Are you looking to grow your sales on Amazon? Chances are if you’re not selling on Amazon’s international marketplaces, you are leaving some serious money on the table. What keeps a lot of people from selling internationally are all the confusing hoops you have to jump through to get started. That is why we worked with Kevin Sanderson from maximizing ecommerce on our international expansion. Kevin and his team take care of the details and guide you through the process of expanding so that you can grow your sales and reach new customers. If you’d like to find out if working with Kevin and his team is right for you head over to https://maximizingecommerce.com/fire. FYI, our E, once again that is https://maximizingecommerce.com/fire.
Paul Rafelson 0:46
We can’t get into the front door we’ll go to the back of the game, the bag of good as it surely will break through the window, whatever it takes me we’ll get to that person or we will go to hell or high water for you. That’s what my team is trained to do. And my team. One of the criteria is you actually have to care like you can’t not care. Pretty much any state that matters, the taxes being collected by Amazon by law, as being remitted by Amazon and it is Amazon’s responsibility primary responsibility as a taxpayer to remit those taxes under what’s called a marketplace facilitator wall.
- Zigler, Dr. Travis (Author)
- English (Publication Language)
- 127 Pages - 03/07/2021 (Publication Date) - Independently published (Publisher)
Welcome everyone to the firing the men podcast a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you are capable of more then join us this show. We’ll help you build a business and grow your passive income streams in just a few short hours per day. And now your host serial entrepreneurs David Schomer and Ken Wilson.
Welcome everyone to the Firing the Man podcast on today’s episode we are joined by Paul Rafelson an eCommerce law expert in the most cited resource in the congressional anti trust investigation into Amazon’s mistreatment of sellers on the platform. Paul is the founding partner at Rafelson law firm, the number one law firm for online businesses facing legal challenges in digital sellers looking for the best deal when exiting their businesses. In 2021, they facilitated 60 Plus online business exits realizing over $238 million for their clients. Paul is also the founder of online merchants guild, a trade association that enables 1000s of online sellers to voice their concerns on various legal issues affecting them, where he volunteers as executive director. He has 15 plus years of experience as an attorney, and he paid his law degree at Villanova law school by selling video games on Amazon. So a true ecommerce seller. Welcome to the show, Paul,
Paul Rafelson 2:41
thank you so much. I appreciate that. Appreciate that intro. Very humbling way to describe my experience and I appreciate that thank you so much. I actually sold DVDs initially, it was DVDs and video games came later. But it was DVDs I can tell you how I almost bankrupt Circuit City with my DVDs, Steve. I think he had awesome.
Well, I hope we get into that during this this podcast. So for listeners that are not familiar with you. Can you tell a little bit about yourself and what led you to a career in helping ecommerce sellers like us?
- Hardcover Book
- Diehl, Gregory V. (Author)
- English (Publication Language)
Paul Rafelson 3:13
Yeah, it was all by accident. That’s the reality. It was totally unintentional. It was a blog post I wrote for another consultant in the Amazon space. She used to work with my wife so my wife actually worker solid performance. You may have heard of that environment at Amazon. Yeah, this is years and years ago, and and I was I was doing a lot of corporate law. So I worked for a lot of big companies in my life. I worked for the man I work for I work for law firms, and we’re a big tax law firms, or Microsoft, or for Walmart. I live in Arkansas, and I work for General Electric. And so most of my life I was doing big corporate legal stuff, a lot of tax so and right around the time we just held G moved to Boston, so g used to be based in Connecticut, and they wanted to move everything to Boston and basically that whole remember the Amazon HQ to playbook. Remember that whole thing? Yeah, yeah, they borrowed that from us. That was our playbook. We did that first GA we will when we wanted to move our headquarters out of Connecticut we went around state to state and did a little you know, we’ll show and and you know, in Indiana put a full page ad on Wall Street Journal’s