AMERICAN CONSUMERS REJECT GOVERNMENT INTERVENTION IN TECH: “LET US PICK INTERNET PLATFORM WINNERS AND LOSERS,” NEW NETCHOICE RESEARCH FINDS
Just 5% Say Regulators Should Focus Anti-Competitive Enforcement on Tech
Americans Prefer Interest-Based Ads Over Paying for Content By a 3-1 Margin
SEPTEMBER 12, 2018, Washington, DC – State and federal legislators on both sides of the aisle have called for more regulation of the technology industry. However, new research from NetChoice shows that Americans want a light regulatory touch for tech companies, believing that consumer spending and online surfing habits should be the ultimate means of ensuring competition and consumer choice.
According to a survey* of more than 1,200 U.S. consumers conducted by Zogby Analytics, only 5% said that regulators should focus anti-competitive enforcement on the tech industry. Only 10% think the government should prevent successful online businesses from acquiring other companies.
“There is a disconnect between American consumers and the anti-tech community,” said Steve DelBianco, president of NetChoice. “Americans prefer to make their own decisions rather than having a heavy-handed government determine what is ‘best’ for them.” Read more
President Trump’s Heat on Tech Industry Not in Sync with Americans and His Base
New Polling Shows by a 7-to-1 margin Republicans believe online regulation would harm consumer freedom and choice on the internet
Washington, D.C., August 29, 2018 – President Trump’s attack on America’s most popular online search provider Google along with regulatory threats from White House Economic Advisor Larry Kudlow are not supported by most Americans, according to new research from NetChoice.
NetChoice found that by a 7-to-1 margin, Republicans agree, rather than disagree, with the idea that online regulation would harm consumer freedom and choice on the internet.
“When the Administration says they are “taking a look” at regulating Google Search results, they really mean that they plan on regulating political speech,” said Steve DelBianco, president of NetChoice.
“Forcing Google to demote critical news about President Trump blatantly conflicts with the first amendment and endangers all forms of online expression. Businesses must be allowed to do what is best for their users.
The basic tenets of capitalism need to hold true on the Internet. Consumers pick winners and losers, not bureaucrats.”
About the Polling
NetChoice commissioned research firm Zogby Analytics to conduct an interactive survey of more than 1,200 U.S. consumers from Aug. 6-8. The poll has a margin of error of +/- 2.8%. The entire survey will be publicly available in September.
Today, NetChoice filed responses to the Federal Trade Commission’s (FTC) request for comments for upcoming workshops. NetChoice responded on several topics, such as “The Consumer Welfare Implications Associated with The Use of Algorithmic Decision Tools, Artificial Intelligence, and Predictive Analytics” and “Evaluating the Competitive Effects of Corporate Acquisitions and Mergers”. The full list of responses are supplied at the bottom of this statement.
“Contrary to the claims of anti-tech advocates, self-regulation is working. Consumers today have access to a smorgasbord of products, services, and information thanks to the internet,” said Steve DelBianco, president of NetChoice. “There is no dearth of competition. The market has never been more competitive.” Read more
The note shows that car rental companies receive a national yearly total of over $3 billion in tax breaks.
The note also provides data showing how much rental car companies received in sales tax exemptions in 2016.
Unlike car rental companies, people who use apps like Turo to lease out their cars do not enjoy these tax breaks
Ignoring this multi-billion dollar tax break, car rental companies claim that peer-to-peer car sharing platforms like Turo are the same as car rental companies. Big car rental companies are using “level playing field” rhetoric to justify calls for stiff regulations onto peer-to-peer car platforms designed to skew in favor of big rental.
Without the physical presence rule, American businesses and consumers are put at risk by state-based internet taxes
Washington, D.C., July 23, 2018 – Tomorrow, the House Judiciary Committee will hold a hearing entitled “Examining the Wayfair decision and its Ramifications for Consumers and Small Businesses”. The hearing is the first step for Congress to prevent damage being done by last month’s Supreme Court decision in South Dakota v. Wayfair.
“Because of Wayfair, businesses have no clear test to determine whether they are obligated to pay a foreign state’s sales tax,” said Steve DelBianco, president of NetChoice. “Sellers are left with a dilemma to either collect tax that they may not owe at significant expense, or risk later being held responsible for uncollected taxes plus interest and penalties.”
