South Dakota v. Wayfair, Inc.: Taxation in the Digital Age

Remember the days of the tax free Internet purchase?  Me neither, because those days never really existed.  That said, in the wake of the recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc,  the risk of non-collection for said taxes has shifted from consumer to company – and anyone who makes an online sale should sit up and take notice.

A Few Things Before We Get Started

As with most of my posts, I like to set a few baselines before we dive in:

1) Use Tax: The reason the tax free Internet purchase never really existed.

Use Tax is the tax you’re supposed to pay (and remit yourself!) on purchases from out-of-state retailers.  That’s right! You’re supposed to keep track of your out-of-state purchases, note if that business collected Wisconsin sales tax with your purchase, and if not, remit the appropriate tax yourself! Don’t believe me?  Here’s the link to the Department of Revenue FAQ.

2) Quill is Dead: If you’re an online retailer I’m sure you’ve heard this old adage: “I don’t have a location in Wisconsin, and I don’t even have any storage facilities there, so I don’t need to collect sales tax!”  If you’d made that statement a few months ago, you might have been right (or mostly right), but not anymore.

The Good Ol’ Days

In the days pre-Wayfair, the risk of non-collection for out of state sales tax rested with the consumer.  If I made an online purchase at NewEgg.com for $5,000.00 and didn’t report that purchase on my state tax return, I was at risk for underpayment, audit, penalties, etc. – but not NewEgg.

The reasoning was: If NewEgg didn’t have a “substantial nexus” (a.k.a. some type of operation) in Wisconsin, the State, via the Department of Revenue, couldn’t compel NewEgg to collect and remit the tax appropriately.  Quill Corp. v. North Dakota.  The basis for that reasoning – the Commerce Clause of the U.S. Constitution – and the previous difficulty companies had calculating and remitting taxes to all 50 states (and myriad municipalities).

The Problem

The problem for State governments: Most people didn’t pay Use Tax, budgets are tight, and in the age of the online purchase, a big piece of taxable pie is missing.

The Wayfair Decision and What it Means

This has been a long time coming and did not happen by chance.  Many State legislatures passed new laws compelling “out of state” retailers to collect tax – purposely trying to force the U.S. Supreme Court to revisit its decision in Quill. and eventually, the Supreme Court did.

What does that mean for you?

1) Don’t freak out!  Implementation of the new rules won’t go into effect in Wisconsin until October 1, 2018.  It’s not a huge amount of time, but it’s not tomorrow either.  You have time to craft a solution!

2) Visit the DOR website here for more information.

3) A “small-seller” exemption applies! Because what rule would be complete without an exception! If your business makes only $100,000 of sales in Wisconsin; or only has 199 total transactions with Wisconsin consumers, you don’t need to worry! Does the exception apply to you?

4) Regardless of whether or not the exception applies, it’s time to fortify your business for the future, and more taxation is inevitable.  Schedule a meeting with your accountant, investigate software platforms that make it easy to remit tax to various states, and schedule an appointment with your favorite attorney to discuss in more detail.  Your situation will be unique!

If you need help, OGS is here to assist you!

*Note to the legal nerds: Of course, the Quill decision is much more nuanced than I’ve detailed here.  If you want to talk nerdy about it – I’d love to – just not in this blog post!

Learning to Read the Harmonized Tariff Schedule

I’ve written about this before on LinkedIn – full disclosure, but over the past few weeks, I’ve gotten multiple questions about customs costs, and how they are assessed, from clients who are importing products from abroad and re-selling them in the United States.  Each client’s situation is unique, but a critical step one in all situations is learning to read the Harmonized Tariff Schedule – the massive index that assigns almost every conceivable product a duty rate.

A little background before we get started:

First, the United States does not levy a huge amount of tariffs on a lot (but not all!) of overseas goods.  That said, tariffs are political tools – so you will often see a 0 % import duty levied on products from countries like Germany (or the many other counties the US has a free trade agreement with) but a 40% duty on the same product from Cuba.  Therefore, choosing where to import a certain product is an important consideration.

