The iAWFUL 7: State, Federal and International Legislation Placing Barriers to Innovation and Commerce

NetChoice’s Internet Advocates’ Watchlist for Ugly Laws (iAWFUL) Targets Worst Bills and Laws for Online Consumers and Entrepreneurs

Washington, D.C., APRIL 4, 2018 – Online tax burdens on small businesses, regulatory hurdles for Internet platforms and the preservation of entrenched monopolies are all possible outcomes from the seven worst internet advocacy laws – the iAWFUL list – release by NetChoice today. The iAWFUL list describes the seven bills and laws most harmful to online consumers and entrepreneurs.

“To earn a place on the iAWFUL list, a bill or recently passed law must show an active disregard for principles that make the internet a vibrant and competitive ecosystem,” said Steve DelBianco, President of NetChoice.  “Unfortunately, this year we had several strong competitors for the top spot. iAWFUL points out the worst cases of anti-tech sentiment taking priority over good lawmaking. We hope that lawmakers all over the country will see the iAWFUL list as examples of what not to do.”

 

Tax Burdens on Small Businesses

Bills and laws in multiple states could prove disastrous for small, online businesses.  Topping the list is South Dakota’s “Kill Quill” law which mandates that out-of-state merchants must pay sales tax when they serve South Dakota customers.  NetChoice sued the state in 2016 to challenge this law, which is being reviewed in the US Supreme Court on April 17, 2018.

Later this month, South Dakota’s Kill Quill Law (SB 106) will have its constitutionality decided by the U.S. Supreme Court. A ruling in favor of South Dakota would create chaos for every small business that sells online.  Overnight, any retailer with a website store would be subject to tax audits from 46 states and could be held liable for retroactive sales taxes on sales made years ago – a cost many small businesses wouldn’t be able to afford.

In addition, the federal Remote Transactions Parity Act (RTPA) (H.R. 2193), recently rejected from inclusion in the spending omnibus, would force businesses with no physical presence in a state to pay sales taxes on purchases by customers in those states.  And just like South Dakota’s “Kill Quill” law, small businesses would suffer most from new RTPA burdens

 

Regulatory Burdens for Internet Platforms

Regulatory burdens that claim to be focused on improving consumer privacy and security, yet not accomplishing either, have been front and center in 2018 as well.

The Stop Enabling Sex Traffickers Act (SESTA) (SB 1693), while well-intentioned, would create numerous unintended consequences, such as taking away “Good Samaritan” protections from platforms that try to police their websites for sex trafficking content.  SESTA does little to help prosecutors prove criminal intent of websites where sex-trafficking appears.  Worse, SESTA makes it significantly easier for trial lawyers to sue online platforms for big payouts, and discourages online platforms from monitoring their sites for illegal content.

Additional bills that that will inhibit the ability for consumers to leverage the power of Internet platforms include:

  • New York (NY AB 9793) – This made the iAWFUL list because it intends to enable massive lawsuits against online platforms for using a new innovative technology.
  • Massachusetts Directive 17-1 – The Massachusetts “cookie nexus” tax rule makes the iAWFUL list for its attempt to mask discriminatory treatment of businesses that sell online with rhetoric calling for “equality.”
  • A New European Tax on Technology and Innovation – Taxation of the Digital Economy – The “Fair Taxation of the Digital Economy Directive” is a blatant attempt by the European Union to tax large American tech companies and to reduce tax competition among EU countries.

 

Old Media Strikes Back

In a variety of industries from the sharing economy to retail, we have seen how entrenched market leaders have attempted to leverage laws and regulations to prevent the influx of new competition. Next up?  Big media. The so-called Journalism and Preservation Act (HR 5190) threatens to undermine a competitive media ecosystem and harm the social media platforms that Americans enjoy.

More details about the iAWFUL list can be found at iAWFUL.org.

Massachusetts Jane Doe Lawsuit Proves Section 230 is No Barrier to Justice for Victims

Washington, D.C. – NetChoice welcomes yesterday’s decision by the District Court of Massachusetts to allow a lawsuit against Backpage to proceed for violating the Trafficking Victims Protection Reauthorization Act of 2008. In this decision, the judge affirmed that Section 230 of the Communications Decency Act (CDA) does not stand in the way of a civil suit against the website.

