With the 2014 holiday shopping season about to grind down to the home stretch, the sales figures are already rolling in. And once again, online transactions have maintained their brisk and healthy growth from years past.
Cyber Monday chalked up record sales, rising a reported 17 percent from 2012 according to USA Today. Cyber Monday, the Monday after Thanksgiving, has been embraced by the media as a flashpoint date for online retail sales during the traditional holiday shopping cycle. The convenience of online shopping versus the hassle of holiday shopping traffic gets the consumers interested. Combining that convenience with the staggeringly low sale prices of the time period and suddenly the appeal of online shopping becomes apparent for folks looking to get their holiday shopping done inexpensively and hassle free.
So with the boom in online shopping, there exists a disparity in sales tax in some instances. This isn’t something that comes up too often in Delaware, the original home base of Host Merchant Services. But many states have sales tax for purchases, and are finding it difficult to compete with the surging online retail business.
While legislation in some states requires sales tax be paid on some online transactions, most sales are still untaxed. In many states that translates into a 5-10 percent price advantage for the online vendor. But it also is a 5-10 percent disadvantage for local brick-and-mortar stores that not only collect sales taxes, but also pay property taxes, employ local residents and support local causes.
Thus there’s been a movement to level the playing field by attacking the sales tax disparity. The Marketplace Fairness Act is the solution to the sales tax disparity. The marketplace fairness act is:
“Marketplace Fairness Act of 2013 – Authorizes each member state under the Streamlined Sales and Use Tax Agreement (the multistate agreement for the administration and collection of sales and use taxes adopted on November 12, 2002) to require all sellers not qualifying for a small-seller exception (applicable to sellers with annual gross receipts in total U.S. remote sales not exceeding $1 million) to collect and remit sales and use taxes with respect to remote sales under provisions of the Agreement, but only if such Agreement includes minimum simplification requirements relating to the administration of the tax, audits, and streamlined filing. Defines “remote sale” as a sale of goods or services into a state in which the seller would not legally be required to pay, collect, or remit state or local sales and use taxes unless provided by this Act.”
Which means out-of-state online, catalog or remote would need to collect sales tax at the time of the transaction, just as local retailers are required to do. For this to happen each state would have to simplify their sales tax laws, making it easier for national vendors to calculate the tax and manage it.
The Marketplace Fairness Act would pave the way for states to require online sellers from out of state to begin paying the sales tax they’ve escaped for years. Senator Dick Durbin (D-Ill.) said “The Marketplace Fairness Act would level the playing field for small businesses by allowing states — if they so choose — to treat brick and mortar retailers the same as remote retailers.” Durbin, who is sponsoring this bill, is best known for authoring the Durbin Amendment, a piece of legislation that caused much controversy in the Payment Card Industry when enacted.
The act passed the Senate. But has yet to be voted on in the House, with all signs pointing to it not passing the House.
There’s been an uptick in media coverage and analysis of this bill. Essentially the verdict is that the increased sales volume from the holiday shopping season is going to push the political infrastructure to once again address the issue of state sales tax and online merchants.
And that raises the most interesting question of all for the credit card processing industry: Is the global aspect of online shopping going to take a huge step towards pushing sales tax to a federal layer and remove it from the states?
That’s a very big picture outlook on the issue. But as online shopping becomes more and more prevalent, the issue gains traction. The world is becoming a pretty tiny place due to the saturation and convenience of communication. You can video-call people on the other side of the globe instantly with your smartphone right now. Mobile Wallets and NFC are seeking to make it so that you can wave your magic wand, or iPhone, and pay for things instantly. State based sales tax laws look to fall behind the curve of quick evolving technology. Five, ten, even fifteen years down the line the way we make purchases and the marketplace wherein we make those purchases may have evolved past the scope state sales tax. The Marketplace Fairness Act seems to be just a precursor to a larger movement afoot in the retail sales industry.
In this installment of the Official Merchant Services Blog, we look at the actions several retail trade groups and merchant advocates have taken to further the fight against the antitrust settlement proposed by Visa and MasterCard. We have touched upon this subject several times before, however these steps may have been the most drastic yet.
In an open letter last week to leading members of congress, the National Retail Federation (NRF), the Retail Industry Leaders Association (RILA), and seven other large retail-related groups expressed their frustration with the pending litigation in the U.S. District Court for the Eastern District of New York, saying that the outcome could further “entrench the Visa/MasterCard duopoly.”