say, you know, hey, gee, friends, don’t let friends pay high taxes coming to Indiana. You know, there was a week or so, um, head attacks at Amazon. There’s actually no probably kind of like the person who uses it anyway. So I used to work for Newberry Well, you know, it’s a very small community, especially in taxes and tax litigation tax planning. And so that’s kind of my background and and so after GE moved to Boston and was going through some restructuring, I kind of decided to take a step away like this just wasn’t going the direction I wanted it. You know, my time at GE was kind of sad. It was like, here’s one of the biggest hobbies in the world. I was recruited to work there. They came to me from Walmart This is the being called up to the IDs, although I’m not a huge fan, but you get the analogy right of companies. And all I did there was, you know, I was a part of like this dismantling, right, right when I got there, we were selling the TV station genius on NBC, NBC Universal Studios gone, right, then the entire financial division, which was more than half the profit of the company, gone, right? Appliances gone, like I mean, it was just like everything gone, gone. But so what was left of GE was really just anything that stood, right. So, you know, turbines and airplane engines, but the bulk of the company was gone. So I took a step back, and I was doing, trying to figure life out. And all of a sudden, an Amazon consultant reaches out to me and says, Hey, a bunch of my clients are being told that they owe their life savings back taxes. Do you guys remember this? 2017 ish 2016 This whole, like, you’re all these, you should have been collecting sales tax your whole life on Amazon, and me having some familiarity with sales tax law, but also a ton of familiarity with the constitution of United States because I actually teach a constitutional law course on tax in New York. I was like, Well, that’s all wrong. And I just wrote a blog post about how wrong it was, and how, you know, just fighting the mere use of fulfillment by Amazon data silos Nexus. And even if it did have salvage next steps, you’re not really the retailer under state law that Amazon is and should ever throw these arguments out there that you know how Galera TaxJar didn’t like so it didn’t, it wasn’t received well behaved eyes by the community since they were the number one sponsors of events back then. But it got traction. And so people got to know me. And it was in that experience, I realized that you know, what had happened. And that, you know, when I was an Amazon seller in the early 2000s, there was no FBA like you weren’t, you weren’t going to not be a lawyer to sell on Amazon, like this was a side hustle. Right? I had no idea coming back into it. And looking at what the community had become what ecommerce is becoming 2017 and realizing what SBA did, how it became this sort of, you know, railroad of E commerce, like, how is it? No, my God, this is making real viable businesses. This is taking, you know, and there’s all these regular people, just regular people who are now making a lot of money. And we’re basically, you know, saying, Fu and my wife said, fu to the man, you bet, er, yeah. But Blake’s give him because I love what you’re with the way you deal. You’re, you’re 100% Spot on, because that’s my point. It’s like a lot of our clients don’t have college degrees, right? They don’t 70 degrees, they don’t have, you know, and they just saw the opportunity to hustle and hustle their way to salaries that, you know, prior ecommerce you’d never could imagine them they can ever imagine themselves making, right. A lot of our clients are people who got, you know, fired during the 2008 financial crisis and start building something that by the time I’ve had to know them, they actually had bad, really valuable businesses through a lot of grit, right? Anyway, so now all the people read all they owe their life savings. And I’m like, that’s wrong. But they also realized that they don’t really, there’s a lot they’re missing, that there’s this new thing out there, this new phenomenon. I didn’t even know what to call it. I called it the global small business. I said this is what this is I said, this is what we’ve created an E commerce and this is when I told the Supreme Court my Wayfarer amicus brief, which you can look up and read. I said, there’s this new phenomenon in the world, called a global small business. It’s an auction prior to prior to the internet, that would be an oxymoron. How did you How can you be a global small business in the 1980s? How could you do it? Right? You