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July 11, 2011

July 11, 2011. Commerce in the eMarketplace – “eFairness” CWAG Laurie Smalling Director of Public Affairs and Government Relations. What is eFairness?. eFairness Impact. For American retailers: Fair tax legislation means a level playing field for traditional retailers across the country .

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July 11, 2011

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  1. July 11, 2011 Commerce in the eMarketplace – “eFairness”CWAGLaurie SmallingDirector of Public Affairs and Government Relations

  2. What is eFairness? eFairness

  3. eFairness Impact For American retailers: • Fair tax legislation means a level playing field for traditional retailers across the country. • It provides Main Street small businesses with a real chance to compete with their online-only counterparts. For American consumers: • Fair tax legislation would provide important protections as American consumers are still required by law to pay the sales tax on purchases, even if the retailer does not collect them. • Less burden and less risk associated with point of sale collection of sales taxes. For state and local governments: • With the click of a button, states are losing millions of dollars a year in revenue. eFairness

  4. Implications of the status quo • Online sales are increasing and customer behavior is being shaped • Traffic count at traditional retailers is decreasing • Sales tax numbers will continue to go down and states will suffer • Businesses will shut down and people will lose jobs eFairness

  5. What is the internet? eFairness

  6. Legal Dynamics Pre-1992 - U.S. Supreme Court decisions clarified that the imposition of state taxes on interstate commerce is permissible. - Activity to be taxed must have substantial nexus with the taxing state, be fairly apportioned, not discriminate against interstate commerce and be fairly related to services provided by the state. 1992 - Quill v. North Dakota, 504 U.S. 298. Facts: North Dakota sales tax law imposed tax collection obligations on retailers who regularly solicited sales from ND residents, including by advertising in catalogs mailed to ND residents. Quill, an office supplier, challenged a ND tax assessment on the grounds that ND law violated the Commerce and Due Process Clauses. Ruling:Commerce Clause - State may not collect sales or use tax from an out-of-state mail order seller with no substantial nexus (physical presence) in the state. Due Process Clause - Does not prohibit state taxation if the retailer has purposely directed its commercial activities in the state, even if no physical presence in the state. Application of Quill: • Presence of property, offices, facilities, employees, agents or independent contractors in the state is sufficient. In many instances, the presence of independent contractors is sufficient. • More tenuous agency or affiliate relationships between the taxpayer and others are less clear, e.g. New York, North Carolina, Oklahoma laws. eFairness

  7. Legal Dynamics - cont • 2000 – Streamlined Sales Tax (SSTP) project launched • 24 states have implemented uniform laws • Congressional authority needed in order to constitutionally impose tax on remote sellers (internet, mail order, etc.) that do not have substantial nexus. • 2010 - New York and other states enact tax collection laws which attempt to attribute physical presence of others to remote sellers. • NY statute imposes tax collection duties on remote seller if the seller has a commercial arrangement with a NY entity that directs customers to the remote seller, usually marketing via a web site link. • Amazon and Overstock.com challenged the constitutionality of the NY statute. • The NY trial court concluded that the statute was constitutional “on its face” for Commerce Clause and Due Process challenges but that further discovery was required in order to determine if the statute “as applied” to the sellers was unconstitutional. The decision was appealed and upheld. The case is back in the trial court waiting on next steps.

  8. Possible Solutions • Legal opinion on enforcement efforts by Departments of Revenue • Main Street Fairness Bill- Federal legislation which allows SSTP states to collect tax from remote sellers. Many similar bills have been introduced in the past but nothing has been filed in the current session. • Pursue other federal legislation (not yet introduced) that is not tied to SSTP but which specifically authorizes states to impose tax on remote sellers and provides similar concessions and protections for remote sellers. • U.S. Supreme Court overrules Quill after challenge to state legislation by affected retailers.

  9. Contact Thank you! Laurie Smalling 479-204-2968 Laurie.smalling@wal-mart.com eFairness

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