Challenging California’s Underground Regulations: Exploring the ACMA’s Advocacy Efforts with Paul Miller (Part 2)

Hosts & Guests

Meredith Smith, State and Local Tax Senior Manager

Paul Miller, Vice President & Deputy Director of the ACMA

David Swetnam-Burland, Partner at Brann & Isaacson

What You Will Discover:

This week we continue our discussion with Paul Miller, Vice President & Deputy Director of the ACMA, and David Swetnam-Burland, Partner at Brann & Isaacson. As remote sellers navigate the new state tax laws and consumer privacy regulations, the need for federal legislation to provide clarity and consistency for businesses operating across multiple states has increased. Listen as we discuss the impact of local home rule cities, such as in Colorado, on compliance efforts and how the ACMA advocates for federal solutions to protect their members and promote industry growth. 

Topics Discussed in this Episode:

  • The MTC’s updated interpretation attempts to align tax laws with the digital era, impacting businesses that operate online.
  • The definition and application of 86-272 is a central point of contention, with states leveraging different interpretations to expand their tax bases.
  • Legal challenges, especially in California and New York, are proving pivotal in establishing how nexus laws apply and are enforced.
  • Local compliance, notably in Colorado’s home rule cities, adds complexity to the remote sellers’ tax obligations and merits close legal attention.

    Quotables:

      • “From the ACMA’s perspective, our approach, as I mentioned earlier, is always to try to get a federal bill passed into law, because organizations like ours, we’re very small comparison to, say, the milk industry or something. We’re serving a pretty specific constituent, and they are located throughout the states and they’re being chased by different states, and we don’t have the means to chase after those states to defend them.” -Paul Miller [17:51]
      • “It is one thing for the Supreme Court to say we created a rule in 1992, now we’re in 2018. We don’t like our rule as much as we did then, or the composition of our court has changed sufficiently so that we no longer have five votes in favor of that rule.” -David Swetnum-Burland [03:50]

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    Transcript

    [00:00:00] Meredith: The SALTovation Show is a podcast series featuring the leading voices in salt where we talk about the issues and strategies to help you make sense of state and local tax. Right, we, Stacey and I have had, you know, kind of multiple conversations associated with Public Law 86 272.

    [00:00:20] Meredith: I think we each have our favorite component that is like the are you kidding me? Like section of like what I can't apply for a job on a website if it's not solicitation related. Um, so that's my personal favorite of the come on components of that kind of expansion.

    [00:00:41] Stacey: Part of what I struggle with a little bit and maybe, you know, we're just commiserating a little bit here is the fact that the MTC says this was, you know, they put this out and they said this was an interpretation that Everybody, all the states had, right, or the MTC had, right, all along.

    [00:00:58] Stacey: It's just updating the interpretation because it's trying to, you know, bring it into the 21st century given, you know, the digital economy. And I agree with you guys, right, that it's, well, that's not what the law actually says. So, um, I think that that's where I struggle with advising even clients as to, okay, well, we know this is out here.

    [00:01:22] Stacey: We know that this is, you know, the states are starting to glom onto this. So we're kind of in a holding pattern in some of these states. And again, thankfully you guys have, you know, shaken it up a little bit with the FTP, but like I said, we've got, like we all know, there's other states that are going to just jump on board, jump on this bandwagon, and then we'll have to determine what do we do with that.

    [00:01:48] David Swetnam-Burland: Yeah. And if I can just riff on that for a second, I think that's a good observation. And yes, these do sometimes end up being group therapy sessions for practitioners who are just frustrated. But yeah, I mean, a fundamental difference that the MTC doesn't seem to appreciate, and that these states don't seem to appreciate between the Wayfair context and, and Public Law 86 272 is the source of the rule.

    [00:02:13] David Swetnam-Burland: And it's one thing for the Supreme Court to say, We, we, we created a rule in 1992. Now we're in 2018. Yeah. We don't like our rule as much as we did then you can, or, and, or, uh, the composition of our court has changed sufficiently so that, um, we no longer have five votes in favor of that rule. But regardless, I mean, I know justice Kennedy was the swing vote and he changed his mind.