“The Commerce Clause is just as necessary now as when the constitution was written, and Congress must protect interstate commerce in the digital age,” continued DelBianco. “The time to act is now, and the longer Congress leaves the state tax playpen unsupervised, the worse the mess will be for American small businesses and consumers.”
“The court misunderstood the true audit liability faced by America’s small businesses and there’s no guarantee that tax software services will be paid for by the states.”
NetChoice has supplied a written statement for the record available here.
Rules Will Imperil Short-Term Renters from Springfield Gardens to Hell’s Kitchen
NEW YORK, July 18, 2018 – The future of short-term rentals (STRs) throughout New York City was put at risk today by New York City Council’s passing of Int. 9081 placing legal enforcement responsibilities on Internet home sharing platforms like Airbnb, HomeAway and VRBO.
The proposal would:
- place a minimum fine of $1,500 on STR platforms every time a property owner makes inaccurate claims on a short-term rental post regardless of intention;
- require platforms to obtain, manage and certify that every property owner is abiding by local jurisdiction or homeowners association rules;
- require short-term rental platforms to share all private transaction data, such as bank account numbers, with government agencies.
“New York City risks the sensitive financial data of its residents and tourists by forcing them to hand over bank account numbers to government agencies,” said Carl Szabo, vice president and general counsel at NetChoice.
“The city’s latest anti-tech action threatens New Yorkers’ privacy and financial security, forcing many to choose between protecting their financial information and paying their mortgage.”
“New York is once again going after short-term rentals by mandating hefty requirements on platforms, many of which could be illegal,” continued Szabo. “The City Council’s proposed rules would burden New Yorkers who use STR platforms to help make ends meet.”
NetChoice is a trade association of eCommerce and online businesses that share the goal of promoting convenience, choice, and commerce on the net.
Ruling in Favor of South Dakota Will Cause Chaos Nationally If Congress Does Not Act
WASHINGTON, DC, June 21, 2018 – The U.S. Supreme Court today upended decades of precedent to deliver a ruling in favor of South Dakota that will burden small catalog and web retailers and harm the consumers who rely on them. The decision in South Dakota v. Wayfair will unleash a summer of chaos as small businesses struggle to comply with the conflicting tax rules of more than 12,000 local tax jurisdictions across 46 states.
“Small web businesses will be hardest hit,” said Chris Cox, NetChoice outside counsel, “particularly those with only a single location, because they can’t afford the overhead to comply with thousands of different tax rules across the country. Consumers will quickly feel the negative effects as those businesses dry up or are forced into the arms of Internet giants.”
Cox, a former Congressman who authored the Internet Tax Freedom Act, believes the Court disregarded the clear intent of Congress in that law. “The last hope for consumers and small online business owners is for Congress to take action. It should be Congress, not the courts, that sets the rules for interstate sales tax collection,” he added.
“While a fraction of online commerce was free of sales tax before this ruling, the Supreme Court has now created an even greater imbalance by placing far greater burdens on Internet shopping compared to its “offline” counterparts,” said Steve DelBianco, President and CEO of NetChoice. “A brick-and-mortar business won’t have to comply with the differing rules of over 12,000 tax jurisdictions, or integrate costly and complex tax software into its operations. But small web businesses will, eating away at their already razor-thin profit margins. When these businesses disappear, consumers will be the biggest losers.”
“The court has legislated from the bench,” continued DelBianco, “but it lacks the tools Congress has to protect interstate commerce and reduce regulatory complexity. Congress should immediately address this situation by delivering a law that harmonizes the interests of consumers, small businesses, and state governments.”
Washington D.C. – NetChoice applauds today’s 9th Circuit decision in US Chamber v City of Seattle. The Court struck down Seattle’s 2015 ordinance as it violated antitrust laws. Had it been allowed to stand, Seattle’s Ordinance would have enabled collusion by ridesharing drivers and empowered them to form cartels and collectively bargain against ridesharing platforms.
“This is a victory for riders and drivers in Seattle’s ridesharing industry,” said Steve DelBianco, President of NetChoice. “The peer-to-peer economy relies on flexibility without which many drivers would have fewer options to make ends meet.”
