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Promoting, protecting, and researching the optimal use of incentives, corporate gifts, rewards, recognition, promotional products and related promotions in business.
Current Legal/Legislative Updates
Small Business and Other Relief in the CARES Act of 2020
The recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) of 2020 is an omnibus law aimed at providing relief to big businesses, small businesses, households, the unemployed, mortgage holders, and those with student loans, among others. It is a $2 trillion (and possibly up to $6 trillion) bazooka that Congress has aimed at the economic emergency brought about by COVID-19.
IFI’s Legal counsel, George Delta, has written a detailed summary of the CARES Act that focuses on financial relief to businesses and individuals affected by the COVID-19. The CARES Act is a complicated and often overwhelming piece of legislation that is 880 pages long that will make fundamental changes to the U.S. economy. Delta’s Washington Update is not intended to be exhaustive; it attempts to summarize the most important provisions of the Act to provide a road map for those trying to understand what the CARES Act contains and how it may help them.
This report may also help sort out some of the confusing information we all are seeing in the news. We’re all aware of the tremendous impact the COVID-19 pandemic is having on the broad promotional industry and the millions of customers this industry serves. We’ll try to keep up with any breaking news that may be helpful to you as you meet the challenges of managing your businesses and maintaining employment.
A Brief Primer on Tariffs and Trade
Ever since the administration of President Trump began imposing tariffs on foreign goods, the president has often asserted that when the United States places a tariff on a foreign import, that other country directly pays the bill. Like many of his other assertions, this one is also incorrect, but that does not prevent the president from repeating it. For example, on November 29, 2018, Trump tweeted, “Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go.”
When trying to understand how tariffs work, perhaps the first question that would arise is who is responsible for paying them? Logically, it might seem that either the foreign government or a company that sells the foreign goods in the United States would be liable for tariffs. When the U.S. government imposes a tariff on foreign goods, however, neither the foreign government nor the company selling the goods in the U.S. is technically responsible for the paying the tariff.
Tariffs are usually paid by companies that import goods here. Most American importers do not handle the paperwork on imported products themselves. They retain the services of entities commonly known as an importer of record. These companies navigate the process of importing goods into the United States, a complicated process as evidenced by a 211-page publication from the U.S. Customs and Border Protection (CBP) titled Importing into the United States A Guide for Commercial Importers (last revised in 2006.) The importer of record has experience in dealing with CBP and its system for inspecting imports and levying any duties on them. (Broadly speaking, “duties” are a tax or fee placed on an import. Tariffs are a form of duty.) Thus, when imported goods first enter the U.S. in a port of entry, the importer of record receives the initial bill for the tariff.
This is where the question of who ultimately bears the cost of tariffs becomes a bit more complex. An importer of record is little more than a middleman that provides a service, and its business model would not survive the cost of paying tariffs. Service providers nearly always pass on costs to their customers. Therefore, a company that contracts with an importer to bring goods into the United States will almost always see the costs of that contract rise after a tariff has been imposed on goods it imports. For example, as a result of the tariffs, the importer of record might wind up paying between 10 and 25 percent more to bring in the exact same product it imported before the tariffs. Those costs are passed on to the company that intends to sell the goods in the United States, which means the selling company faces a choice regarding those additional costs.
For the complete text of the Spring Washington Update prepared exclusively for the IFI by George Delta, Esq., the IFI’s Legal Counsel, visit here.
More Details Emerge as States Apply Sales and Use Tax Policies for Remote Sellers of Products
In 2018, the Supreme Court addressed the problem of use tax collection by ruling in South Dakota v. Wayfair that a state could require any remote seller who has an economic connection with it to collect and remit its use tax for sales to purchasers within that state. In doing so, the Supreme Court struck down its physical presence requirement that had been in effect since its 1967 decision in National Bellas Hess (reaffirmed in its 1992 Quill decision), upon which remote sellers had relied to avoid collecting use tax on sales to customers in states in many instances.
An important question that is lurking in the background is the impact on the incentive and overall marketplace now that the Supreme Court has modernized its state sales and use tax jurisprudence and eliminated the outmoded and illogical physical presence requirement. Remote sellers now find themselves treated the same way as brick and mortar retailers when it comes to collecting sales and use taxes.
Even more complex than for many online sellers of goods is the nature of the incentive and promotional merchandise industry. Consider that a manufacturer or supplier may sell products to a third party (distributor) with a client or buyer in a different state that are then drop shipped to multiple locations in multiple states to a clients’ customers or employees. Where does the collection of use tax begin and end?
At least 38 states so far have imposed an obligation on remote sellers, and it seems likely that the other seven states that impose sales and use taxes will do so soon. The starting date for collecting and remitting use taxes varies by state.
For example, California did not require remote sellers to collect and remit its sales and use tax until April 1, 2019. Moreover, the collection and payment obligation applies only if total retail sales to California residents exceed $500,000 annually. Illinois required remote sellers to collect and remit its sales and use tax on October 1, 2018. Illinois has the same de minimis thresholds as South Dakota, i.e., it applies to those with retail sales of at least $100,000 or with at least 200 transactions annually with Illinois residents. Although New York’s law requiring collection and payment went into effect on the date of the Supreme Court’s decision in Wayfair, June 21, 2018, New York does not appear to have enforced its law until 2019. New York’s de minimis thresholds are retail sales of at least $300,000 and with at least 100 transactions annually with New York residents.
Suffice it to say, remote sellers should be collecting and remitting sales/use taxes now, even if some states will not require it until October 1, 2019. (Texas is one such state, and its de minimis threshold is the same as California’s, annual retail sales to Texas residents over $500,000.)
For the complete text of the Summer Washington Update prepared exclusively for the IFI by George Delta, Esq., the IFI’s Legal Counsel, visit here.