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2011 LEGAL NEWS
SB 602 Amended to reduce potentially huge reporting requirements
By Don Newton, Chair, CACS Legal Committee

“ (3) The reporting requirements of this subdivision shall not apply to information disclosed to a government entity that is made by a provider serving a postsecondary educational institution when the provider is required to disclose the information in order to be reimbursed for the sale or rental of a book that was purchased or rented by a student using book vouchers or other financial aid subsidies for books.” (Amendment to SB 602 8/24/11)

SB 602 (Yee), http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=sb_602&sess=CUR&house=B&search_type=email The Reader Privacy Act, originally prohibited bookstores from disclosing user information about books sold, rented, loaned, or downloaded, to any state or local government agency without a court order, search warrant, or explicit permission from the customer. In addition, a report must be created and posted on a store’s web site stating how many such disclosures were made. This would have created an enormous reporting burden for college stores who do substantial business selling books to government agencies on behalf of students. Early on CACS recognized the potential cost to college stores and vigorously worked to get some relief from the reporting requirements. By mid August the author recognized that our concerns were valid and on August 24 the “CACS Amendment” was added.

CACS Store members who responded to action requests were most responsible for helping to light the fire under several higher education groups who were not able to see the issue clearly. Once those groups recognized the problem a solution was found. Thanks to all CACS members who responded.

Stores will need to get explicit permission from their customers and this can be done by placing a blanket waiver on the invoices customers sign. If the bill makes it through the Legislature and is signed by the governor it will take effect in January, 2012. Stores should make plans on how they will efficiently accomplish the task of getting permissions. This bill and other legislative issues will be discussed at the CACS Annual Meeting on Wednesday afternoon. John Valencia, CACS representative in Sacramento will help explain this bill. John will also talk about California's Proposition 65 http://en.wikipedia.org/wiki/California_Proposition_65_(1986)

LEGAL NEWS
NACS GOES TO DC

By Don Newton, CACS Director at Large
July 1, 2011

In June, I attended the annual meeting of the NACS Government Relations Committee. For the past five years I have chaired this committee and every year more and more issues come up in DC that have some impact on our stores. This meeting combines with the National Retail Federation so we try to learn what issues the retail industry is facing and then look to see how these issues affect us. During the two days we are there we meet with staff members of our Senators and Representatives. These small meetings allow us an opportunity to remind legislators how college stores are succeeding in making textbooks affordable. This year the big issue was debit card swipe fees. The attempt to delay the Federal Reserve from imposing rules was defeated. On July 21 new rules on debit card interchange fees should reduce the cost to our stores who accept PIN verification for debit cards. A bill called “Main Street Fairness Act” is expected to be introduced anytime now. This bill is intended to smooth the way for states to collect sales taxes due on internet sales. We also thanked those who voted for 1099 repeal.
A FEW CALIFORNIA BILLS

1. SB 602 (Yee) The Reader Privacy Act. Intended to protect readers from having their bookstore tell any state agency what they are reading. This bill has serious logistical problems for college stores if it is determined that college store sales to students on government assistance like Cal Works, Rehab and EOPS cannot be reported to the state agency which is paying for the books. There are ways to accomplish this but not without a considerable reporting burden.

2. Four sales tax bills are now in play. AB 153, AB 155, SB 234, and ABX1 28. This last bill was passed as part of the budget package but was not included in the budget veto. ABX1 28 combines all parts of the other three bills and wraps them into one, URGENCY bill. If the Governor signs it, it takes effect immediately. Essentially that means out of state retailers who have any kind of affiliation, subsidiary, or just simply do a lot of business in California will be required to collect sales tax on sales made to California residents. Should ABX1 28 not get signed the other three are still active and can be passed as regular bills.

3. Reusable bags remain an issue. AB 298 (Brownley) takes the requirement that supermarkets must provide reusable bags and adds requirements that such bags may only be sold or distributed if they contain a label indicating place of origin and CLEANING INSTRUCTIONS. Problem is the definition of stores this bill impacts now is NOT LIMITED to supermarkets and other food stores but to ALL retail stores.