Second, it’s easier than ever to import.  Go to Alibaba.com and click “order.”  But, with increased ease comes increased risk because the law still imposes all the same requirements on you, the individual importing widgets from China, as it does a Fortune 500 with millions of imports each year.

The Harmonized Tariff Schedule

The first step to figuring out “what” and “from where” to import comes by learning how to read the Harmonized Tariff Schedule.  The HTS is a HUGE catalog that categorizes imports by number and then assigns their respective duty rates.  Back in the day, the HTS was available in print, and it took a while to search, but now it’s an online searchable database here.

When looking at the HTS, you’ll see 2 columns after the “description” column; these are the the particular ones we will be discussing today.

The “Unit of Quantity” column tells you how imports on that particular product are assessed.  For example, vinyl flooring is assessed by meters squared – while commodity goods are often assessed by kilogram.  Therefore, in the case of vinyl flooring (HTS Code 3918.10.20) – you will get charged a 5.3% duty on the invoice value of each square meter imported.

The “Rate of Duty” column is next and is broken down into 3 parts.  The first part, “Column 1,” tells you the “general duty” rate, which – in layman’s terms means – “the general duty the US charges other countries we get along with but don’t have a free trade agreement with.”  For legal nerds, this is really called “Most Favored Nation” treatment or a country with which the US has “Normal Trade Relations” and is a cornerstone concept of the World Trade Organization.

The second part is the “Special” duty rate which the US charges countries with which it has a special free trade agreement.  There are a lot of free trade agreements out there, so be sure to check if your country of origin applies – because most “free” trade agreements set the duty rate at 0!

The third part is the “Column 2” or the “bad boy” duty rate that the US charges on imports from countries which we do not have normal trade relations with.  The most recent example of a country moving from Column 2 to the MFN column is Vietnam.  The only countries remaining on the list are North Korea and Cuba.

As you have probably noticed, this post assumes you have already figured out which HTS code applies to the product you are importing, but that is often the hardest (and most legally significant) part of the process.  If you’re interested in reading more on that point, check out the case of “mutants” or “humans” –  Marvel won in 2003!

If you need help expanding internationally or taking a look at your current import process, OGS can help!

Liability Waivers in Your Adventure Business

Adventures are everywhere and more accessible than ever! But, with more adventure comes more risk for the participant and more risk for the business (and its owners).  As you can imagine, the question\request I get most often from adventure business owners is related to liability waivers and protecting the business from legal risk in the case of an accident (because accidents do happen!) This article discusses the reality of liability waivers in Wisconsin and some critical points every adventure business owner should think about while developing the critical culture of safety that is required to protect their business and investment!

The Liability Waiver and the Law in Wisconsin

First, a little background:

Reality Check 1: A business with a great waiver, but bad (or no) business & safety practices to back that waiver up, is absolutely still open to legal risk – the waiver won’t save them. Don’t believe me, Just ask Tough Mudder.

Reality Check 2: The Wisconsin Supreme Court has never upheld a liability waiver when it has been challenged by an injured person.  That doesn’t mean that no waiver will work – just that Wisconsin is strict when it comes to what the waiver must contain to be enforceable against a regular customer.

A Release of Liability and Agreement Not to Sue (The Waiver) 

A good, well drafted, well organized, and easy to understand waiver is a key component of minimizing risk. The waiver should be:  1) tailored to your business; 2) part of your regular business process; and 3) in plain English.

Additionally, the waiver should not attempt to avoid all types of liability (willful or reckless conduct) because that will be grounds for invalidating the waiver all together in Wisconsin.

Finally, the waiver should: 1) offer the participant the chance to bargain its terms; 2) be in its own document; and 3) detail the risks of participation explicitly.