    [00:02:36] David Swetnam-Burland: At most that's the, the U S Supreme court saying under difference, a rule that we made is no longer viable under the current system and that's All that that did was open the door to states to engage in their own legislation under an economic nexus standard. And if they do that, and if it's clear enough, then we've, it, we may grumble, but we have rules to follow.

    [00:03:00] David Swetnam-Burland: Um, but to suggest that Congress, through an affirmative act in 1959, um, did something relating to internet, to e commerce is, is frankly absurd. Um, and I do not think that the composition of the current court would be receptive to an argument. Given their predilection for interpretations that relate to, well, business activities means what it meant in 1959, not what it might mean in 2018.

    [00:03:27] David Swetnam-Burland: And I do think that, um, whatever frustrations the MTC and its membership and the states may have, um, that's something they need to take up with Congress if they want to change the rules.

    [00:03:38] Stacey: I'm curious how This might get audited by states in the future. How are auditors going to just get on a website and say, Oh, I can actually apply for any job possible.

    [00:03:51] Stacey: So therefore, you know, public ID 6072 is out the window. I'm just very curious how. It's going to get audited. Yeah,

    [00:03:58] David Swetnam-Burland: no, it's, it's very challenging. And that was one of the more chilling things that the, the FTB suggested in some of their pleadings was, um, well, it doesn't really matter whether we tell you what we're going to do or not.

    [00:04:08] David Swetnam-Burland: Um, if our auditor decides that they did an audit and they discovered that you have marketing cookies, um, there's nothing to stop them from basing it from basing an audit on that finding alone. Um, and that's why I'm hopeful. Um, and. Whether it's in this case or in future litigation, um, not to put Paul in any kind of a position, but yeah, I mean, we're looking ahead at New York and New Jersey to see what our options are for bringing the fight to those states as well.

    [00:04:39] Meredith: One, do you think that, you know, New York has, you know, You know, a, a factor presence threshold standard of a million dollars for corpse. I don't, I can't recall if it's been adjusted for inflation like California does. I think New, I can't remember if New Jersey, New Jersey have one too with their whole CBT stuff.

    [00:05:00] Meredith: That. Well, they just

    [00:05:01] Stacey: married up their wayfarer nexus with their corporate, with their

    [00:05:05] Meredith: corporate. So if they would kind of use, do you think they would use kind of that threshold as an out of. Well, or is it even possible to use that threshold standard as an out for, it's like, okay, well, yes, public law 86272 says this, but if you don't exceed our threshold, you know, that kind of protects a small business.

    [00:05:26] Meredith: Do you think? There's any, do you think that would work?

    [00:05:32] David Swetnam-Burland: That's a, that's an excellent question. I have heard that argument and I do anticipate seeing that argument from the agencies to say, well, it's, it's one thing what California did. I mean, New Jersey's in an interesting position, um, slightly different, but also it was because, um, They're purporting to be interpreting a new statute, um, but they also did this through a guidance document and not a promulgated regulation, so there may be an APA issue in New Jersey as well, um, and I, I don't know how that would shake up, but I, I do anticipate, um, states like, as, like New York and New Jersey, as you've described, who are in a better position to say, what's the, what's the real harm?

    [00:06:10] David Swetnam-Burland: We've, we've taken care of, um, of the small, the smaller folks. And we're really only talking about sizable businesses who have the capacity. But I, yeah, I, at the end of the day, I don't think you get, I don't think there's a, um, but it's not really going to hurt anyone exception to federal law, at least not this federal law.

    [00:06:28] David Swetnam-Burland: I mean, it's, uh, uh, there are de minimis standards that can apply in some parts of the law, but I think it's a pretty black and white issue, whether you define something as a business activity or not.

    [00:06:38] Meredith: Yeah. And I, I think I've shared this little quip on, you know, a previous episode is right. California was one of the first states to implement kind of like a factor presence threshold back in this well over 10 years ago at this point.

    [00:06:53] Meredith: And I was working with a taxpayer who we were no longer physically present. We had a kind of remote sales into this state. It was not a good. So we weren't protected under Public Law 86 272, but there was no physical presence in the state of California. We were well below their, you know, their sales threshold, no property, no payroll.