“Without this decision, Seattle riders would expect higher prices and drivers could lose flexibility in choosing when and for whom they work. We’re happy the 9th Circuit has rejected this ordinance and preserved the positive impact of ridesharing in Seattle.”
Austin consumers will face fewer and more expensive bike-sharing options if a new permit application process proposed by the Austin Transportation Department (ATD) goes into effect.
At the heart of the issue is the Austin city government’s apparent preference for one type of bike sharing model – bikes that lock into fixed docks wherever the city decides to put them. These docked bikes are only available where docks are located and must be returned to a docking station.
Competition and choice has arrived in Austin, in the form of dockless bike providers that allow riders to pick-up and drop-off their bikes where they please. No docking is required. Dockless bikes are a convenient alternative to more expensive and hard-to-find docked bikes, and bring bike-sharing to many neighborhoods that aren’t served by docking platforms.
The proposed ATD rules make it nearly impossible for dockless bike providers to run a viable service for city residents. While that might help the legacy docked bike system, it’s no help to Austin residents in neighborhoods that don’t have a docking station. Proposed limitations on dockless bikes include:
- All bikes must be equipped with expensive “haptic technology” to ensure the user has parked the bike in a designated geo-fenced area or must lock to some form of infrastructure.
- No bike parking allowed on Austin city blocks designated as a “Landscape” or “No Furniture” zone.
- Bike providers must find a way for customers to use their App – even for customers who don’t have a smartphone.
“If Austin had the choice back when they started their docked bike-sharing system, the city would surely have chosen dockless over docked bikes,” said Steve DelBianco, President of NetChoice. “The ATD proposal flies in the face of good city planning and customer service. Dockless systems are far less expensive to implement, and serve residents in neighborhoods that are never going to get a docking platform.”
“City managers should focus on offering Austin citizens better choices and convenience, but here Austin regulators are making rules to protect their prior investments in inferior bike sharing systems.”
WASHINGTON, DC, May 4, 2018 — NetChoice filed testimony this week in the Iowa State House and Senate chambers asking for a full rejection of unconstitutional provisions in SF2417 and HF2489. If enacted, the bills would impose new taxes on Iowans while also harming Iowa’s travel and technology sectors.
“Iowans will likely see this legislation as a tax increase,” said Steve DelBianco, President of NetChoice. “This bill attacks Iowa’s tech sector and travel agents, and its taxes will be passed on to Iowa residents. Legislators should not pass a bill that will come back to haunt them.”
The bills would force out-of-state online marketplaces to collect sales tax from Iowans – a move that breaks with U.S. Supreme Court precedent. It also suffers from questionable timing as the legality of out-of-state tax collection requirements are currently being reviewed again by the U.S. Supreme Court.
A U.S. Supreme Court decision on South Dakota v. Wayfair is expected this summer and will determine if Iowa can tax beyond its borders. If the U.S. Supreme Court upholds the 60 years of jurisprudence, much of SF2417 and HF2489 will be illegal.
“If this bill is passed, it could be nullified by the U.S. Supreme Court next month in its decision on South Dakota v. Wayfair,” continued DelBianco. “Regardless of the decision, this bill would be a loss for Iowa residents.”
Fines and Jail Time for Website Employees
if Users Fail to Register with City
Washington, DC, April 25, 2018 – A Santa Monica ordinance, which forces online platforms to independently investigate and ensure every person with a listing on its website complies with the city’s licensing requirements, could be a death blow to web-based home sharing, ridesharing and a host of other online platforms, NetChoice and former Congressman Chris Cox (R-CA) argued in a in a joint “friend of the court” brief filed today in the case of HomeAway and Airbnb v. City of Santa Monica.
Cox, author of a federal law that makes such ordinances illegal, and NetChoice urged the U.S. Court of Appeals for the Ninth Circuit to invalidate the ordinance.
HomeAway and Airbnb require all persons listing a rental on their websites to acknowledge they are following all local laws. However, Santa Monica would hold the online platforms liable even if they were misled by property owners. The penalty? Employees at Airbnb and HomeAway could face fines and jail time.
The Cox-NetChoice brief explains how Santa Monica Ordinance 2535CCS violates federal law — Section 230 of the Communications Decency Act (1998).
