying for new laws to restrict competition from online sellers.

·     A leading loss prevention consultant told retailers that over 2/3 of all store shrink is preventable, mostly by improving business practices, according to Larry Miller, Director of National Retail Research Group.

·     Retail theft is not being caused by the Internet. According to the NRF’s survey, retailers don’t identify stolen goods online any more than in traditional places like street corners, swap meets, and pawn shops.

·    The NRF says that criminals use online marketplaces because they are anonymous, but these sites know exactly who the seller is, and disclose all that data to law enforcement officials whenever they ask.  The truth is, an online auction is the last place a criminal would try to hide the sale of stolen goods.

·     The NRF claims that online sellers “threaten the health and safety of innocent consumers”, yet Rite Aid, CVS, Target, and Walgreens have paid millions in fines for selling expired products—often by putting stickers over the expiration dates.

·     Overall, there is no evidence that organized retail crime has actually gone up — the study only asks retailers whether they think it has increased. And that perception has only increased over the last two years — concurrent with the worst economic downturn since the Great Depression. Isn’t it much more likely that any increase in store theft may be a result of employees and consumers desperate to make ends meet?

As we’ve said again and again, while the NRF likes to say that they are concerned with loss prevention, we believe this is really about competition prevention. They’ve gone so far as to paint millions of hard-working Americans who’ve sold goods online as drug-addicted criminals.

And the NRF has lobbied hard for federal  legislation that would let any retailer force online marketplaces to interrogate their sellers about how they legally acquired the stuff they’re selling.  Big-box retailers want this information so they can stop their suppliers from helping small online competitors offer discount prices to shoppers around the country.  

Just this week, we included the NRF’s preferred federal legislation on our iAWFUL tally of the worst proposed Internet laws in America.

As the battle over organized retail crime heats up in Congress, we’ll be watching and acting to shine the spotlight on the NRF’s anti-competitive tactics. 

Steve DelBianco

Nothing Nice on This List -- Introducing iAWFUL, a NetChoice Initiative

Some of the biggest threats to the Internet have always come from well-meaning lawmakers looking to "fix" it. And lately, there’s been a whole lot of fixin’ efforts going on.

At NetChoice, we've always been committed to challenging legislation that threatens our vibrant industry. Today more than ever, we need a more unified and systemic approach to combat bad legislation.

That's why we've created iAWFUL, the Internet Advocates Watchlist for Ugly Laws. 

iAWFUL identifies America's 10 worst legislative and regulatory proposals targeted at the Internet. Through iAWFUL, NetChoice will urge citizens to join the fight to defeat bills and proposals that threaten the future of ecommerce and online communication. The list will be continually updated to reflect the most immediate dangers, based on regulatory severity and likelihood of passage.

While misguided Internet legislation is nothing new, the threat that such legislation poses has increased dramatically. The latest breed of legislative proposals are among the most restrictive we've ever seen; they can crop up anywhere, as state lawmakers increasingly take the lead; and they threaten an Internet that increasingly lies at the heart of global commerce and communications.

State-based legislative efforts account for the majority of entries on iAWFUL, a stark indication of the growing push in statehouses to regulate and tax nearly every aspect of online behavior.

Topping the inaugural iAWFUL list is New Jersey's Social Networking Bill (A 3757), which would require the operators of social networking sites to aggressively police their users. In addition to stifling the free exchange of information and communication on social networking sites, the proposed bill would impose a massive burden -- particularly on smaller, upcoming services that lack the resources to take on such an unnecessary and invasive task.

We encourage anybody who cares about the Internet, really to head on over to the iAWFUL site, check the full list, suggest laws that should be included, and join the fight to uphold innovation and Internet freedom. 

Yes, North Carolina -- Let's Be Fair About Digital Downloads

Last week, the Winston-Salem Journal published an editorial supporting a tax on digital downloads. The editorial claims that this tax is a matter of fairness. 

We agree that fairness is a good goal to have — which is why we are fighting hard against adding yet another tax burden to North Carolina consumers and businesses.