    [00:07:19] Meredith: Got a notice, wrote a letter, one year was accepted under those terms, the next year got the next letter, wrote the same fax, they're like, nah, we're good, you're doing business, give us your 800 minimum. And because there's always like that little carve out that says this, this, this, this. Or, you know what, we're just going to say that you're doing business because you're doing, you know, you're engaging with some customer in the state.

    [00:07:45] Meredith: And for us, it was the 800 minimum, not worth arguing, not pushing, so we're just going to file the return. But, you know, there are all of these rules, but at the same time, it's up to the human to interpret that. And they're still going to just kind of assess it and it's not worth the fight. So kind of economic threshold or factor presence threshold be damned.

    [00:08:08] Meredith: They're still going to do, you know, whatever they want on some of those small businesses or they could.

    [00:08:14] David Swetnam-Burland: Yeah, and I'm not speaking from personal experience, but I have secondhand knowledge of some similar situations where a file was handed from one auditor to another and the position changed. And the only thing that changed was.

    [00:08:28] Meredith: So,

    [00:08:31] David Swetnam-Burland: um, and I, and I don't want to be unsympathetic to these folks that are asked to do some complicated legal analysis. I, I, I would, would venture to say actually this one isn't especially complicated.

    [00:08:44] Meredith: Well, and I think this was, Stacy loves tracking this one and loves a good old Joyce Finnegan conversation, but also within the MTC, you know, those revisions kind of threw in Finnegan.

    [00:08:59] Meredith: Does that kind of. opportunity even make public law 86 to 72 protections kind of void in general. Now the state would have to kind of probably enact combined filing and it would have to be applicable. But you know, is that just another way of. You know, abolishing any sort of 86 to 72 protections.

    [00:09:22] David Swetnam-Burland: And this is a question that's taking me a little farther afield from my own area of expertise than, than the other issues we've been talking about.

    [00:09:29] David Swetnam-Burland: I mean, as a matter of law, I don't believe it should. I understand. I also understand that if everyone adopted a Finnegan approach, then it might. mitigate the pro I mean, it, that would be another way of having a set of rules that everyone could more or less understand and follow. But I, I do think it fails to, it's a bit, that's the word I'm looking for, it's a sort of bit, a utopian vision of the states.

    [00:09:56] David Swetnam-Burland: Um, I mean, I guess the MTC is a utopian vision in itself of the states acting in coordination to sort of implement a national, a federal standard without having a federal standard and ultimately, um, I don't think that's realistic. And I, and I do think that there are businesses of a size and a capacity, um, like ACMA members, like a number of our clients, um, for whom, um, simplicity is, is in itself a virtue and know it.

    [00:10:24] David Swetnam-Burland: They just, they want to know where the line is so that they don't cross it. And if you look in the record of the, the California litigation, we were, Crutchfield Corporation was kind enough to provide some evidence, um, to support our position that we were allowed to maintain the case. And they have a very clear policy as articulated in, in some of their testimony that like they tell their employees, like, no, you Don't, if you're outside of Virginia, don't be doing any Crutchfield stuff basically, because it's a clear rule that they can follow and that's a sizable business, but it's not an enormous business.

    [00:10:59] David Swetnam-Burland: Um, and it, and they've been very successful following that model. And I think that's, um, From my perspective and my experience, that's what, that's what the folks I'm talking to care about the most.

    [00:11:11] Stacey: Yeah. I think, you know, when I was looking through the MTC guidance and I actually sat in on some of the hearings just to kind of hear what taxpayers were saying and, um, It's just fascinating to really kind of go through that.

    [00:11:28] Stacey: And at the end of the day, the guidance really didn't change since the, since it was even introduced after even all the hearings. And I felt like the Finnegan kind of throwing the Finnegan in was a little bit of a gotcha. And not maybe getting a lot of publicity, whereas the PL 86 to 72 interactive website, um, activities were getting all of the, you know, they were the showstoppers completely, completely understand that.

    [00:11:58] Stacey: But I guess what I'm saying is that I felt like they snuck in. The Finnegan, which again, to Meredith's point really only applies in a combined setting, uh, but I do think it could pull a lot of taxpayers in and or be surprising. I did notice that New Jersey made it very clear that they, you know, they adopted Finnegan, you know, in their most recent changes.