“The Santa Monica ordinance effectively transfers each homeowner’s legal responsibility to the internet platform. This clearly violates Section 230,” said Chris Cox, author of Section 230 of the Communications Decency Act. “Sites such as Airbnb and HomeAway are matchmakers, bringing together homeowners and visitors. Their service is national in scope. When a family in Ohio plans a vacation in California or Florida or Maine, they expect Internet listings in these venues and more. And that is what the Internet delivers: it has allowed millions of homeowners across the country to list on these sites while millions of potential visitors have gained immediate, free access to those listings.
“Requiring the websites to review each of these listings one at a time,” Cox added, “will eliminate the very benefits consumers expect from the Internet. It is the homeowners’ responsibility to ensure they comply with all local rules and ordinances. Making the Internet intermediary liable for the website users’ legal responsibilities is what Section 230 rightly prohibits,” Cox concluded.
Section 230 protects online platforms from legal liability for user-generated content. Often termed “the most important internet law you’ve never heard of,” it is the law behind “Internet 2.0”. Without it, websites like Yelp, eBay, Facebook, and YouTube would not have gotten off the ground.
The impact of the Santa Monica ordinance could be widespread, setting a legal precedent that would undermine ecommerce.
“This is the slipperiest of slopes that Santa Monica is climbing. Do we hold clothing retailers responsible for manufacturers who may lie to them about child labor practices or mislead them about their fabrics?” said Steve DelBianco, president and CEO of NetChoice. “If Santa Monica wins, online platforms will face new costs and liability risks endangering an industry that has enabled millions of Americans to earn extra income from their homes.”
“The City seems to want to Make Bulletin Boards Great Again, by saddling marketplaces with new criminal liability,” DelBianco added.
Below are two excerpts from the brief:
- “The Ordinance requires Airbnb and HomeAway to review each individual posting on its website and check it against “a Registry of licensed home-sharing operators in the City.” Defendant’s Opp. to Preliminary Injunction at 14-15. This is exactly what Section 230 prohibits.” p.12
- “If further proof were needed that the Ordinance requires a one-at-a-time review of every online listing, it may be found in the criminal sanctions for noncompliance. Not only are they harsh ― the penalties for an Airbnb or HomeAway employee include half a year in jail ― but they are specifically imposed on a per-violation basis. §6.20.100(a). Each rental by an unlicensed website user constitutes a separate violation.” P.14
Steve DelBianco, NetChoice President, attended today’s oral argument before the Supreme Court in the case of South Dakota v. Wayfair.
NetChoice filed an amicus brief in the case, explaining that Congress has spoken on the online sales tax issue by enacting the Internet Tax Freedom Act (ITFA) in 1998, and by making ITFA permanent in 2016. ITFA prohibits discriminatory sales tax burdens on e-ecommerce, which is precisely what would happen if the court overturns Quill. Instead of ruling now, the court could remand the case to South Dakota to analyze conflict with ITFA.
With respect to questions and arguments in today’s supreme court session:
“Tough questions asked by the Justices today reveal that the court understands this is far more complicated than South Dakota has claimed,” said DelBianco. “Overturning Quill isn’t just flipping off a switch. It would cause national chaos.”
DelBianco summarized the strongest questions by the court. They are followed below by exact quotes from justices:
- “If we overturn Quill, isn’t it a problem that other states may apply their sales retroactively?”
- “What’s the threshold for minimum contacts that trigger state tax obligations?”
- “What happens when the software breaks down?”
- “What are the costs for smaller businesses to collect for 46 states?”
- “If we overturn Quill, won’t we just help the biggest online sellers at the expense of small businesses?”
- “With nearly all the big ecommerce sellers already collecting, hasn’t this problem peaked, and why act now?”
- “Isn’t this the role of Congress? And if congress has not acted, doesn’t that suggest they are okay with Quill?”
- “Should we ignore Supreme Court precedent?”
If we overturn Quill, isn’t it a problem that other states may apply their sales retroactively?
JUSTICE ALITO: [D]oes the government have a position on the question whether retroactive application of — of this would be constitutional?
- STEWART: In our view, it would be constitutional
What’s the threshold for minimum contacts that trigger state tax obligations?
CHIEF JUSTICE ROBERTS: Mr. Stewart, do you believe that there is a constitutional minimum [number of sales for physical presence]?
- STEWART: there’s no constitutional minimum
What happens when the software breaks down?