Please let me know if you want any more information about these bills. A list of bills waiting for final action is on the CACS web site at: http://www.cacsonline.org/i4a/pages/index.cfm?pageID=4183

LEGAL NEWS
Two Bills May Spell Trouble for CACS Stores

Legal news from Don Newton
June 1, 2011

SB 602 (Yee) will prohibit “Book Service Providers” (includes Bookstores) from giving any customer information to any government agencies without a warrant. It also requires “Book Service Providers” to maintain a web site showing all such requests received by a store and how we responded.

AB 298 (Brownley)may effectively prohibit all “stores” from selling or handing out “reusable” bags unless the bags have cleaning instructions printed on them or on an attached label. “Reusable bag” and “store” are defined in the bill.

Both these bills have passed their First House and are ready to start progressing through the other house – Senate or Assembly. On Wednesday May 11 Nick Shewmaker and I, along with CACS Counsel John Valencia, met in Sacramento to discuss our concerns with these bills. We met with Senator Leland Yee and Ms. Susan Chan on SB 602. We met with Julie Gallagher from Assembly Member Julie Brownley’s office on AB 298. In both cases we were well received and we had pretty solid discussions. Unfortunately we may not have made much headway. I am sure we will be asking for a lot of help from CACS members over the summer to mitigate the effects of these bills on our stores and customers.

SB 602 purports to protect our customers’ privacy by prohibiting us from giving out specified information to government agencies without a warrant. The bill does not, according to the author, prohibit us from giving this same information to private parties or other non-governmental agencies. The bill requires us to maintain a record of all such requests during a year and post that information on a web site we must maintain. Please click on the link and read this bill critically. I suggest you ask yourself questions like:
1. How will this affect my third party billings?
2. Why is the onus on me and my staff and not on the police and other governmental agents?
3. If it protects our customers why am I able to give this information to private parties?
4. How do I begin to try to track any requests for information? Why?
5. Why this bill for bookstores? Isn’t divulging personal information of my customers already prohibited under Ca Statute?
6. The bill’ sponsors suggest the need is because of large on-line commerce sites. However, it makes bricks & mortar stores do things only on-line commerce has, such as web commerce.
7. As written it forces college stores to violate the Federal patriot Act. The author says it does not extend to federal agencies. But the law does not make that clear.
You may also want to read the Fact sheet prepared by the Northern California ACLU who is the sponsor of this bill. The intent of this bill may be laudable – most booksellers want to be able to protect their customer’s reading habits from government agencies. However, I do not think the mechanics fit the intent. What do you think? Please tell me. dnewton@ccsf.edu. As I continue to work on this bill it is important that I fully understand everyone’s perspective.

AB 298 starts out as if it is fixing a problem created when it enacted AB2449 in 2006. Among other things it requires supermarkets to make reusable bags available as an alternative to one-time use plastic bags. The bill only affects supermarkets and large pharmacies. AB 2449 expires in 2013. AB 298 will require those bags be labeled with cleaning instructions. This is due to a safety issue arising from a Loma Linda University study showing high amounts of bacteria in the reusable bags when used by food shoppers. The label may serve as a reminder to wash the bag. Our problem is that this bill defines store in a way that every bag sold or given away in every retail store in the state must carry these labels. Please read this bill AB 298and let me know how you feel. Nick and I showed a few of our bags to Julie Gallagher in Assemblymember Julie Brownley’s office. She initially disputed my interpretation but then after reading the definition agreed, and said that is exactly what they want. They would like all plastic bags replaced with reusable bags. She said this is a start. I do not see how this bill even does that. It only imposes a burden and a cost without actually making us do anything. It will affect everything from non-woven bags through Gucci satchels. Or, possibly, if read a certain way, the bill will have absolutely no impact on college stores at all. Let me know what you think. dnewton@ccsf.edu

LEGAL NEWS
Legislative News for College Stores in California

Legal news from Don Newton
May 1, 2011

Buy Back is Safe - President signs H.R. 4

President Obama signed H.R. 4 into law on April 14. Here is his statement:

“Today, I was pleased to take another step to relieve unnecessary burdens on small businesses by signing H.R. 4 into law. Small business owners are the engine of our economy and because Democrats and Republicans worked together, we can ensure they spend their time and resources creating jobs and growing their business, not filling out more paperwork. I look forward to continuing to work with Congress to improve the tax credit policy in this legislation and I am eager to work with anyone with ideas about how we can make health care better or more affordable.” Statement by President Obama.