(and this is just a short list…)

 Reinforcing the Waiver With A Culture of Safety 

More important than the waiver, though, are all the things the business does to back the waiver up and reinforce that safety is a key component of the business model. Here are a few things to think about:

1) How does the waiver look? Can anyone besides an an attorney understand it? If you don’t understand your own waiver – it’s time to update it. Legalese is a dying language, and the waiver (and any agreement for that matter) will be better if it’s written in plain language – so anyone can understand it with relative ease.

2) How is the waiver presented to customers? Are they allowed to ask questions? (Especially if the waiver is filled out online or at home). You should not provide legal advice on particular parts of the waiver – but you shouldn’t have a policy of NOT answering any questions at all either (which is the case at a lot of places).

3) Do customers have a comfortable space to sit down and read, understand, and sign the waiver? This might seem trite, but it’s not. Can you reasonably expect anyone to understand the waiver if it’s crumpled up on their knee and they are squeezed into a couch in the corner? I wouldn’t want to sign a document under those circumstances.

4) Is the participant’s identity checked when they arrive? How does the business ensure everyone has signed a waiver? Again, seems stupid – but it’s an easy step to take.

5) What other safety training is in place? After the customer signs the waiver,  are they given further instruction on how to be safe? In skydiving and zip lining, there are brief classes or additional videos that the customers watch. Further, training for the customer and opportunities to ask questions are key.

6) If the activity is inherently dangerous (like Tough Mudder) – what safety protocols are in place? Accidents will happen, but what if something really bad happens?  How will it be handled? How are staff trained to respond?

7) What about angry customers – how does the business deal with them? Again, seems unrelated – but it’s not. An angry customer with a lot of money can file a lawsuit pretty easily – what steps are in place to deal with problem customers?

A waiver is an absolute “must have” for any adventure business, but a waiver by itself is useless without the culture of safety to back it up.  Now is the time to review your waiver for compliance with Wisconsin law and to think critically about where the waiver fits into the larger safety and risk reduction strategy in your business.  If you need assistance, OGS can help!

Don’t Cross the Streams

When talking with people starting businesses, one question that we get is a lot is “How do I limit my liability?”.  First, we talk about creating a business entity.  And don’t forget about insurance.  But, one thing we always talk about is “Don’t cross the streams. It would be bad.

By that, we mean keep your business money and your personal money separate.  That means separate bank accounts and separate books.  It definitely means pay your business debts using your business account and your personal debts from your personal account.

If you have two businesses, pay each one separately.  If you are going to give money to one from another, it has to be a loan – yes, with interest.  These are separate legal entities.  You wouldn’t loan your neighbor’s business money without interest, which means you shouldn’t do so between your own.

The more you treat the entities as distinct from you and each other, the more likely courts will follow your lead and do the same.  So, unless you are faced with a giant, flaming marshmallow man and a gateway to Gozer, don’t cross the streams.

So That’s Why It Says That

The Food and Drug Administration (along with the FTC and FCC) regulates the claims that dietary supplements can make for their products.  Dietary supplements are those things that people take to enhance their health but aren’t drugs.  If the substance is “intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease” or “to affect the structure or any function of the body of man or other animals,” it is considered a drug and is subject to considerably more regulation.  If a substance is not a drug, it can avoid a lot of expense, testing and regulation, but then it cannot make a lot of claims relating to the usefulness of the substance.

Dietary supplement labels may carry certain types of health-related claims. Manufacturers are permitted to say, for example, that a dietary supplement addresses a nutrient deficiency, supports health or is linked to a particular body function (like immunity or heart health). However, such a claim must be followed by the words, “This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.”

The federal government can take legal action against a company or website that sells dietary supplements if and when the company makes false or deceptive statements about the products sold, if they promote them as treatments or cures for diseases or if their products are unsafe.

Also, once a dietary supplement is on the market, the government agencies monitor information on the product’s label and package insert to make sure that information about the supplement’s content is accurate and that any claims made for the product are truthful and not misleading.

So be very, very careful if you are making claims about helping treat or prevent any conditions unless you are ready to jump through the hoops of drug regulations.