    [00:12:18] Stacey: So I just wonder if we'll see more of that too, just, you know, an added layer of this public ID 6272. If you know, if the nail's not in the coffin because of interactive websites, Right. At least. You know, on the surface, we're going to sneak it in with Finnegan.

    [00:12:37] David Swetnam-Burland: No, I, I, I certainly would anticipate that because I think the, the more aggressive States, the New Jersey's, the California's are looking for ways to, to put it bluntly, perhaps too bluntly, sort of looking for ways to expand their tax base, to include folks who aren't located in those States, um, because that's a political, that, that's a, That that's a politically savvy way of increasing your revenue.

    [00:13:03] Stacey: Absolutely. And we see that happen far too often.

    [00:13:07] Meredith: Well, and as we kind of wrap up, are there any kind of policies or any things that you That, you know, ACMA is following from a, you know, from a policy perspective that we think or like a law perspective that, um, you know, that they would be involved in that could protect their members or that be of interest to their members.

    [00:13:31] David Swetnam-Burland: And before, before I hand it off to Paul, I just want to jump in on one legal issue because it's, it's top of mind for me. Um, Okay.

    [00:13:38] Meredith: Of

    [00:13:38] David Swetnam-Burland: course. We're litigating this issue not on behalf of the ACMA, but it's an active one. I think the next phase of the Wayfair fight is happening, um, at the local level, particularly in Colorado's home rural cities, um, as I'm sure you're well aware.

    [00:13:53] David Swetnam-Burland: I mean, talking and talk about 40, complying with the laws of 42 plus states now add 70 plus municipalities, um, who each of which has Colorado constitutional authority to construct its own legal system, and it's, it's a huge burden. Um, we're involved in one case out there and, and on top of which they're adding that they've got the transportation fee issues and those types.

    [00:14:21] David Swetnam-Burland: So I, I do think like large municipalities, um, taking on the roles of many states is, is one area that, that, um, we're ACMA members. profoundly depending on how things shake out.

    [00:14:36] Meredith: Yeah, well, we appreciate the participation in Colorado, right? As you know, Colorado, Denver, in particular, is Stacey and I's, you know, home location.

    [00:14:47] Meredith: We've just been really kind of struggling with, you know, sets and compliance and what that means and how to just do all things when it comes to, you know, Um, you know, doing our best with the, you know, Colorado home rules, um, you know, we're, we're actively part, we're active participants in their, you know, the Colorado tax auditor coalition, those groups, but yeah, it's really tricky.

    [00:15:16] Meredith: And so I can appreciate that your members would also be trying to figure out as, you know, often remote sellers trying to figure out how to comply with, you know, our lovely home rules here. in the beautiful state of Colorado.

    [00:15:30] David Swetnam-Burland: Yeah, and I will, I'll just add one more thing, and then I really will leave it up, let Paul speak.

    [00:15:34] David Swetnam-Burland: Um, that in the case that I was referring to, we represent, uh, Brandon Isaacson is representing Wayfair in a case with the city of Lakewood. And the, uh, the judge just, it, we, um, brought a claim against the State Department of Revenue, and the judge dismissed them out, um, On the theory that they do not have the authority to tell Lakewood to basically require Lakewood to participate in a statewide unified system.

    [00:16:02] David Swetnam-Burland: And so I think that provides legal authority to suggest that these really are. independent sovereign tax agencies, um, and most, most of them, to their credit, have tried to participate in such and tried to make it work. And, um, I, I recognize it's a challenge, but, um, there are some that haven't. And at least as far as the state, at the state level, there's, as I read the, the judge's ruling, there's no, um, there's no lever to require the state to act in this area because they don't have the constitutional authority to do so.

    [00:16:34] Stacey: Yes, these are all very These are all issues that are very near and dear to our hearts, our team's hearts, uh, just because we are trying to maneuver through this period. And as I'm sure you guys are aware, there are other jurisdictions, um, and the home rule system that have economic nexus, statutes, regulations, et cetera, that they've been trying to enforce, even though they might not be, even though we might not be completely, um, on board entirely with such.

    [00:17:06] Stacey: So we're all kind of trying to go through this and advise everybody appropriately and determine what the best course of action.