This action by the president culminates a year-long attempt by college stores and others to repeal the burden created by the Health Care Affordability Act. The President’s statement emphasized the small-business aspects of the bill. These would have been difficult enough for college stores. However, college stores had a special concern because it would have treated all students who sell their books as vendors potentially subject to the reporting requirements. In this case the concerns of small businesses and higher education combined to result in repeal.

Four Ways to Collect Taxes ? AB 153 ? AB 155 ? SB 234 ? SB 655

California Legislators are, this year, addressing the difficulty of collecting sales taxes on sales made to California residents by out of state sellers in four distinctively different bills. The problem of collecting the sales tax which is due on all goods purchased by California residents has reached epic proportions this year and the state’s lawmakers are taking a much more aggressive approach to try and collect the taxes which are due.

The primary issue is whether or not the state can compel out of state retailers to collect and remit sales taxes on products they sell to California residents. The California residents currently owe the tax but there is no efficient way to collect it from out of state retailers. In-state retailers are compelled to collect. In-state retailers have “nexus” by being in the state. In-state retailers claim they are disadvantaged by the state allowing out of state retailers to avoid collecting the tax. The state knows it is failing to collect almost $2,000,000,000 ($2 billion) in sales taxes each year. These bills all address the definition of “nexus.” If an out of state retailer has nexus they must collect and remit California Sales taxes on any sales made to California residents.

Watch as these bills work their way through the Assembly and the Senate and see which ones make it to the Governor. Then what happens? The CACS Board supports all four bills as a needed fix for the state and to help level the costs of products we sell when competing with out of state (mostly internet) sellers. The board recognizes that many of our member stores are affiliates of out of state retailers and these retailers have threatened to close their affiliate program if the laws are passed. At the same time stores lose sales when customers see an apparent 10% initial savings our members cannot match..

AB 153 (Skinner): Will define “nexus” to include affiliates as if they are employees. Affiliates cause sales to be made because the affiliate has access to California residents and delivers that access to the out of state seller. Essentially this bill defines as a salesperson any affiliate who directs at least $10,000 in sales to an out of state retailer and earns a commission on that sale. That creates nexus; just as if the affiliate was a paid employee of the retailer. It only takes one such affiliate to create the nexus.

AB 155 (Calderon): A retailer who owns or operates a subsidiary in California has “nexus.” The subsidiary and the owner are defined as a commonly controlled group by California Corporation Tax Law but not by the Board of Equalization (BOE). One large out of state retailer selling an e-reader on the internet owns the company in California that designed and programmed the device. This bill will require the BOE to declare “nexus” since the two companies are a commonly controlled group. Thus sales tax must be collected on any sales made to California residents by any member of that group, including the out of state owner or parent.

SB 234 (Hancock): The BOE can declare nexus for retailers who do substantial business in California. It is a bit hard to be certain exactly how this works but here is what I understand so far. From the legislative analyst’s report:
“This bill implements so-called ‘long-arm’ nexus, an approach which allows the BOE to assert nexus whenever warranted under the U.S. Constitution. Instead of providing bright-line tests, this bill allows the BOE to examine the individual facts and circumstances of a particular firm, and impose the collection responsibility on the retailer if merited by the case law.”

This suggests that the BOE should use discretionary powers to include any out of state company that does substantial business in the state as having nexus. Discretion is a rare word for any taxing authority but especially for one with an elected board. Until now few voters really paid attention to who was elected to the BOE. That could change. Already two BOE members are gearing up on opposite sides to fight it out if this passes.

SB 655 (Steinberg): Differs from SB 234 only in that it does not allow the BOE to examine on a case by case basis but requires the BOE to define all such businesses as having nexus. No discretion here. Senator Steinberg is currently (as of April 22) not pushing this bill but appears to be waiting on the other bills.

LEGAL NEWS
Talk about "March Madness!"

Legal news from Don Newton
April 1, 2011

IN CALIFORNIA
The California Legislature has introduced over 2,000 bills so far this session. Through those bills we have found fourteen that merit close scrutiny by college stores. These 14 bills are listed on the matrix at the end of this article or found elsewhere in the newsletter. The subjects of the bills range from work place lunch breaks through content of plastic bags to defining a reusable bag. No less than 4 bills have been introduced to change the definition of retail nexus in order to force out-of-state internet retailers to collect sales taxes due on purchases made by California residents. Usually legislation analysis is pretty dry and boring. Not SB 234! You must read how the Senate Consultant uses a Moby Dick metaphor to explain this bill. Read on to find out how to find this gem.