Talking to Potted Plants

I have had a few people tell me lately that I am a “good networker” and ask what groups I am a part of and what events I go to.  I reeled off a few of them, but upon further reflection, I didn’t help those people by doing that.  I should have told them that they were asking the wrong questions.  If they want to build good networks, and hopefully due to that, more clients, they can’t just do what I did.  After all, they aren’t business and intellectual property attorneys.

Better questions to ask would have been: Why did I pick those type of activities? How did I choose those specific ones?  What else do I do to build or support those networks? Since they didn’t ask those questions, I’ll try to answer them now.

Why did I pick those type of activities? 

First, I am comfortable going to happy hours and events and talking to random people.  Other people are not.  If I wasn’t comfortable with it, I’d pick a different route.  Perhaps I’d focus more on different events or not events at all.  Jeff Glazer likes to write articles and be on committees.  If you find him at a happy hour, it will likely be in the corner people-watching.  I’ll be the one striking up a conversation with whoever looks my direction.  Or as I like to joke, the nearest potted plant.

I also am involved on non-profit boards.  I pick causes that I care about, not necessarily boards with names I recognize.  In fact, even better if I don’t know many people on the board.  I want to want to help and be an active board member.  On one hand, it is the reason I joined – I care about what is going on and want to make an impact.  On the other hand, it shows that I am trustworthy, hard-working, and hopefully, not dumb – exactly what I want potential clients and referral sources to see.

How did I choose those specific ones?

The most important thing is to identify your target market.  Who are you trying to meet?  Where are they going?  Get yourself in front of them.  Maybe that is a speaking event if that’s your thing, maybe it is a happy hour, or maybe it is an article in whatever it is your target market reads.

Partly, it is trial and error to get the right mix.  Go to an event.  If it stinks, don’t go back. Make sure it actually stinks and not sure you were just in a bad frame of mind.  This is a good one to ask others what they are doing, but make sure you are going for the same target market or they are a part of the target market.  Then re-evaluate every once in a while.  Are you still getting good return on that time investment?

What else do I do to build or support those networks? 

This isn’t a one time thing.  It isn’t “Here’s my card. Now let the benefits roll in!”  You have to keep in touch with those contacts.  Follow up with any card collected.  Connect on social media.  Set up a coffee date.  Recently, I was talking to someone about their awesome business card and how different people choose what their card is.  On the way home, I was listening to NPR.  Marketplace was talking about business cards, too.  So a follow up email was easy.  “On the way home last night, I heard this story about the evolution of business cards on NPR!  https://www.marketplace.org/2018/02/08/business/business-cards-are-getting-weirder”.

Yeah, networking is work.  It can be fun, but you get out what you put into it.  There is no magic potion other than elbow grease.

B is for Benefit

On November 27, 2017, Wisconsin started to allow businesses to be “benefit corporations” as a business entity thanks to the new corporate statutory Chapter 204.  A benefit corporation is a corporation formed in accordance with ch. 180 that states in its articles that it is a benefit corporation and has a purpose of creating general public benefit.  An existing business corporation may become a benefit corporation under this chapter by amending its articles so that they contain, in addition to the requirements of s. 180.0202, a statement that the corporation is a benefit corporation.

According to the statute, “general public benefit” means “a material positive impact on society and the environment by the operations of a benefit corporation taken as a whole, through activities that promote some combination of specific public benefits.”  The company can also specifically state what their specific public benefit shall be, but that does not limit the obligation of a benefit corporation to create general public benefit.

“Specific public benefit” includes all of the following:

  • Providing low-income or underserved individuals or communities with beneficial products or services.
  • Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.
  • Preserving the environment.
  • Improving human health.
  • Promoting the arts, sciences, or advancement of knowledge.
  • Increasing the flow of capital to entities with a public benefit purpose.
  • The accomplishment of any other particular benefit for society or the environment.