The groups called on congress to pay attention to the state court settlement, in an attempt to escalate the issue and garner attention from lawmakers and Americans.
The groups argue, “The proposed settlement, which was negotiated by Visa, MasterCard and lawyers purporting to represent the merchant community, is one-sided and preserves the very anti competitive actions that were the genesis of the lawsuits.”
“Given the important oversight role of Congress and your continued interest in this important issue, we write today to urge you to reject the false claims from the card networks and their representatives.” The letter also stated “The proposed settlement does nothing to resolve the failures in the electronic payment market and continued Congressional involvement in these issues is imperative. We look forward to keeping you fully informed as the legal process moves forward and the chorus of objections grows.”
RILA’s Brian Dodge described the problem retailers face, “Visa and MasterCard centrally set fees that are ultimately paid by merchants and collected by issuing banks. With two fee schedules imposed by two companies that control 70 percent of the marker there is no meaningful competition.”
The groups argue that the $7.2 billion dollar settlement is not the problem, even going so far as to accuse Visa and MasterCard of using the pending settlement exchanges as penitence for maintaining the status quo.
In a statement released in July, just after the settlement was announced Visa said it believes that the settlement is in the best interests of all parties involved. “This agreement should remove the distraction of litigation for all parties,” said Joshua R. Floum, general counsel of Visa Inc. “We will go forward with a focus on helping retailers grow their businesses and providing them with efficient and valuable payment options.”
On October 3rd, these retail and trade groups will appear before a court seeking to order the Federal Reserve Board to start over in devising regulations for implementing the controversial amendment’s provisions because the Fed allegedly did not follow the amendment’s dictates in setting the debit card rules now in place. The trade groups and retailers sued the Fed last November in an effort to start the rule-setting process anew. In a May filing, the plaintiffs said the board “manufactured ambiguity” in its interpretation of the amendment’s language. A Federal Reserve spokesperson would not comment about the upcoming hearing, although attorneys for the Fed said the board properly implemented the law’s directives regarding the authorization and settlement costs that could be considered in regulating debit card interchange, as well as which costs to exclude.
Retail groups continue to fight both the Interchange settlement and the Federal Reserve Boards Durbin rules. There seems to be no end in sight for this case, and only time will tell if the Fed will be forced to reset its Durbin amendment rules and regulations and start anew.
This is part 2 of The Official Merchant Services Blog‘s rebuttal of this New York Times Op-Ed piece titled “What Wikipedia Won’t Tell You” written by Cary H. Sherman, chief executive of the Recording Industry Association of America, which represents music labels.
The Real Slim Shady
Mr. Sherman in his article goes on to accuse Wikipedia of spreading misinformation. He tries to find a smoking gun by suggesting the tech giants have an agenda of their own. He accuses them of bias in terms of the story they present, saying they are bending the truth and not being neutral. He even attacks media outlets that supported SOPA for not “taking advantage of their broadcast credibility to press their case.”
This is amazing. In a piece crafted specifically to present the RIAA’s very biased agenda that is featured in one of those media outlets thus stretching the New York Times’ already damaged credibility — lest we forget Zachary Kouwe, Maureen Dowd or Jayson Blair — Sherman accuses his opposition of doing the exact same thing he is doing. Keep in mind, his own executives were gloating about how well the music industry is doing in 2011. But here he is saying the industry is still being harmed by piracy and that Wikipedia is not telling you the whole story. Sherman simply seems to not be as familiar with how the internet works as his employee Duckworth is. To borrow the ever-popular phrase, he’s doing it wrong. He says, “Misinformation may be a dirty trick, but it works.” Not on the internet. People find you lying to them, or manipulating them, and they either make a mockery of you or turn you off. Sorry Mr. Sherman but in this instance, Citation Needed!
First World Problems
Mr. Sherman makes another fatal mistake with his article when he types: “The conventional wisdom is that the defeat of these bills shows the power of the digital commons. Sure, anybody could click on a link or tweet in outrage — but how many knew what they were supporting or opposing? Would they have cast their clicks if they knew they were supporting foreign criminals selling counterfeit pharmaceuticals to Americans? Was it SOPA they were opposed to, or censorship?”
