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NetChoicePromotingConvenience,Choice,andCommerceonTheNetCarlSzabo,SeniorPolicyCounsel1401KStNW,Suite502Washington,DC20005202-420-7485www.netchoice.org
RepresentativeJeffreyHickman,SpeakeroftheHouse May13,20162300N.LincolnBlvd.Room401OklahomaCity,OK73105
RE:OppositiontoHB2531–AnActrelatingtorevenueandtaxation
DearSpeakerHickmanandmembersoftheHouse:
WeunderstandthepurposebehindHB2531,butwerespectfullyaskthatyounotpassHB2531.Wefullyunderstandtheneedforstatestoseekoutadditionalrevenue.However,the“reportingrequirement”languageinHB2531couldcostsOklahomathousandsinlegalfeeswithnopositiveoutcomeforthestate.The“commonlycontrolled”languagewillunderminethevalueofOklahomabusinessesseekinginvestmentoracquisitionbyout-of-stateinvestors.Atthesametime,theadvertiser-nexuslanguageinHB2531presentsanewpainwithnogainburdenthatwouldcausejoblossacrossOklahomaandharmtheOklahomaeconomy.
ReportingRequirementsforInternetSales
HB2531mirrorsa2010Coloradolaw1thatfederalcourtsdeterminedwasinviolationoftheUSConstitution–basedonboththedormantcommerceclauseandfirstamendment.Shortlyafterenactment,afederalcourtinColoradoenjoinedtheColoradoreportingmandate.Nearlysixyearslaterthelawstillremainsenjoinedandthestatehasspentthousandsofdollarstryingtooverturnthedecision.ItcurrentlyawaitsahearingonthefactsintheFederalDistrictCourtofColoradowhichpreviouslyfoundtheColoradolawunconstitutional.
LiketheColoradolaw,HB2531wouldimposeundueburdensoneveryout-of-stateseller,pointingtosimilarconstitutionalinfirmitiesandanexpensivecourtbattlewithapredictableoutcome.ThemandateddisclosureofConnecticutresidents’buyinghabitsisnotonlyinvasive,butfederalcourtshavedeterminedthatitviolatesthefirstamendment.AfederaldistrictcourtstruckdownaNorthCarolinareportingmandatesimilartoHB2531,saying:
“TheFirstAmendmentprotectsabuyerformhavingtheexpressivecontentofherpurchaseofbooks,musicandaudiovisualmaterialsdisclosedtothegovernment.Thefearofgovernmenttrackingandcensoringone’sreading,listeningandviewingchoiceschillstheexerciseofFirstAmendmentrights.”2
HB2531erodesthephysicalpresencestandardthatprotectsOklahomabusinessesfromtaxcollectorsinotherstates.EnactmentcouldpromptotherstatestoforceOklahomabusinessestocomplywiththeirtaxrules,rates,taxholidays,thresholds,andcaps.HB2531couldtherebyencourage46statetaxauditorstogo
1Rev.Stat.§39-21-1122AmazonInc.v.Lay,CaseNo.C10-664MJP(WAFedCt,Oct.10).
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afterOklahomabusinesses.ImaginetellingyourlocalbusinessesthatNewYorkandIllinoistaxauditorscannowgoafterthemfortaxesdueonout-of-statesales.
HB2531WillDevalueOklahomaBusinesses
HB2531isdesignedtoincreasecollectionofsalestaxeswhenOklahomaresidentspurchasefromout-of-stateretailers.ItwouldextendtaxobligationstoaremoteretailerifanyothercompanyinthesamecorporatefamilyhadapresenceinOklahoma.
However,asidefromconstitutionalchallengesthisapproachmayinvite,wewanttoalertyoutoapredictableandpracticalproblemthislegislationwouldcreateforOklahoma’semergingbusinesses.
ThislegislationextendstaxnexussolelyonthebasisofaparentcompanyhavingasubsidiarywithOklahomanexus.ThiswouldimposesignificanttaxconsequencesforretailerswhosecorporateparentacquiresanOklahomabusiness--eveniftheretailerhasnosubstantialnexusinOklahomaandnoconnectionwhatsoevertothebusinessbeingacquired.
IfHB2531becomeslaw,anyoneconsideringinvestmentsoracquisitionsinOklahomawillhavetoconsiderthenegativeimpactonretailoperationsanywhereintheircorporateportfolio.ThatwillreducethevalueofOklahomainvestments:someinvestorswillavoidtheproblembynotbiddingonOklahomabusinesses;otherinvestorswillreducetheirvaluationtoaccountforaddedtaxcompliancecostscausedbyinvestinginanOklahomabusiness.
Eitherway,Oklahoma’semergingbusinesseswilllosevaluethedayafterHB2531becomeslaw.
StuntingOklahoma’sAffiliate-Advertisers
Theadvertiser-nexuslanguageinHB2531isdesignedtoincreasecollectionofsalestaxeswhenOklahomaresidentspurchasefromout-of-stateretailers.Itwouldapplytoretailersthatuseanextendednetworkofwebsitesfordisplayingadvertisements.Thelawredefineswhatitmeanstobea“business”inthestateandcreatesapresumptionofnexuswhenanout-of-statecompanypaysOklahoma’sbusinessesforsold-thrureferralsfromitswebsites.