Contrary to the argument made by the paper’s editors, this new tax ONLY hurts in-state companies, since out-of-state sellers wouldn’t have to collect tax for sales they make to North Carolina consumers.   So the burden of collecting this new tax falls only on North Carolina companies, while any consumers who want to avoid the tax will get their downloads from out-of-state or foreign websites.  Forcing North Carolina businesses to charge higher prices by collecting incremental taxes is fundamentally unfair.

It is also unfair — and unwise -- to claim that digital goods are identical to physical goods.  First, digital goods are not permanent property like tangible goods.  ( If you’ve ever lost your iPod or run it through the laundry, you know what I mean). You can’t re-sell your downloaded game or movie like you can re-sell a CD or DVD. And it’s nearly impossible to play your downloaded movie on your car DVD player. The experience of ownership for digital goods is vastly different from tangible goods, which needs to be taken into account by state tax authorities. 

Finally, the impact that digital goods have on the environment is significantly lower than that of physical goods. When you buy a song on iTunes or a digital book on Amazon, you don’t contribute to creaton of harmful chemicals used to burn a CD, or the destruction of trees used to print a book. You burn no gas driving to the store. You dispose of no plastics or packaging when you get home. According to the Recording Industry Association of America, in 2007 nearly 100 million full albums’ worth of music was digitally downloaded by Americans.  In 2007 alone, more than 200 million pounds of natural resources were saved by US consumers buying music digitally instead of driving to the store for a CD. This works out to more than 380 pounds of natural resources every minute.

The digital economy is growing fast and the tiny carbon footprint of downloads is something that benefits all of us.  Digital downloads are the most environmentally responsible way to get movies, music and software; and tax policy is one of the ways we promote environmentally sound decisions.  For instance, hybrid vehicles are just a small share of the car sales, but nobody thinks we should end tax credits that favor hybrid cars.

The state of New York realized this, and earlier this year shelved its plan to tax iTunes, because it was too much pain for so little gain — only $15M of revenue, and new tax collection burdens that would fall only upon NY-based sellers. North Dakota just went in the opposite direction, explicitly exempting digital downloads from Sales Tax, mainly to increase their state’s attractiveness for economic development. 

So, we echo the call to North Carolina legislators to be fair — fair to their state's businesses, fair to cash-strapped North Carolinans trying to make ends meet in this harsh economy, and fair to our battered environment. Stop the effort to tax digital downloads. 

North Carolina Targets Digital Goods

 In the Whack-a-Mole game that digital  goods taxation  has become, North Carolina is the latest state in which  proposed legislation has popped up.  Right now, North    Carolina’s House and  Senate are considering bills HB  558 and S 487, bills which would create a new  sales tax  on digitally downloaded goods such as books, consumer  information services, and music, such as iTunes  downloads. as well as expand tax burdens on retailers who seek to advertise on North Carolina properties, via an “affiliate nexus” bill.

 NetChoice has been heavily engaged in these debates, both in North Carolina and around the country. Taxation of digital goods is 1) bad for the environment - digital  downloads don’t require a drive to the store, delivery vans, plastics, paper, or packaging; 2) bad for consumers already struggling to make ends meet in a deteriorating  economy, especially one in which online information and services can be used to help them stretch their already-thin dollars; and 3) encourages the scourge of digital piracy --  people should be encouraged to download content legally. Taxing it and making it more expensive only serves to drive more people to readily available, illegal copies of music and movies.

And bills which seek to require any out-of-state retailer that uses a network of affiliates to drive traffic via advertisements on North Carolina-based websites to collect North Carolina sales taxes, would have the unintended consequence of reducing ad revenues for North Carolina companies, including media outlets, without increasing sales tax collections.

Maryland, Virginia, and New York have all flirted with the idea of imposing onerous taxes on innovative, green, and growing component of the economy. Ultimately, they all decided that the negatives outweighed the benefits, and changed or abandoned their plans. NetChoice will do its best to make sure North Carolina joins them.

Photo credit to terren in Virginia via Flickr

Breakdown, Takedown -- California Wants to Give Social Networking Sites the Shakedown over Uploaded Photos

Today California is holding a hearing on a bill that would require social networking websites to implement certain technologies and procedures to remove photo images upon notice from a user.

AB 632 would force a broad range of websites to establish mechanisms to remove photos, videos, and even caricature or satiric images of its users. As we know, many if not most online sites are incorporating some sort of social networking functionality. This bill would therefore encompass a number of community events, news, sports, and travel sites in addition to more commonly regarded social networking sites.