Directors and officers of a corporation have the duty to the corporation to make decisions in ways that he or she believes to be in the best interests of the corporation and its shareholders.  In addition to considering those, they may look at:

  1. The effects of the action on employees, suppliers and customers of the corporation.
  2. The effects of the action on communities in which the corporation operates.
  3. Any other factors that the director or officer considers pertinent.

But now, officers and directors of a benefit corporation, in considering the best interests of the benefit corporation, shall consider the effects of any action or inaction on all of the following:

  1. The shareholders of the benefit corporation.
  2. The employees and workforce of the benefit corporation and its subsidiaries and suppliers.
  3. The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation.
  4. Community and societal factors, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located.
  5. The local and global environment.
  6. The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued corporate independence of the benefit corporation.
  7. The ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose.

They may also consider any of the following:

  1. The resources, intent, and conduct of any person seeking to acquire control of the corporation.
  2. Any other pertinent factors or the interests of any other group that is deemed appropriate.

For those who haven’t taken Statute Reading 101, “shall” means they directors and officers are required to look at those items, but “may” means they have the option, but it isn’t necessary.

This does not mean the officers and directors in a benefit corporation should make decisions against or ignore profit and other financial considerations.  After all, benefit corporations remain for-profit business entities – not a non-profit or charity.

The board of directors of a benefit corporation also must have one director who shall be designated the “benefit director.” That benefit director should be given the duty to monitor compliance with the benefit corporation’s public benefit mission.  However, interestingly, the statute doesn’t actually seem to do so.  Instead, the statute says, “The articles or bylaws of a benefit corporation may prescribe additional qualifications of the benefit director not inconsistent with this subsection”, but it never says what the actual duties of the director are.

Finally, a benefit corporation shall annually provide its shareholders, within 30 days of the end of the benefit corporation’s fiscal year, with a statement as to the benefit corporation’s promotion of general public benefit or any specific public benefit identified in its articles. The statement shall include all of the following:

  1. The objectives the board of directors has established to promote general public benefit or any specific public benefit.
  2. The standards the board of directors has adopted to measure the corporation’s progress in promoting general public benefit or any specific public benefit.
  3. Objective, factual information based on the standards regarding the benefit corporation’s success in meeting the objectives in promoting its stated public benefits and interests.
  4. An assessment of the corporation’s success in meeting the objectives in promoting its stated general public benefit or any specific public benefit.

The short story, yes, you can be a benefit corporation, and you have some additional requirements if you want to show that you have a societal good in mind.  However, what exactly your benefits director should be doing seems to be up to you.

Happy New Year!

 

 

We are excited to hear about your new adventures and help you reach your goals!  Need help setting those goals, see our past posts about strategic planning here: http://www.ogdenglazer.com/tag/strategic-planning/

Letter Full of Lemons

Oh, no! This company says we are infringing their trademark.  They say we need to stop by, wait, that date has already past.  They say they are going to sue!  Well, %#@$, now what?  First, take a deep breath.  Then, you can set a course of action (or inaction).

Whether it comes in an envelope, over email, or through in instant message, a cease and desist request or demand should not be ignored.  That doesn’t mean it needs to be complied with, but it isn’t an automatic delete.  It is tempting to bury your head in the sand and pretend you never got it.  But that could cause immediate harm if the letter is true, or it could just mean you didn’t take advantage of an opportunity to reach your customer better.

That means the first step is determining if this letter purporting infringement is correct. Are the two marks confusingly similar?Are the goods or services the same as or related to the services that you are providing?  If you sell dentures, and they are selling airplanes, the likelihood of confusion is likely pretty low.

Does the company actually have the rights they claim?  Look to see if they have a registration of the mark?  Is it the mark they claim they have registered? You’d be surprised how often the answer to both of these is “no.”

Are they using the mark in real life – not just a registration certificate?  If so, are they using it on the same goods and services they claimed?  Are they still the same as or related to the services that you are providing?  Are they using it in the same geographical locations you are?  Do they only have a brick and mortar store in Ione, California, and you only have one in Elkhorn, Wisconsin?  Then maybe there is little risk of customers visiting both.