need a lot of capital, right? Like if you want it to be global, right? It implies you have an extensive reach in capital. But now with E commerce, you can be a global business and your kitchen table, the kitchen table enterprise that’s importing from China, that selling in multiple countries, right in interstate commerce. And I’m thinking to myself, Okay, well, the lawyer who you would hire like, for example, like if you’re starting an LLC and the lawyer you might hire, to help you open up a tea shop in the middle of Main Street may not be the kind of lawyer you need when you’re selling a crash the entire country and across the world. It just not. And there really is no loss and designed to provide global and multi state perspective for small businesses. Really, I’m not a lawyer. With all my training prior to going into this field. I’m not a lawyer. Like if you asked me in 2016 Would you ever see yourself having clients that do under a billion dollars? You know, I’m being a little facetious, but even like under 100 million or under 10 million, I’d probably say no, like, why would they? Not that lawyer Napa lawyer for the back kind of visits I’m a lawyer for huge multinationals. That’s what I’m paid to do. I paid this All very complex problems for huge multinational. But now all of a sudden, these micro multinationals are having the same problems and nobody was there to help them. And that’s the opportunity. And that’s that I kind of fell upon me that I decided that I wanted to do something about it. So I built a practice around that around, you know, there was another lawyer that was doing, you know, I’m bid you’re suspended on Amazon. And, you know, now we do quite a lot of that. But then I’m like, I don’t really even need to do that. Because like he was doing like, how do you for me? I’ll see like, what’s the difference between the legals and MAUSI? And this Oh, see, or what? One Do you need a trademark. And what do you do about cadre glaze? Nobody was just answering the basics. Nobody was just covering the basics, like it was all about, like, suspension law, and like, that’s great. But like, there’s just some legal IgM that’s just missing here that I was just trying to fill in that gap. You know, how do you do taxes? Like, what is the right answer of tax? Do you really have to register your you know, you’re working at your kitchen table, you make 60 grand a year? Do you really have to register 12,000 jurisdictions and hire, you know, the same accounting firms as Google to do your taxes? Is that really the answer? Probably not. So that’s time that I’m gonna pause here. As you probably noticed, I like to ramble and rant. So I’m gonna stop. But that’s the gist of what? Sure.
So yeah, interesting story. I like how Paul yet you you’ve sold on Amazon before, you kind of saw, you know, the, hey, there’s a problem here. And it said, it’s like a micro instead of a macro or inside is upscale and that you kind of pitched in and helped out and it was right in your in kind of your wheelhouse to say, what, or I’m excited to dig into some questions here. So what what are some legal trends that online sellers need to know about? And, and why do we need a voice? Why is it important for us to have a voice and the legislation?
Paul Rafelson 11:57
Absolutely. Okay. So, I mean, the legal trends are really fascinating. So there’s just there’s just a lot of laws out there. So I mean, take something like, you know, California has prop 65. Have you heard of that law? California proposition? 65?
- Ryan, Robert J. (Author)
- English (Publication Language)
- 137 Pages - 11/02/2019 (Publication Date) - Independently published (Publisher)
I’ve seen it, but I don’t know what it is. Yeah. Can
we get a refresher? So basically,
Paul Rafelson 12:17
the law is basically it’s a California rule that says that you’re supposed to, if the product contains any certain type of chemical, then you shows up with this little yellow warning sticker on it says, you know, may cause cancer, it’s, you know, and paraphrasing, right. And it’s kind of a running joke in California, because it’s on everything. And if you rent a car, in California, it’s gonna be on the glovebox, right? It’s everywhere. And it’s a California specific thing. So it’s like, but that law affects every one of us, because we sell on Amazon. And when we sell on Amazon, we’re touching 50 states. And so there actually is a process by portal on Amazon. Right? And it’s like, how do we know that? How do we know as small sellers? Like, this is why you need to have somebody in your corner he’s watching out for