Apparently the bill's sponsor is upset that people can right click on photos, and save them to their computer or email to friends. In addition to takedown mechanisms, she wants websites to disclose to users that uploaded photos may be copied by persons who view the image.

As we detailed in our NetChoice letter, the takedown component is most troubling. It would force thousands of websites to redesign their sites to encompass a number of considerations:

1. A specific image must be readily identifiable on a specific page—this is a non-trivial exercise. Photos may be buried deeply in a user’s album containing thousands of other images, and URLs of particular pages often change.
2. Sites must determine whether an image is actually of the particular user requesting removal. Otherwise, users could request removal of a number of photos that bear their likeness, but do not actually include them, for a number of political, religious, or abusive reasons. Yet, even trained experts have difficulty identifying persons in photos, as images are affected by lighting, clothing, and changes in hair style or makeup.
3. Removal must respect copyright law. Websites would face potential lawsuits from copyright owners if removing their copyrighted images negatively impacted them.
4. How to deal with group photos, where the user is just one of many people in the image?

The above considerations required by AB 632 place websites in an untenable position, since they would face potential liability for both removing and not removing images.

Furthermore, consider the freedom of speech implications. As more people use the Internet to communicate and engage in social networks, including legislators, policymakers, journalists, celebrities, and business leaders, it is important to provide greater protections for speech online. Yet, AB 632 has serious loopholes that provide an end-around the First Amendment:

• A legislator views certain photos as damaging to his chances for reelection, and demands them to be taken down.
• A celebrity does not like an unflattering image of her, and flags it for removal.
• A weblog engages in investigative journalism on local government corruption, posts photos associated with the story, but the local official demands takedown.
• A cartoonist sketches a satiric cartoon that includes the image of a CEO who wants it removed.

Social networking sites are not equipped to deal with the intricacies of the above situations, and our public figures would know this. As a result, society would be the real losers under the approach dictated by AB 632.

Instead, we suggest that a legislative approach focused on the harms of certain conduct, not a mandate on technology or business mechanisms. If an image is abusive or harassing, there may be better ways to update harassment and stalking statutes for electronic images so that law enforcement can effectively react. Moreover, the judiciary may need clearer guidance on how to deal with defamation law with regards to digital images.

-Braden Cox

State legislators seem to be always looking out for the kids. That is, until they stop looking out for the kids

In a yet another misguided attempt to grab tax revenues, there’s a Connecticut bill (SB 806) designed to increase collection of sales taxes when Connecticut residents purchase from out-of-state retailers.  The law re-defines what it means to be a “retailer” in the state, and creates a presumption of nexus when an out-of-state company advertises through Connecticut websites.

Unfortunately, it has momentum and, worse, it comes loaded with unintended consequences.  Let’s look at one.

For years, kids around the country have been collecting box-tops from cereal and snack boxes as an easy way to raise money for school trips and new school equipment. Box Tops for Education has raised over a hundred million dollars -- by collecting just a few cents on every box top.

Now, this fundraising function has gone online, with the Box Tops Marketplace, to generate commissions when parents shop at their favorite e-commerce websites. Here’s the Box Tops Marketplaces webpage:

The Box Tops Marketplace has grown to over a hundred participating websites, offering parenting essentials such as pet supplies, shoes, books, clothing, and household goods.

Online stores that participate in the Box Top Marketplace stores give a percentage of sales to support good causes, including several based here in Connecticut.

Thing is, few of the online stores participating in Box Tops Marketplace have any physical presence in Connecticut, and are therefore not required to collect, file, and remit the state’s sales tax on purchases made by Connecticut residents. Would the out-of-state retailers in Box Tops Marketplace continue to work with Connecticut schoos and PTAs if the state enacts SB 806? Or would they follow the example of nearly 200 retailers who simply stopped their online advertising in New York after that state enacted a similar law?

Keep in mind that online and catalog retailers can avoid the unreasonable burden of collecting and remitting remote state sales taxes by cutting-off their ad spending with Connecticut websites. And Connecticut consumers could still buy from these out-of-state retailers who stop advertising on statebased websites. That means SB 806 could have the unintended consequence of reducing ad revenue for Connecticut-based groups like the schools in this example – without increasing sales tax collections.