Sherman is playing off of a stereotype about the twitter-age, or Net 2.0 –that everything is simplified and broken down into tiny bits of information. That the online citizen isn’t getting the full story is in fact that’s his main idea. But Sherman has forgotten net 1.0, and the strength of what Google, Wikipedia and all of that data really is. Somewhere between twitter campaigns with STOP SOPA avatars and Sherman’s own e-mail inbox is this huge collective database of information, which includes the exact language of the legislation as written. Every single piece Host Merchant Services has written on SOPA has included this link:
Many other articles that covered this topic throughout the past year have given links to all of the relevant data and text. It’s the internet Mr. Sherman. The information is just a click away. Many people not only had access to the bill, they also read it. And so their protest was based on the bill itself. Not on the oversimplification you suggest.
Young, Wild but Not Free
Mr. Sherman then takes a wild swing at all of the people who protested SOPA, suggesting some of them are criminals: “But others may simply believe that online music, books and movies should be free. And how many of those e-mails were from the same people who attacked the Web sites of the Department of Justice, the Motion Picture Association of America, my organization and others as retribution for the seizure of Megaupload, an international digital piracy operation? Indeed, it’s hackers like the group Anonymous that engage in real censorship when they stifle the speech of those with whom they disagree.”
So just because people don’t agree with your agenda, they’re hackers who support Megaupload and want free music? That’s the kind of rookie debate tactic that gets you ridiculed throughout the internet. It’s also misinformation and a huge distraction from the topic. The Megaupload arrest is separate from the SOPA debate. This is obvious. The arrest was made under the current law. The FBI was able to crack down on piracy using what is currently in place. That the federal government was able to successfully attack piracy under the laws currently in place would seem to weaken Sherman’s position. In fact data collected on the topic has shown that once the government moved past the Napster issue that Mr. Sherman was so quick to cry about in the opening portion of his article, piracy started to take a huge hit. In fact, that PDF from the IFPI has some compelling statistics about how much piracy dipped after Limewire was shut down. Apparently the current laws have a lot of teeth if law enforcement goes after the pirates and doesn’t waste time going after citizens or forcing search engines and payment network providers to police the internet.
U Jelly?
The last straw with Mr. Sherman’s terrible presentation of his organization’s biased agenda comes from his short and shallow rejection of the Online Protection and Enforcement of Digital Trade Act (OPEN). This bill was drafted as an alternative to SOPA and PIPA. This bill was, excuse the irony, carefully devised by tech industry experts in the government — with an eye toward attacking online piracy but closing the wide open holes that the previous bills contained. The Official Merchant Services Blog helped break this story back in early December, with this blog, where we stated: “A bipartisan group of lawmakers have come out in support of a new law that has been proposed as an alternative to SOPA. Under this proposed legislation, the U.S. International Trade Commission (ITC) would be given the power to investigate claims of copyright infringement on foreign websites. The proposal would also allow the ITC to issue cease-and-desist orders to foreign websites that willfully engage in copyright infringement. The lawmakers demonstrate some clever ingenuity here with this proposal by tapping the ITC for the job of piracy oversight. The ITC already investigates patent infringement complaints and can bar infringing products from being imported into the U.S.”
In short, OPEN is an alternative that was everything Sherman asked for in online piracy legislation that we never received with SOPA or PIPA. It was well researched. It deals with the issues. It has input from tech industry savvy and knowledgeable politicians that know what they’re doing. But Sherman’s misinformation sums up OPEN like this: “The diversionary bill that they drafted, the OPEN Act, would do little to stop the illegal behavior and would not establish a workable framework, standards or remedies. It has become clear that, at this point, neither SOPA, PIPA nor OPEN is a viable answer.”
Forget You
Again Sherman glossed over some important aspects of his own organization’s rhetoric. This article found at The Verge cites the RIAA’s opposition to OPEN and its support of SOPA. The article quotes RIAA Senior Executive VP Mitch Glazier as saying that the ITC “clearly does not operate on the short time frame necessary to be effective.” Glazer cites the delays in the RIM vs. Kodak case — filed in January 2010 but now expected to be ruled on in September 2012 — as a prime example. Glazier sees these delays as hugely damaging, saying that each day a piracy-facilitating website stays online can cost millions of dollars to “American companies, employees and economy,” and be “an ongoing threat to the security and safety of our citizens.”