SOTOMAYOR: What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can’t keep track of who they’ve sold to?
What are the costs for smaller businesses to collect for 46 states?
SOTOMAYOR: Actually, [small businesses are] put at disadvantage not by Quill but by the fact that there are massive discount sellers, not just on the Internet, but even in stores now.
SOTOMAYOR: So what are we going to do with the costs that you’re going to put on small businesses?
If we overturn Quill, won’t we just help the biggest online sellers at the expense of small businesses?
BREYER: [T]heir side puts up a certain specter which I’m sensitive to, which is that we have four or maybe five giant potential retailers in the country; I mean, there could be a very small number selling virtually anything.
And they sell over the Internet. And the hope of preventing oligopoly, et cetera, is small business, which finds it easy to enter.
Now you raise with this entry barriers, and they say a lot and you say a little. And I don’t know if it’s a little or if it’s a lot.
And if it is a lot, there might be ways of putting minimums in that would, in fact, preserve the possibility of competition and the possibility of new entry, stopping the entry barriers from raising too high.
With nearly all the big ecommerce sellers already collecting, hasn’t this problem peaked, and why act now?
CHIEF JUSTICE ROBERTS: the suggestion in some of the briefs is that this is a problem that has peaked in the sense that the — the bigger e-commerce companies find themselves with physical presence in — in all 50 states.
If it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there are greater significance to the arguments that we should leave Quill in place?
Isn’t this the role of Congress? And if congress has not acted, doesn’t that suggest they are okay with Quill?
BREYER: Well, we have briefs from three Senators and Congressman Goodlatte that says Congress was about to act. And, indeed, what stopped them from acting was our decision to decide this case. Now that’s — that’s their view of it. And between whether they know or whether I know, I guess they have a better view. They’re members of Congress and they point to many statutes. And you are 50 states. If you do not have the power to get Congress to do something, I don’t know who would.
ALITO: [I]f Quill is overruled, what incentives do the states have to ask for any kind of congressional legislation?
CHIEF JUSTICE ROBERTS: [M]aybe [Congress] already have and they’ve made a decision or at least majorities have made a decision that this is something they’re going to leave the way it has been for, whatever it is, 25 years.
KAGAN: [U]sually, when somebody says something like that, that Congress has not addressed an issue for 25-plus years, you know, it — it gives us reason to pause, because Congress could have addressed the issue and Congress chose not to. This is a very prominent issue which Congress has been aware of for a very long time and has chosen not to do something about that. And that seems to make the — your bar higher to surmount, isn’t it?
JUSTICE KAGAN: But isn’t that essentially a reason why we should leave this to Congress? In other words, from this Court’s perspective, the choice is just binary.
It’s — it’s you either have the Quill rule or you don’t. But Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here.
Now the General said Congress hasn’t done that, but, again, you know, Congress can decide when it wants to craft a compromise and when it doesn’t want to craft a compromise. And then Congress, if it decides it wants to craft a compromise, can craft a compromise in ways that we cannot.
Should we ignore Supreme Court precedent?
GINSBURG: Quill, right or wrong, was this Court’s decision. And if time has, and changing conditions, have rendered it obsolete, why should the Court which created the doctrine say: Well, we’ll — we’ll let Congress fix up what turns out to be our obsolete precedent?
Washington, DC, April 17, 2018 – Earlier today, the United States Supreme Court heard oral arguments in the case of South Dakota v. Wayfair, et.al. At issue is the legality of a new South Dakota sales tax law that imposes sales tax burdens on out-of-state businesses with no physical presence in the state.
The South Dakota law breaks with Supreme Court precedent set in the 1992 case of Quill vs. North Dakota and violates the Internet Tax Freedom Act (ITFA) enacted by Congress in 1998. These protections shelter small businesses from the demands of 46 state tax auditors covering 12,000 local tax jurisdictions.
Below, please find reactions to today’s oral arguments from NetChoice and several other eCommerce and online sales tax experts.
The Wrong Fight for Trump
NetChoice President Steve DelBianco
“The Trump administration argues that Quill should only protect mail-order businesses, and not online sales. While the President may want to penalize Amazon, and make mail order great again, Congress has made it illegal to discriminate against internet sales.