“Section 230 as written makes clear that bad actors who are involved, even in part, in creating or developing illegal web content are liable to both civil suit and criminal prosecution,” said former Congressman Chris Cox, the author of Section 230.

“This federal court decision in Massachusetts is the latest in a string of rulings that, consistent with the original intent of Congress, Section 230 is no barrier to justice for victims of sex trafficking and other illegal acts,” continued Cox, who serves as outside counsel to NetChoice.

“While the recently-enacted Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA) has provided useful new tools for prosecutors, its amendment of Section 230 was never necessary to reach its goal,” said Carl Szabo, Vice President and General Counsel for NetChoice. “If the President signs FOSTA next week, this court ruling sets the stage for a signing statement to affirm both that Section 230 is no bar to prosecutions for any illegal acts using the internet, and that the original Good Samaritan purpose of Section 230 remains intact.”

NetChoice Welcomes Wayfair Brief Filing, Providing Strong Arguments

Washington D.C. – Today, NetChoice has welcomed the filing of Wayfair and Overstock’s brief in the case South Dakota v. Wayfair, Inc., Overstock.com, Inc, and Newegg, Inc.

“The brief shows that removing Quill’s physical presence protection would fundamentally undermine small businesses serving customers outside their state,” said Steve DelBianco, President of NetChoice.

“The states are so wrong to claim that small businesses would be unaffected,” continued DelBianco. “States may provide “free” tax software, but the costs of integration and answering to 46 state auditors would be a significant burden to any small business going online to reach new customers.”

 

Below are key quotes from Wayfair and Overstock’s brief, providing a strong introduction to the points that will define this Supreme Court case:

“What occurs inside a state’s borders has always been the critical foundation for a state’s taxing and regulatory authority; in short, borders matter.” [p.11]

“Changed conditions in the retail marketplace also cannot justify the abrogation of the physical presence rule where the constitutionally-significant conditions remain unchanged.” [p.25]

“Congress is the institution best-suited to resolve the competing interests in remote sales tax collection and to select the proper policy outcome… Overruling Quill would complicate, if not prevent, a congressional solution.” [p.26]

“Small businesses seeking access to a national market, not the massive multi-channel retailers that already report sales tax across the country, will be harmed most by the new compliance burdens, new barriers to entry, and new obstacles to growth.” [p.27]

NetChoice Disappointed by Rejection of Cert for Ajemian v. Yahoo

Washington D.C. – NetChoice is disappointed that the U.S. Supreme Court has denied cert for Ajemian v. Yahoo. The case, originating in Massachusetts, reversed the privacy expectations of residents and held that next of kin automatically gets access to data of deceased users.

“The U.S. Supreme Court missed an important opportunity to clarify the privacy rights of Americans over their data when they die,” said Carl Szabo, Vice President and General Counsel at NetChoice. “Massachusetts made the wrong decision last year in obligating Yahoo to disclose private data to those managing the estate of Ajemian. Unfortunately, without legislation, the state’s residents will see privacy protections disappear when they pass away.”

NetChoice Celebrates Passing of CLOUD Act as part of Omnibus Spending Bill

Washington, D.C. – Today, NetChoice welcomed the news that the Clarifying Lawful Overseas Use of Data (CLOUD) Act has passed Congress as part of the omnibus spending bill and makes its way to the President’s desk to be signed into law.

“When signed into law, the CLOUD Act will improve civil justice in foreign countries while helping law enforcement solve crimes and save lives,” said Carl Szabo, Vice President and General Counsel at NetChoice. “We’re excited for the CLOUD Act to clarify the relationship between law enforcement and cross border data.”

In our op-ed in Morning Consult, Carl explains how the CLOUD Act will encourage strong civil justice protections by requiring high standards for access to U.S.-held data.

NetChoice Celebrates Inclusion of the CLOUD Act in the Omnibus Spending Bill

Washington, D.C. – Today, NetChoice applauded the news that the Clarifying Lawful Overseas Use of Data (CLOUD) Act would be included in the spending omnibus bill.

“The CLOUD Act is a commonsense bill that will improve civil justice in foreign countries while helping law enforcement to solve crimes and save lives,” said Carl Szabo, Vice President and General Counsel at NetChoice. “We’ve seen the failure of trying to force civil justice reforms on foreign countries. The CLOUD Act takes a new approach by positively incentivizing them instead.”