So again, it’s a case of what Sherman isn’t telling you, while simultaneously suggesting it’s Wikipedia or Google that are obfuscating the issue. The biggest problem with SOPA and what helped get it killed in Congress was that it left things extremely wide open to interpretation. The biggest boon to OPEN is that it requires investigation. Yes, that absolutely does take time. Time needs to be taken. The RIAA doesn’t seem to care about the affects that can happen when a law goes into place allowing swift shut down of websites based on willy nilly complaints or the hidden agendas of competitors. In fact, this is what is wrong with the RIAA’s stance on piracy. They want what caused the protest in the first place. They want to be able to quickly shut down sites with little to no oversight on how the plug gets pulled. So when an alternative is proposed that works more at the a proper speed with investigation, careful consideration of the circumstances and oversight, the RIAA has to denounce that suggestion.
The RIAA keeps pushing for legislation that mirrors SOPA. In fact, this will be the third consecutive year that Senator Ron Wyden [D-OR] will defend our country against the immense loopholes and abusive traits that the RIAA crusades for — Wyden took a stand and singlehandedly curbed the Combat Online Infringement and Counterfeits Act of 2010 (S. 3804) in 2010, and then was at the forefront of halting PIPA this year in the senate. What Sherman is telling us isn’t anything revealing about Wikipedia. No. What Sherman is telling us is that no matter how many times the government tells him that these laws are poorly written and open for abuse, Sherman will keep pushing for this to go through.
Courage Wolf
Host Merchant Services and all other payment network providers have a vested interest in this legislation because they keep getting named in it. These laws keep coming up that require payment processors to be involved in the policing of online content. The issue is just as important to merchant services as the Durbin Amendment. And so The Official Merchant Services Blog is once again here to keep people informed about these developments. The RIAA is singing the same old song about Napster and Piracy trying to push some sympathetic buttons with the people, but at the same time attacking the overwhelming opposition to their agenda, calling them misinformed — and criminal. Suggesting that internet users don’t go beyond twitter messages in the depth of their awareness of issues that pertain directly to the future of their internet usage. And the entire time the RIAA is engaging in this shell-game of misinformation, they’re also gloating about how profitable they’ve been able to make digital music transactions. They claim they know the internet. But Mr. Sherman acts like he still thinks it’s a series of tubes. He might know it’s not a truck, but he’s still doing it wrong.
We’ll leave you with the same message we had days ago when Sherman’s employees were tweeting “DECLARE THAT!”
The bottom line is if Lady Gaga and Pitbull online sales are robust and legit, it’s probably time to back off the Online Piracy rhetoric.
The RIAA just won’t quit. They’re taken up the crusade to push for anti-piracy legislation once again, as seen in this New York Times Op-Ed piece titled “What Wikipedia Won’t Tell You” written by Cary H. Sherman,chief executive of the Recording Industry Association of America, which represents music labels. The content of the piece is incendiary, and that’s being kind. The RIAA is adamant about their stance on piracy and are pressing the issue in every outlet they can. To quote Digital Underground from their Sons of the P album — which currently is not available for legal purchase online due to holes in the DU library in various legit digital music resources — “Like Ice Cube says, Once Again it’s On.”
Everyday They’re Shufflin’
The Stop Online Piracy Act and the Protect Intellectual Property Act were both killed in Congress — shelved because they were too wide open to abuse. The protest against these bills reached a collective crescendo when internet giants Wikipedia and Google and WordPress teamed up with a host of others for an internet blackout. When the largest source of internet information — and grade school kids’ favorite spot for help with their homework — goes dark and the search engine juggernaut that fuels the internet shines its spotlight on your bill, things have finally gotten serious. The U.S. citizens took notice of this blackout, and joined the internet in protest. And Congress heard the people and backed off this poorly written legislation.
But that hasn’t stopped the entertainment lobby. They went back to the drawing board and then returned mere weeks later with a new idea on how to combat online piracy. Unfortunately that new idea was the exact same idea as before. This was seen in the wishlist the International Federation of the Phonographic Industry (IFPI) released. The highlights of this list are essentially that the music industry wants pretty much the exact same things that were in SOPA, the same things that prompted the protest in the first place. A list of seven demands, which include the exact same far reaching calls for search engines and payment processors to police websites individually and be responsible to law enforcement for content they are indirectly connected to.