you. Did you know there’s you know, this is a real case, like we had a client who had a span you know, pay up Dunning we got it down. I think the his friend paid like a half 1,000,001 to iron us. We got it. We got it down and brands for selling shower faucet showerheads that were compliant in 49. states but not California. price gouging. You know, we took a price gouging court case to federal court, because we said, you know, hey, hold on a second, like, how can we be in price gouging territory when we don’t set a price? You know, these are state laws and federal laws, right? Every state has its own percentage of whether or not you know, is it 5% price gouging is a 10% of its price gouging. But I’m on Amazon and I’m setting one price price for the nation. How can you possibly hold us accountable for this whole the Amazon accountable and we weren’t anti price gouging. We’re like, that’s fine. Hold your VMs on the really big company. And that’s the right answer. But it’s like there’s just so many legal questions. And because it’s internet commerce, and you look at Congress, and you remember when Congress a couple years ago, you remember when Mark Zuckerberg testified on Capitol Hill, and they asked him he said, Yeah, the guy asked him it was I was I sent her had, she was like, how do you make money on Facebook was she don’t charge for it? And he’s like, we run we run ads, Senator. And then he asked him again, and he’s like, you run an ad and he’s like, trying not to laugh. I mean, part of the problem is, is that like dad’s feed, the laws that are being made, are being made by those people. There was a tax law that was just passed recently in California that’s based off of the national tax initiative to get eat to get us to get us because it because it wasn’t enough to get us the sales status they want. It goes with income tax. They want you to pay income tax in every state. And you know what genius ideas they came up with, like, Cookie Nexus, right? Like if you put a cookie on someone’s computer, you have nexus or my favorite was that Do you have a chatbot? If you have a robot chat bot that’s doing customer service on your computer, that is the equivalent of having a customer service agent hired into state as like having. So if a person in Massachusetts talks to your digital chatbot, you’re deemed to have have a Massachusetts employee, therefore you are subject to Massachusetts income tax. I mean, this is morons. Just, you know what I mean? I mean, this is happening. And unfortunately, we’re actually doing a really bad job of getting in front of it, because we’re not funded it. Like we don’t have enough money. And this is what I do. This is the volunteer side of it. It’s almost like what I do to make a living as a lawyer funds, the more fun stuff, which is the flow trying to do through the nonprofit pro bono, because that’s the stuff that’s interesting. That’s the stuff bad, you know, as a lawyer, you know, this is how you make history. Right? We want a court case of Pennsylvania a couple weeks ago. And, you know, remember all these years, if you have your inventory to the Amazon warehouses Nexus Well, first court case ever to actually ask the question, Pennsylvania said absolutely not. If you have your inventory of the Pennsylvania warehouse, it is not Nexus, if it’s Amazon’s warehouse, because you didn’t put it there on purpose. It just ended up there, which is what our point is, in order for something to be in order to have a nexus in a state, whether it’s for tax or any other purpose being sued. You have to deliberately direct business activities towards that specific state. You can’t just be throwing your stuff in the stream of commerce, that’s the term and then having sort of a weigh in and wash ashore. Because that would be every state. Right? You’d be you can be sued the last step. So the whole idea of this purposeful availment, we finally took that the Court Justice, just in September, for sure. After how many years ago, he finally had a court thinks that the court sucks takes that long to get questions like that answered. And yet we’re still fighting the same question California right now, we’re still fighting it. So that’s the kind of stuff that we’re up against. And that’s the stuff we like to do. So that’s sort of like the legal issues. And then there’s intellectual property, like, you know, are you guys, you know, tell me from your audience’s perspective? Are you more resellers? Are you private label? Are you both? Who do you kind of, you know, see it as you can? Because I can get into it from from either side or back?