Assuming that the marks, registrations, and goods all line up to look like you are in big trouble, you should start planning your new mark.  Yes, there is always the choice of rolling the dice and waiting for them to actually file the lawsuit, but you are already on their radar.  Even if you wait until the suit, having a plan ready to implement will help you be ready when the time comes.  But if your risk tolerance is as low as mine, then you will implement that plan much sooner than later.  You may choose to contact the mark owner and come up with a plan for transition, or you may not.  It depends on you, them, and your plan.

If it is a close call, but you aren’t sure, then you have the harder decision.  You can do nothing and see if they follow through with their threats and fight then.  You can contact them and see if you can work something out that mutually benefits both, or you can fold like a broken umbrella and move on.

Let’s say you fold, that doesn’t mean that you are a wimp.  Maybe you are, or maybe you realize your marketing dollars and energy are better spent on a non-troublesome brand.  And that brings me to the third scenario, you think that the other side is full of baloney.  That could mean you point and laugh at them and make it an internal joke.

But even better, take it as a chance to evaluate your marks and marketing.  If they sent it, it is bothering them.  You have to decide is it bothering them because 1) there is some confusion in some way, and better marketing on your part means that you aren’t losing sales to those yahoos; or 2) they are feeling your presence in the market, which means yay, you have a presence in the market!  It can be a great catalyst to make sure your marketing darts are hitting the correct dartboard and hopefully getting close to the bullseye.

Even if you do realize that you are an accidental infringer and need to change, at least you know that you are marketing in a way that gets you noticed.  Yes, that is a bit of lemonade out of lemons, but sometimes, lemonade is awfully refreshing.

Maybe Not A Text Message With Emojis

Last week, we talked generally about cease and desist letters.  But, when do you actually send them and how? By whom? The answer was hinted at last week, and it boils down to my two favorite words:  It depends.  So let’s go into what it depends upon.

When do you send one?  

First, you send it to someone who is using a mark that you believe is harming you because it is confusingly similar to your mark.  Instead of jumping straight into a lawsuit, you (or your lawyer) contact the other party saying that you believe you are being harmed because of their use, and they should stop that use.  That means A) You need to find the confusing use, and B) You need to figure out to whom to send it.

How do you find the confusing use?

Sometimes it is “easy” because your customers tell you or their customers tell you.  People are contacting you who are confusing you with someone else. For example, they are sending you their resume for a job opening that you don’t have or complaining about a job that you didn’t do. That’s a pretty good sign.  Or perhaps you did a Google search, and you are not the only search result for your mark and your goods or services.  If you are a believer of being proactive, you can also hire out searches to be performed on a consistent and regular schedule.

Then you do some detective work.  Often it is as easy as going to the Contact Us page on their website or Facebook page.  Other times, it involves a bit more digging.  Most of the time, though, it shouldn’t look like the most boring episode of CSI.

By whom?

Much like the contents of the letter, it depends on who is receiving it and the tone you want to send.  A business person reaching out to another business person often goes a long way.  However, an attorney’s letterhead sent via certified mail is not ignored as easily as an email.  That means each situation needs to be addressed as the unique set of facts and people that they are.

How?

Just like by whom, it depends on the recipient and the tone.  An email or Facebook message may easily be deleted and ignored. Whereas a hard copy letter that needs to be signed for shows some serious intentions.  However, that fancy letter can also get some hackles up really quickly.  So we need to look at who is doing what and how we think we can best influence them to stop.  Perhaps a quick note saying, “Hey, dude. Let’s stop confusing our customers and work out a solution” is the way to go, or maybe a formal letter is needed to knock some sense into them.  Or maybe you hire an actor to read parchment.  It all depends on the message you want to send beyond the words written.

In any case, there is no correct answer for all situations – just the best approach for this particular set of facts.  But it will cost you extra if you require a top hat to be involved.