    [00:17:15] Paul Miller: Um, if I can jump in a little bit, um, in, from the AMAs perspective. Absolutely. We, our approach in, as I mentioned earlier, is always to try to get a federal bill passed into law because.

    [00:17:29] Paul Miller: Organizations like ours, we're, we're very small comparison to say milk industry or something. Um, you know, we are, we're serving a pretty specific constituent and they are located throughout the states and they're being chased by different states. And we don't have the means to chase after those states to defend them.

    [00:17:54] Paul Miller: So, um, in this, these cases that we've been discussing, as well as, um, the ACMA has also been doing extensive work on consumer privacy, which is certainly not taxation. But it, there's, there's a similarity in that, um, not only in the fact that California has also been kind of a trailblazer in that, in trying to pass, um, Consumer privacy laws that are specific to California, if you are marketing into California, but also others, there are a whole bunch of other copycat states that are doing similar things, but their, their laws are a little bit different.

    [00:18:31] Paul Miller: So you got to watch what you do all over the place. So in all cases, and in these two particular topics, we're always. seeking federal solutions. Um, just as a means to make it a lot more easier for our companies to do to avoid them going out of business. Because some in some cases, all these tax situations have run some of our companies out of business, um, enable them to thrive and to enable this industry to thrive.

    [00:19:02] Paul Miller: Because right now, What we've been discussing has stunted its growth considerably.

    [00:19:07] Meredith: Well, and Pauline, I know you had said, you know, issues in consumer privacy might not be tax related, but I think, actually, it goes back to kind of the fundamental component of 86 272, and what are you doing with data, right?

    [00:19:21] Meredith: And so if there's You know, consumer privacy, you can only do certain things with data, but doing certain things with data kind of voids protections under 86272. So all of the kind of things that happen behind the scene kind of are all impacting each other. And so I think it's, you know, I think it's great what ACMA is doing and kind of protecting its, you know, its members and, you know, how could, you know, just from ACMA's perspective.

    [00:19:54] Meredith: How can, if our listeners, how could they find you, follow you, become a member, you know, how can they assist in that advocacy that you all are doing and help, you know, pay David's fees?

    [00:20:07] Paul Miller: Well, great. Um, yeah. Um, uh, the timing is interesting because as I mentioned earlier, we were started as primarily a catalog mailing and postal rates organization looking out for, you know, the best interest of comp But when we took on these as consumer privacy matte and direct marketing comp postcard, uh, direct mailers and the like any, any kind of remote merchants so that as well as their suppliers.

    [00:20:46] Paul Miller: So we actually are, have just undergone a name, a slight name change from American catalog mailers association to American commerce marketing association, where, whereby we continue to retain, our better known acronym name, which is ACMA. So, uh, we have just launched a new website and it is commercemarketing.

    [00:21:11] Paul Miller: org and, uh, we can be reached easily that way in our contact information, um, and whatever we can post on the screen here. So, uh, we would welcome any new members and feedback and problems, any, uh, you know, A lot of times I throw out the word problems because a lot of our members have joined us as a result of running into some particular problem, whether it be with somebody, a member of Congress or, Uh, some kind of legal issue.

    [00:21:42] Paul Miller: We, we go and chase down the answers. So, um, that, that's how we got started with the whole tax situation. So, um, a great way to start out, send us a question. Uh, we'll get back to you and, uh, we'll start a little dialogue.

    [00:21:55] Meredith: Great. Well, Paul, thank you so much for your time, David. Thank you so much for, for joining and for, you know, your advocacy work and look forward to, you know, following what's next and.

    [00:22:07] Meredith: You know, it was a pleasure speaking with both of you and, and meeting you and getting to pick your brains on all the work that's happening.

    [00:22:14] David Swetnam-Burland: Thank you. We appreciate it. The pleasure's ours. Thank you.

    [00:22:17] Meredith: Keep up the good

    [00:22:18] David Swetnam-Burland: fight. Music to my ears, of course.

    [00:22:25] Meredith: And this is another episode of SALTovation. Till next time.

    [00:22:27] Meredith: This is SALTovation. This podcast is for educational purposes only and is not intended nor should it be relied upon as legal, tax, accounting, or investment advice. Should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.