South Dakota is attempting an unconstitutional online sales-tax land grab. The Quill decision and the ITFA have protected online small businesses from the demands of 46 state tax auditors covering 12,000 jurisdictions and led to a vibrant era of ecommerce that fosters economic growth across the country.”
ITFA Co-Author Speaks Out
Former Congressman Chris Cox (R-CA)
“As co-author of the Internet Tax Freedom Act, I can attest to what Congress was worried about when we made it illegal for states to impose multiple sales tax burdens on out-of-state merchants selling online.
A store in one location doesn’t have monthly tax forms due in states all over the country. But a small internet merchant would, without the rule established by the Internet Tax Freedom Act.
Congress didn’t want different tax collection burdens for e-commerce versus other commerce. When a South Dakota resident buys furniture from a store across the border in Montana, South Dakota doesn’t require the brick-and-mortar seller to remit sales tax. But it does require an internet seller in Montana to do so, for the very same piece of furniture.
Federal statute expressly prohibits what South Dakota has attempted to do. On nine occasions between 1998 and 2016, Congress affirmed and reaffirmed this policy. The Internet Tax Freedom Act, now permanent law, is the definitive statement of congressional policy in this important area of interstate commerce.
This discriminatory treatment is prohibited today by the ITFA.”
Former Governor Still Waiting for Simplified Tax Collection
Former Va. Gov. James Gilmore
“As the chair of the Advisory Commission on Electronic Commerce, we recommended back in 2000 that Congress require states to deliver substantial simplification and reform of their sales tax systems before erasing the physical presence standard of Quill.
But the states have not simplified, and have actually increased complexity and contradiction among the 46 sales tax states.”
The Voice of the Small Business Owner
Online small business owner Kathy Terrill
“I’m grateful for the protections that Quill provides for my online business. If Quill is overturned, sales tax is weaponized against small businesses like mine.
It is, in effect, taxation without representation. That is un-American and fundamentally unfair.”
Etsy Stands with Microentrepreneurs
Jill Simeone, Etsy, General Counsel and Secretary
“Overturning Quill would open a floodgate; thousands of inconsistent state and local tax regulations would suddenly apply to small business owners across the country. Requiring Etsy sellers and other microbusinesses to calculate, collect, and remit sales tax in states where they have no physical presence will create stifling administrative burdens and thwart entrepreneurship.
We stand with our community of 1.9 million Etsy sellers—and all microentrepreneurs—and ask the U.S. Supreme Court to support small businesses and leave Quill intact.”
NetChoice is a trade association of eCommerce and online businesses that share the goal of promoting convenience, choice, and commerce on the net.
Deems South Dakota Sales Tax Law Unconstitutional, and Highlights Trump Administration Desire to Stifle Online Commerce and Make Mail Order Great Again
Washington, D.C., April 4, 2018 – A South Dakota law is unconstitutional and breaks with settled law – the Internet Tax Freedom Act (ITFA), per an Amicus brief filed today by NetChoice, former Congressman Chris Cox (R-Ca) and former Virginia Governor James Gilmore, in the case of South Dakota v. Wayfair, Overstock.com, and Newegg.
A central question in the case is whether the U.S. Supreme Court should maintain its current holding that states can only impose sales tax on businesses with a physical presence within their borders. This physical presence rule was most recently affirmed in the 1992 case of Quill vs. North Dakota. In 2016 South Dakota enacted a law that defies the Quill physical presence standard.
In their brief, Cox, Gilmore, and NetChoice explained: “Congress has repeatedly expressed itself through statute on the tax issues in this case. Exercising its constitutional authority over interstate commerce, Congress enacted ITFA in 1998, after the Supreme Court’s Quill decision. On eight subsequent occasions, Congress revisited this law and reaffirmed its policy.”
“South Dakota is attempting an unconstitutional online sales-tax land grab. The Quill decision and the ITFA have protected online small businesses from the demands of 46 state tax auditors covering 12,000 jurisdictions and led to a vibrant era of ecommerce that fosters economic growth across the country,” said Steve DelBianco, president of NetChoice.
DelBianco added, “The Trump administration now says that Quill should only protect mail-order businesses. While some may want to make mail order great again, Congress has made it illegal to discriminate against internet sales. We’d prefer to have laws that foster a brighter future instead of forcing us to return to the past.”