Everything Old is New Again – Big Retailers Going After E-commerce Once More

Here we go again.

Bloomberg News is reporting today that the big retailers and their lobbying machine, the National Retail Federation, are launching another attack on ecommerce and small business entrepreneurs. The NRF, you may recall, is the organization that famously compared anyone who sells things online to drug addicts and criminals.

U.S. Senator Richard Durbin (D) of Illinois and representatives Brad Ellsworth (D) of Indiana, Jim Jordan (R) of Ohio and Bobby Scott (D) of Virginia each plan to submit bills today that on the surface are related to the supposed scourge of e-fencing, the selling of stolen goods through the Internet.

We’ve heard this song before, and it’s getting old.

These bills, while ostensibly aimed at organized retail crime, are really about decimating the competition that big retailers face from small businesses that use the Internet to level the playing field. The retailers themselves know that the Internet isn’t the cause of store theft; the NRF’s own 2005 study showed that most retail theft comes from a store’s own employees.   It's been clear for a long time that many traditional, brick-and-mortar retailers would like to see the online marketplace and its pro-consumer, pro-competition benefits simply disappear.

Unfortunately, the people that these bills would hit the hardest are not the criminals; they are the American consumers who have come to rely on Internet-based small businesses to find good products at great prices, which in this difficult economy, is needed now more than ever.

Nearly identical bills floated in the last Congress died a well-deserved death. We hope that Congress doesn’t fall for the NRF’s anti-competitive scare tactics this time, and will once again try to educate members on what exactly these bills are – and are not. 

In Maryland, a Bill that Fixes Nothing (Except Competition in Favor of Big Box Retailers)

Yesterday I testified before the Maryland General Assembly to oppose HB 114. It's a bad bill for consumers and online companies, and another iteration of the continuing war that traditional retailers have waged against e-commerce for the past few years. Last year NetChoice testified before Congress to oppose legislation that would would give retailers the power to force online marketplaces to interrogate their own customers about how they obtained items listed for sale.

HB 114 would require Maryland businesses and residents selling cosmetics, medicines, baby food and infant formula via an Internet auctions to notify the Department of Health & Mental Hygiene at least seven days prior to the auction. The bill applies only to sales using Internet auctions, not fixed-price format, and not newspaper classified ads. That right there makes you wonder.

The bill has been introduced under the theory of product safety. Safeway, Target, and the state retailers association all trumped up the dangers of selling baby food and infant formula online without citing any sort of actual harm. Or at least harm that is disproportionate to what exists at the physical store retail level.

There was also a lot of desperate hyperbole. A representative from Mars supermarkets (a Maryland chain) asserted that Internet auctions fund heroin addiction! Yes, testifying before state legislatures can be fun!

When you have bill proponents demonizing the Internet, it’s easy to see that the bill is about competition prevention. Namely, to prevent Internet auction sites from benefiting Maryland consumers and helping businesses compete with traditional retailers in the sale of food and drug items.

Getting back to the window dressing of public health, if the bill's proponents were truly concerned about consumer safety, they would advocate wider regulation on the sale of these consumer goods beyond just auctions. After all, flea markets, websites with fixed price listings, and newspaper classifieds all sell these same products.

A surprisingly large number of people and businesses earn a lot of money through online platforms like eBay and Overstock.com. Particularly for inventory that is about to expire, online auctions are a great way to get the best price in a short time period. With its 7 day waiting period, HB 114 would make it almost impossible for small businesses, distributors, and wholesalers to recover as much as they can on their investment in aging inventory. 

Braden Cox

We Couldn't Agree More

The Newark Star-Ledger added its opinion to the ongoing debate over the organized retail crime laws currently under consideration in the U.S. Congress. It's encouraging to see more and more respected voices recognize the folly and danger of these proposed laws.

It's also good to see others highlight the offensiveness and insanity of the National Retail Federation's assertion that online selling turns otherwise-good people into addicts and criminals:

The idea that online auctions are insidiously turning masses of law-abiding citizens into crooks is about as valid as the belief that getting the car washed creates harmonic vibrations in the atmosphere that produce rain.