Yeah, I would, I would say we’re Ken and I are almost exclusively private label. And I would say a good bit of our audience or private label price, some resellers drop shippers in there. But yeah, I think private label makes up
Paul Rafelson 17:32
a good bit of our audience. As a result of a really good resolver story, I don’t want to tell you that. But let me tell you some private label. So private label, the class, things are, you know, all the stuff you were dealing with last year, we reviews right, you know, the Amazon Seller code of conduct, and how did we generate reviews? Where’s this? This is coming from the FTC. Right? I mean, the FTC is the one that’s dictating Amazon that, hey, you’re not allowed to have incentivize positive review as well. No, no kidding. That’s that doesn’t seem right. And incentivize positive review. Now, Is it as bad as this doesn’t necessarily mean? You shouldn’t have an incentivized review? Like, hey, thanks for your time. Here’s a rebel. Thank you for taking the time to leave a review. Here’s a coupon. That’s not as now the FTC website says you shouldn’t do it. It doesn’t actually say you can’t do it. It’s kind of that too much grayer. Right? Or my favorite is the filtered reviews. They’re variously you can’t do the filtered, which is if you know what that is, right? That’s like, you know, how was your experience one to five? And if it’s anything less than five? Yeah, if it’s a five, right, leave us a review. And it was anything less than a five you say, tell us what went wrong. What can we do to make it right? Right. The idea is, you don’t want the people who said less than five going to leave a review. Now that may sound really manipulative, manipulative, but let me ask you a question. You guys ever seen a car commercial before? Yeah. Yeah. Okay. Like Bob Smith, Toyota, or something in your town, some generic, right? And usually what happens? People coming out and they’ll say, you know, the the cute couple come out and say, I just got we just got taken it. Bob Jones, Toyota, they ripped us off. Now, it’s always the opposite, right? It’s always like, we just got a great deal with Bob Smith Toyota, right? So they’re not asking him to cover with a bad experience to give that testimonial on TV. So I’m not sure I actually agree with the FTC or Amazon’s not review. Filtering is per se, bad. But right now, what Amazon does is their position, if the FTC doesn’t like it, if the government doesn’t like it, they’re going to take that position that he you know, they’re looking out for themselves. So they’re gonna take that position, and that’s gonna affect our ability to do those things that help drive traffic reviews and right. And we’re right. So it’s like, if we’re not in the forefront of the legislation of what is you know, what is it isn’t allowed, then it’s going to affect what Amazon is going to affect the seller code of conduct. Does that make sense? Do you see that correlation, right at the FTC saying this is wrong, or the FTC saying we could potentially interpret this as wrongs, Amazon’s gonna play unsafe and say, we’re just going to treat it as wrong and say this is a violation of solid code of conduct. So stuff like that, but we could be in the forefront of this. We could also be developing a seller. You know, one of my things is I didn’t I didn’t love the legislation at the FTC, you know, that Congress proposed after the anti Trump’s I didn’t think it was useful. I didn’t think it was going to be super helpful. And I want to get into full detail of that. But what I didn’t want is what kind of seller Bill of Rights. You know, we did something like this in California where, you know, which led to the 72 hour notice rule, right? What about a seller Bill of Rights, right? If you’re trying to protect the sellers, Congress? How about some bills? How about a Bill of Rights, ammo, some recognition, and some protection for the American sellers? Do you know how many China based coins we have not very many, because Chinese clients don’t care. They’re not worried about complying with and they’re not worried that there’s lead in the product, they don’t care. They just appear. And the more rules and regulations that Congress in the States put on American sellers, all they’re doing is giving an advantage to the foreign based sellers, and we’re trying to get this like we can’t deliver that message. So there’s a lot of work to be done, in my opinion. Now, some of the cool stuff we did the resellers. I love this. Now I’m still working this on front or side, but we you know, is there’s been this just out of control, intellectual property issue has been going on for years where it’s like, you know, if I’m, you know, North Face, I don’t UI I don’t want you reselling on my listing, and I get it. And there are ways to enforce that. And there’s a gray area of law around that. But what you don’t do what you never do, what you must not do is you must not use Amazon’s tools to knock off somebody from your listing if they’re selling the authentic product right now. They’re soaked fakes. Absolutely, that’s what those are for. But if it’s just like, hey, this got the product ID, TJ Maxx isn’t on my listing. That’s not on the ballot use of an Amazon brand registry tool, right, or you can’t claim counterfeit. And we’ve just been dealing with so much of it, so much of it, why it’s been so distracting that it’s like, like, you know, our our we’ve been overrun with reseller clients or just every day, they’re getting them. And we finally got an Amazon to see that, hey, look, it is written in your policies that this is an abuse, that Amazon supports the right to resell aka the first sale doctrine. And so therefore, it is not appropriate to use the