We’ll get back to this, but for now the point is the music industry felt the need to push for the same stuff that killed SOPA and PIPA. And that came right back to the forefront with Mr. Sherman’s opinion article in the New York Times. Essentially the RIAA wants a do-over and Mr. Sherman is here to tell us why that needs to happen.
Come At Me Bro
So today The Official Merchant Services Blog is going to try to put this issue in its place much like Blake Griffin did to Kendrick Perkins recently. Yes, we are going to Posterize the RIAA. Because the op-ed article indicates the RIAA has soft interior defense and can’t play man to man very well at all. First up we’ll start with the relative hypocrisy of Sherman’s ill-timed article found in this contextual relationship: Suggesting Wikipedia isn’t telling people everything, and then making this comment, “They knew that music sales in the United States are less than half of what they were in 1999, when the file-sharing site Napster emerged, and that direct employment in the industry had fallen by more than half since then, to less than 10,000.”
This is hypocritical because Mr. Sherman is leaving out some very pertinent information — which his employees were just recently bragging about on twitter. As we reported on January 31, the RIAA was excited about the IFPI wishlist because it had a series of statistics that showed the music industry is doing well with digital sales. The music industry claims Wikipedia is being deceptive and then suggests that they are still reeling from Napster, which was effectively scuttled back in 2002. They’re making a play for sympathy from an issue that happened almost a full decade ago, and yet they just got finished gloating about how successful they were this year!
Jonathan Lamy, senior VP of Communications for the RIAA, tweeted that paid subscription services rose 65 percent to 13.4 million in 2011. This tweet was in response to figures released by the IFPI which Lamy was excited to read. Lamy also tweeted that paid digital music services are active in 58 countries, generating $5.2 billion in revenues.
And then Cara Duckworth. The VP of Communications for the RIAA also cited the IFPI figures and then said: “W/more than half of all music sales coming from digital services, we know how Internet works. “Music=Innovation. Declare THAT. #CES #SOPA.”
What the RIAA isn’t telling you is far worse than what Wikipedia isn’t telling you. But Mr. Sherman isn’t about to concede facts when the agenda needs to continue to be pushed. The music industry is finally getting the hang of the digital market. Their own people brag that they know how the internet works. Declare that! But Sherman’s still waving the Napster suit in your face trying to claim that Wikipedia is obfuscating the issue.
It gets worse.
Born This Way
Sherman writes, “While no legislation is perfect, the Protect Intellectual Property Act (or PIPA) was carefully devised, with nearly unanimous bipartisan support in the Senate, and its House counterpart, the Stop Online Piracy Act (or SOPA), was based on existing statutes and Supreme Court precedents.”
The only thing in that statement that is rooted in the reality of what happened with SOPA and PIPA is that there was a lot of bipartisan work. Unfortunately, the work was bipartisan unity on finding problems with the so-called carefully devised legislation. Tech industry experts on both sides of party lines found the problems and holes in the legislation. As we reported on December 27, 2011, SOPA sparked unity in the federal government. And as we’ve written in our in-depth analysis, the bill was not very carefully devised at all. In that analysis we lean heavily on discussion from Congresswoman Zoe Lofgren [D-CA], an expert in the tech industry. We’ll highlight just a bit of Lofgren’s criticism of this bill, with questions raised: “Section 103 also allows a “portion of” a website to be deemed “dedicated to the theft of U.S. property,” regardless of the culpability of the website as a whole. Like many important terms throughout H.R. 3261, the precise meaning of these words is ambiguous, and will require years of expensive litigation to clarify. However, the plain meaning of the words seems to indicate that any large website could face a risk of termination by payment and advertising providers based solely upon infringing material contained in a single web page. ”
This is not carefully devised legislation. And as we eventually reported, the bill’s own sponsor admitted he did not fully understand the technical aspect of the bill and he backed off of it. Bill sponsor Lamar Smith is quoted in various media sources as saying: “I have heard from the critics and I take seriously their concerns regarding proposed legislation to address the problem of online piracy. It is clear that we need to revisit the approach on how best to address the problem of foreign thieves that steal and sell American inventions and products.”