The March Madness component is that by the time you read this we will have had the first hearings on half of those bills. Your board will have discussed (or is now discussing) each one to see what our position should be or if we want to take any position. YOU need to voice your opinion. If you are interested in this please take a look. Direct your web browser to www.legislature.ca.gov/. Bill search is on the right side. Enter the bill number in the search box. Once the bill comes up you can read the bill, its status, history, and its analysis, which tries to explain the bill. If you wish you may subscribe to the bill and you will receive an e-mail any time some action takes place on the bill. That will keep you informed. Then you can contact Nick Shewmaker shewman@crc.losrios.edu or me dnewton@ccsf.edu to ask questions or give comments about all these bills.

FEDERAL ISSUES

The 1099 repeal is stalled. It passed both houses in different bills and either a conference needs to be held or one bill needs to be accepted. Mostly the problem is how to pay for the projected costs of repeal since the projected revenues were a significant part of how we will pay for the Health Care Act. We wait.

Credit card and debit card is a hot issue and may be active when this newsletter is published. A law was passed last year which we supported. It was hard fought but our interests were served when the "Durbin Amendment" was included in the final bill. Much fought over and widely discussed at the time was the rule which requires the Federal Reserve to publish a fair rate for how much banks should charge retailers for debit card PIN code usage. The credit card industry charges an average of 47 cents per transaction for this service, collecting over $16 billion each year. The Federal Reserve has costed out their expenses for this service, added a reasonable profit (by the Fed's definition of reasonable) for the service and has come up with a rule that will limit such fees to 7 cents to 12 cents per transaction. It would be no surprise that the banks do not like that. They have proposed several bills to delay the effective date and to require a new study of the issue. College stores will need to be very active in this fight to stop a delay. The issue of credit card and debit card fees is complicated. However it is coming to be a huge

The issue of credit card and debit card fees is complicated. However it is coming to be a huge cost for colleges and college stores. At my college, CCSF, the board of trustees has become involved because of our budget problems. We are a low tuition community college so our problem is nowhere as great as at the UC, CSU, and private colleges in California. So we all need to react and force the Congress to stand up to the Credit Card and banking industries so we can actually be helped by this current law and not be subject to further delays.

2011 Bills and Status
Legal News Update 04/2011LEGAL NEWS

Legislative News for College Stores in California

Buy Back is Safe – President signs H.R. 4

President Obama signed H.R. 4 into law on April 14. Here is his statement:

Four Ways to Collect Taxes ? AB 153 ? AB 155 ? SB 234 ? SB 655

AB 153 (Skinner): Will define “nexus” to include affiliates as if they are employees. Affiliates cause sales to be made because the affiliate has access to California residents and delivers that access to the out of state seller. Essentially this bill defines as a salesperson any affiliate who directs at least $10,000 in sales to an out of state retailer and earns a commission on that sale. That creates nexus; just as if the affiliate was a paid employee of the retailer. It only takes one such affiliate to create the nexus.

AB 155 (Calderon): A retailer who owns or operates a subsidiary in California has “nexus.” The subsidiary and the owner are defined as a commonly controlled group by California Corporation Tax Law but not by the Board of Equalization (BOE). One large out of state retailer selling an e-reader on the internet owns the company in California that designed and programmed the device. This bill will require the BOE to declare “nexus” since the two companies are a commonly controlled group. Thus sales tax must be collected on any sales made to California residents by any member of that group, including the out of state owner or parent.

SB 234 (Hancock): The BOE can declare nexus for retailers who do substantial business in California. It is a bit hard to be certain exactly how this works but here is what I understand so far. From the legislative analyst’s report:
“This bill implements so-called ‘long-arm’ nexus, an approach which allows the BOE to assert nexus whenever warranted under the U.S. Constitution. Instead of providing bright-line tests, this bill allows the BOE to examine the individual facts and circumstances of a particular firm, and impose the collection responsibility on the retailer if merited by the case law.”

SB 655 (Steinberg): Differs from SB 234 only in that it does not allow the BOE to examine on a case by case basis but requires the BOE to define all such businesses as having nexus. No discretion here. Senator Steinberg is currently (as of April 22) not pushing this bill but appears to be waiting on the other bills.

Don Newton
April 22, 2011