Amazon tool to claim counterfeit. And when you do that, that is a violation of, you know, Amazon territory service, it’s considered abuse, brand registry abuse, it’s considered a violation of seller code of conduct. So what are you gonna do about it? Well, this year, I mean, this, this, you know, just having just having gotten set up with a, we finally got to Amazon to start taking brand registry rights away. So now where we go to brands, and the brands filed these claims against our clients, and we say, look, there’s two ways you can go about this, you can either tracks or we can have your brand registry rights or moves. And I can pull them right out, like the predator pulls your skull, you know, the movie Predator, maybe movie, like, as always felt like I go grab a brand, Reggie rice long round, wherever around me. Remember, you know, which way do you want to do this? And they’ll say, Well, your your sellers have to agree to stop selling and say it’s not a negotiation, it’s a partnership. Yeah, there are other ways you can go around scaring sellers not to sell on your listing, they’re not to sell your products. There are other ways. And I’m not saying those are right or wrong. But they don’t involve the use of Amazon’s brand registry tool. So those are the fun things that we get to deal with in our legal practice. And that’s, that’s before we even get into exit some fun stuff of like selling you’re finally getting to sell your business. But those are, you know, so what I always like to say is I think for us? Well, we do well, you especially since we have like a program, it’s like $99 a month to talk to a lawyer like anytime you need one just for quick questions and coverage or suspensions. We even have a program like that is like it’s that ounce of legal prevention, right? That preventative medicine that prevents you from getting in trouble. And that that came out from a lot of my experience of like, when my clients get into a lot of trouble when they when they need litigation, right, which is the last thing we want to do. We’re not a litigation firm. We don’t like to do that. There’s not it’s expensive, right and most of our clients can’t afford it. It’s like when it could have been avoided with that 30 minute phone call. To me that’s always a shame. So we well I think we do really well as a law firm for E commerce small businesses that had a $9 month program we literally have made it you know, as cheap as possible for you to get like exactly 15 minutes vice before you make a big major decision and that 15 minutes like It’s like like I got a commercial right 15 minutes could save you from a lawsuit right now. Awesome. That’s what we try to do.
Definitely in if Our listeners are interested in checking that out, where could they find that?
- Amazon Kindle Edition
- Brooke, E. (Author)
- English (Publication Language)
Paul Rafelson 25:03
It’s so the program I’m talking about is actually called seller? basics.com. It’s the basis, right, just cover the seller basics.com. And yeah, it’s just it’s an easy sign up and and it, you know, the benefit is yeah, you can talk to myself, we’ve got a whole network of attorney, do you have an FDA question at ftc question, maybe sell a sub Romain, and have to have somebody who knows that stuff, you can get a, you know, just a free quick call. And then if you want to go further, you go further. And then the other benefit is if you get suspended, if your agent gets taken down, or your account gets shut down, or like you cover that that’s actually like, an included benefit in this plan that we’ve built. So we’ve kind of built a cool little plan around Amazon to help people because the other thing I hate is the $5,000 suspension. I think that is ridiculous, especially when the POS are garbage. I’ve read some POS are just like, you know, I read one I’m not gonna criticize, I’m gonna say who it was. But I read a POA not that long ago, where by somebody who charges $5,000 for their suspension services, and it’s like, you know, even the police tells you what you did wrong, where they suspend you, knowing that that’s your best, that’s your best shot. Really, that’s, that’s your $5,000 as your $5,000 magic bullet right there, we do it a little differently, we put a lot of pressure on Amazon, we have a good working relationship, we know how the system works, we have very, very smart people who read actually, in my opinion, probably 80% of Amazon issues that shouldn’t be resolved, if you just read, if you just really know how to read the details, it’s and it’s okay, if you don’t, it’s not your job, like just run your business, you know, for less than like three bucks a day after tax deductions, and we can do it all for you. And that’s why I try to convince people, it’s like really easy, like, don’t worry about it. But for those really unjust moments, yeah, we have our ways, right? We have our ways, you know, if I, if I have to go to your congressperson and call them up and get them to tell Amazon to do the right thing I’ll do that I will do whatever it takes, we go we you know, through hell or high water, we’ll do whatever we can. Obviously, it can’t guarantee anything. But people who know me not, that’s what I do. We don’t, we can’t get into the front door, we’ll go to the battle game, the back of good as it surely will break through the window, whatever it takes, we will get to that person or we will go you know, to hell or high water for you. That’s what my team is trained to do. And my team, one of the criteria is you actually have to care like you can’t not care. That’s like my thing, because I actually do. I take every case personally, and they have to do, and they have three legs, their own boobs. So that’s what we’re like.