Today,bothonlineandtraditionalcompaniesareexperimentingwithwaystodeliverproducts,services,andcontent,whilebusinessesofallkindsareusingonlineadvertisingtofinddistantcustomers.StatelawsthatdeclareInternetadvertisingaproxyforin-statesalesagentswillstuntthegrowthofnewbusinessmodelsanddistorttheevolutionofInternetmarketing.
Oklahomashouldavoidtheproceduralpitfallsandfundamentalunfairnessofmakingonlineadvertisinganexusdeterminant.AfarmoreimportantconsiderationforOklahoma’slegislatorsisthelikelyunintendedimpactontheOklahomaaffiliate-marketsaswellastheotherin-statebusinessesandcharitiesthatrelyonthisverysameadvertisingtofundtheiroperations.
HarmtoOklahoma’sSchoolsandCharities
Considerthebill’simpactonagrowingsourceoffundraisingdollarsforOklahomaschoolsandcharities—BoxTopsforEducation.
Foryears,kidsaroundthecountryhavebeencollectingboxtopsfromcerealboxestoraisemoneyforfieldtripsandnewequipment.BoxTopsforEducationhasraisedoverahundredmilliondollars--bycollectingjustafewcentsoneveryboxtop.Today,thisfundraisinghasgoneonlineviaBoxTopsMarketplace,generatingcommissionswhenparentsshopataffiliatede-commercewebsites.
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Here’stheBoxTopsMarketplacewebpage:
TheBoxTopsMarketplacehasgrowntooverahundredparticipatingwebsites,offeringparentingessentialssuchaspetsupplies,shoes,books,clothing,andhouseholdgoods.EachoftheonlinestoresintheBoxTopsMarketplacegivesapercentageofsalestosupportgoodcausesinOklahoma:
AlsoinOklahoma,schoolsencourageparentstodotheironlineshoppingatBoxTopsMarketplacetogeneratecommissionsfortheirschoolfundraisingefforts.
Thingis,someoftheonlinestoresparticipatinginBoxTopsMarketplacehaveanyphysicalpresenceinOklahoma.IfHB2531werepassed,theout-of-stateretailersinvolvedintheBoxTopsMarketplacewouldlikelycanceltheiraffiliateprogramsinOklahomaandshutoffthissourceofschoolandcharityfunding.
TheLossofaGrowingSourceofRevenueforOklahomaMarketers
ThemarketersacrossOklahomarelyonrevenuegeneratedfromreferraladvertising.Oftenthesereferralsaretoout-of-stateretailerswithnophysicalpresenceinOklahomaandnoobligationtocollectandremitsalestaxforOklahomapurchasers.
Acriticalquestionbeforeyourcommitteeiswhetherout-of-stateretailerswouldcontinuetoadvertisewithOklahomamarketersifOklahomaenactedtheadvertiser-nexuslanguageinHB2531.
Wouldtheysuethestateoverquestionsofconstitutionality?
WouldtheyfollowtheexampleofhundredsofretailerswhosimplystoppedtheircommissionbasedadvertisinginNewYork,RhodeIsland,Illinois,andNorthCarolinaafterthosestatesenactedasimilarlaw?
EncouragesOklahomaBusinessestoLeavetheState
Asyouknow,Illinoismadethemistakeofpassingabillsimilartotheadvertiser-nexuslanguageinHB2531.WhenIllinoispassedHB365,thousandsofaffiliateslostamajorsourceofincomewithinamatterofhours.
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Infact,ofthe12largestaffiliatesinIllinois,11movedtootherstates,takingover275jobswiththem.ManyofthesebusinessesmovedtoIndianaandWisconsin–includingCouponCabinandMr.RebateswhomovedtoIndiana.
ThisisanalogoustotheproblemOklahomafacesifitpassestheadvertiser-nexuslanguageinHB2531.Ifpassed,websiteadvertiserscouldleaveOklahomaandmovetoWisconsin,takingtheirjobsandbusinesseswiththem.
Weaskthatyounotbecomeanotherstate’sbenefactorbypassingHB2531.
NewPainwithNoGainEffectsoftheAdvertiser-Nexus
It'sessentialtorememberthatout-of-statebusinessescanavoidtheburdenofcollectingtaxesbycuttingofftheiradcommissionpaymentswithOklahoma’swebsites.Ofcourse,Oklahomaconsumerscouldstillbuyfromout-of-statebusinessesthatstoppayingcommissionstoOklahomawebsites.Thatmeanstheadvertiser-nexuslanguageinHB2531couldhavetheunintendedconsequenceofreducingadrevenueforOklahomaadvertiserswithoutincreasingsalestaxcollections.
Theneteffectoftheadvertiser-nexuslanguageinHB2531could,therefore,benewpainwithnogain.InnoeventwouldnewmoneyflowintoOklahoma;anyincrementalsalestaxcollectedjustmovesfromtheOklahomapurchasertothestatetreasuryatatimewhenhouseholdsarebeingsqueezedbyastrugglingeconomy.Tothecontrary,feweradvertisingdollarswouldflowtoOklahomawebsiteswhoemployandserveOklahomaresidents.
WethereforeurgeyoutoopposeHB2531andtorefrainfromimposingadditionalburdensonOklahomabusinesses.
Thankyouforconsideringourviews.PleaseletmeknowifIcanprovidefurtherinformation.
Sincerely,
CarlSzaboSeniorPolicyCounsel,NetChoice
NetChoiceisatradeassociationofe-Commercebusinesses.Moreinformationatwww.netchoice.org
The Wisconsin governor met online advertiser Fat Wallet at the state border as the company moved from Illinois to Wisconsin.