As written in our op-ed in Morning Consult, by requiring high stands of civil justice protections to be able to access U.S.-held data, the CLOUD Act will incentivize foreign countries to adhere to these standards.

“The inclusion of this legislation in the omnibus ensures that this pressing issue can be solved as soon as possible,” continued Szabo. “We look forward to the CLOUD Act being enacted, ensuring law enforcement has clear tools to access data held abroad while protecting the rule of law and civil justice.”

NetChoice Welcomes Milestone in War Against Sex Trafficking; Eliminating Need for Further Section 230 Reform

Washington D.C. – Today, NetChoice congratulated House and Senate members for their work on the Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA). The bill has been made stronger since its introduction, although caution is warranted as the courts now assess the meaning of the congressional handiwork.

“We are pleased with the progress made since the introduction of FOSTA,” said Carl Szabo, Vice President and General Counsel for NetChoice. “In the House Judiciary Committee, several concerns of prosecutors were aired and addressed.”

“FOSTA clarifies the original intent of Congress in enacting Section 230,” continued Szabo. “It was never meant to be used as a shield for criminal activity despite some judicial decisions that misread both the law’s text and congressional intent.”

“FOSTA shores up Section 230, eliminating the need for further carve outs for specific federal crimes.”

“Bill sponsors offered multiple assurances against potential unintended consequences and that the Good Samaritan feature of Section 230 will continue in full force. We’re glad that these assurances will be a part of the legislative history of FOSTA.”

However, the White House, U.S. Department of Justice, tech advocates, and women’s advocacy groups raised concerns that the final version of FOSTA does not address. NetChoice strongly recommends that both the Senate and the House take the opportunity to add report language and other expressions of the sponsors’ intent.

NetChoice Welcomes RTPA-Free Omnibus

Washington D.C. – Today, NetChoice welcomes news that the Remote Transactions Parity Act (RTPA) will not be included in the spending omnibus, allowing Congress to come up with a real solution to collect sales tax from online sales.

“RTPA never deserved a seat on the omnibus, since it was ridiculously hard for America’s small businesses that sell online,” said Steve DelBianco, President of NetChoice. “Congress should now find a better way to stop state tax collectors from harassing any business anywhere in the country, whichever way the supreme court rules on Quill.”

NetChoice Calls on Senate to Pass Wyden’s FOSTA Amendments

Washington, D.C. – Today, NetChoice called on the Senate to pass amendments introduced by Sen. Ron Wyden to the Allow States and Victims to Fight Online Sex Trafficking Act (FOSTA). His amendments would safeguard the Good Samaritan component of Section 230 and would allocate extra funding toward the fight against sex trafficking.

“These amendments are common sense,” said Carl Szabo, Vice President and General Counsel for NetChoice. “Wyden’s amendments will prevent a serious unintended consequence of FOSTA while also providing increased funds in the fight against sex trafficking. There is no good reason to oppose these amendments and we look forward to the Senate accepting them this afternoon.”

NetChoice Welcomes Poll Showing Public Opposes New Internet Sales Tax Burdens

Washington D.C. – Today, NetChoice welcomed results from an opinion poll commissioned by the National Taxpayers Union showing that 65% of likely voters are opposed to rules that allow states to burden out-of-state businesses with in-state sales tax collection.

“This poll backs up what we have already found in our own research, that the public sees new sales tax burdens as a tax increase on small businesses and consumers,” said Steve DelBianco, President of NetChoice. “These measures would pass costs onto the consumer, in the form of taxes and limits on consumer choice and market competition.”

New burdens on small businesses to collect sales tax for states in which they have no physical presence would open them up to the compliance burdens of 12,000 taxing jurisdictions and subject them to audits from 45 states. Compliance costs would force many to take their goods and services offline.

“Opposition to this new tax burden was shared by members of both political parties. Liberals, conservatives, moderates, and independents all oppose this policy by a majority,” continued DelBianco. “We hope that lawmakers understand what these results mean for them – if they want the public to enjoy the benefits of recently passed tax cuts, don’t create new tax burdens that will undermine them.”