Below are key quotes from the amicus brief of former Congressman Chris Cox, Former Virginia Governor Jim Gilmore, and NetChoice:
Prevent new burdens on small businesses and discrimination against online sellers:
South Dakota has enacted a law that it acknowledges violates this Court’s precedents. Its transparent purpose was to provoke litigation that, it hopes, will be rewarded by the Court’s reversal of its prior rulings. [p.2]
Regarding the Internet Tax Freedom Act (ITFA), first enacted by Congress in 1998 — after the Quill ruling:
South Dakota’s law violates the ITFA by imposing burdens on internet transactions that retailers using other channels are not required to bear. [p.3]
A small business that maintains a website cannot choose whether to purposely avail itself of one or another jurisdiction. [p.10-11]
The law specifically prohibits assigning the tax collection burden to a different person in internet and non-internet transactions. [p.13]
The discriminatory effect of South Dakota’s law is explained on pages 13-14:
When, for example, a resident of South Dakota buys furniture from a retailer in Montana—picking up the goods herself, and bringing them home—South Dakota law requires her to pay use tax. But South Dakota does not impose a use tax collection burden on the out-of-state seller.
Unless, that is, the out-of-state seller is an Internet vendor.
In that case, the rule is different. If the furniture purchase is accomplished via the Internet (or via the telephone, or the mail), South Dakota’s new law does require the Montana seller to collect and pay, even though Montana has no sales tax.
This differential treatment is what the ITFA prohibits.
The result of overturning Quill would be to force small Internet sellers to comply with the conflicting rules of thousands of differentiated taxing sub-jurisdictions. The non-Internet merchant would have no such burden. This is precisely the result ITFA sought to avoid as a matter of national policy. [p.4]
The Trump Administration wants to preserve physical presence protection only for mail orders:
The Trump administration’s suggestion “that the Court can simply limit Quill to catalog sellers and discriminate for Commerce Clause purposes between catalog sellers and internet commerce also would violate the ITFA.” [p.3]
The Solicitor General proposes that the Court limit Quill’s nexus requirement to mail-order catalogs. This would permit South Dakota to impost unique tax-collection obligation on remote internet sellers that don’t apply to other remote sellers. The ITFA flatly prohibits this. [p.20]
The Solicitor General’s proposal runs afoul of the ITFA in yet another way. His idea that remote Internet sellers are “virtually” present in every State where a consumer can access its website violates the express prohibition against using as a factor for determining nexus the “sole ability [of persons within a State] to access a site on a remote seller’s out-of-State computer server.” [p.21]
There are significant due process problems with the South Dakota law:
An out-of-state seller may establish contact with an individual South Dakota purchaser online, but that does not show any relationship with the State itself. [p.23]
South Dakota’s law imposes tax collection obligations on out-of-state sellers without regard to whether they intentionally created a substantial relationship with that State. [p.24]
Not only would the increased burden on these sellers cause “practical problems” that Due Process protections are meant to curb, but by imposing steep costs and driving some companies out of the market, it would, ironically, reduce the States’ potential for increasing their tax revenues. [p.27]
Congress alone has the constitutional role to determine state taxation of interstate commerce:
As Justice Ginsburg has recently observed, “there is nothing nuanced” about what courts do by deciding a case one way or the other, while Congress “can write a statute that takes account of various interests.” [p.6]
The Internet Tax Freedom Act (ITFA) “is intended to provide “certainty” that the rules of Quill’s physical-presence test “will continue to apply to electronic commerce just as they apply to mail-order commerce, unless and until a future Congress decides to alter the current nexus requirements.” [p.13]
On page 9, former Congressman Cox further explains congressional intent for enactment of the ITFA:
Congress and the White House, in 1998 and 2016 and all points in between, believed otherwise. The specter of multiple States and municipalities all simultaneously taxing and regulating commerce on the Internet was seen as the far greater concern
The fact that large in-state sellers would be challenged by small enterprises via the Internet was seen as a boon to competition and consumers alike.
Those small businesses – in South Dakota and elsewhere – can only compete if they are not overwhelmed with a nationwide tax compliance burden simply by virtue of selling via the internet. [p.33]
NetChoice is a trade association of eCommerce and online businesses that share the goal of promoting convenience, choice, and commerce on the net.
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.
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.”
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]
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.”
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.