Sorry to interrupt the episode, you may have heard Ken and I talking recently about a new tool that we’re using for Amazon refunds. Now I have used other refund tools like this. However, I can tell you in the first seven days, they scrubbed the back end of my Amazon account going back 18 months, and found $5,000 of refunds. And the nice thing about this is, it’s my money, Amazon made a mistake, and they are just auditing my account. The other thing I really like about this tool is there is no monthly fee, they only charge a commission if they are successful in getting you your money. Go to catina.com GE T ID a and enter promo code ft m for Firing the Man FTM 400. This is an awesome tool. I can’t say enough good things about it. Now back to the episode. Awesome. Awesome. I think Ken and I are definitely interested in that service and probably would have been helpful a couple times this year where we had those small legal questions. And so to all of our listeners driving, we’ll post that link down in the show notes. I want to get into sales tax. But before I spent question, can we establish a working definition of nexus for people that are unfamiliar with that phrase or term?
Paul Rafelson 28:55
We cannot establish a working definition of Nexus No, we cannot. But we can describe what it’s meant to be. However we got there we go. Okay. All right. So Nexus is the constitution. So we have the Constitution, the United States of America, right? And let’s say you’re where are we? Let’s say we’re I’m here on the USA. I’m in New Jersey. I’m here in New Jersey. And something I did pissed off somebody in Alaska and they want to sue me in Alaska. Okay. In order for me to be shoot in Alaska, accord, I have to have some connection to the state of Alaska, some minimum connection, maybe I was in Alaska did something to that person to make them to solve it? Right. Maybe I did some business transaction with them. Even though I was here. I targeted them in Alaska and I did a transaction right maybe there’s something but there has to be some minimum contact with the state of Alaska for them to sue me and all Ask them now they can always shoot me in New Jersey, right? They can say I was wrong and they can say your situate. Right. But to bring me into Alaska, there has to be that minimum connection, some right? This is like civil procedure, you learn this in law school day warm this is the minimum contact is right. That is for any lawsuit of any kind, including taxation lawsuit, or just whether or not you’re subject to tax. But when it comes to state and local tax, that wasn’t enough. The courts, the Supreme Court’s for sure, sure. 70 plus years, have been concerned about small businesses being subjected to the burden of 12,000 different state and local jurisdiction. And they said, you know, that standard Nexus under the due process clause of the Constitution, when I just mentioned earlier about the Alaska thing, we need a little bit more for the taxes, because that could really like, could you imagine what that would do to a bunch of E commerce small businesses, if we had them all filing 12,000 tax returns, like in the 90s? Would we be where we are today, if that was the prerequisite, right? Imagine if in order to start your Amazon business, you have to register 12,000 jurisdictions and a salesman and spend over $100,000 in filings. And I’m not talking about taxes, I’m just looking at like the cost of file, the paper returns, right? Or electronic right? It would be a deterrent, it would be a burden on interstate commerce. And that invokes what we call the Commerce Clause in the Constitution. And because Congress is, you know, because although Congress hasn’t specifically addressed how ecommerce sellers should be protected, the Supreme Court has the right to invoke or the ability to invoke what’s called the Dormant Commerce Clause and to say, well, even though Congress hasn’t specifically said, the one that protect this class, we’re gonna go ahead and assume that they probably would want to protect small businesses. And so they tricked him up with a physical presence rule. And so for the longest time, and this is before E commerce, the idea was you had to have physical presence in a state in order to have nexus, so you had to have some sort of physical tie to the state. Right. So if you were just mailing catalogs through UPS, that wasn’t enough, that wasn’t physical, right, you had to have an employee, right. And you had an office, right? Some physical connections to say they be the Supreme Court drew this bright line. And the last time he drew that bright line was originally the first time was in the 60s. And they did it again, that was in Bella’s house. And then they did it again in 1982. With a quote case, now 1992 may have been the worst time to draw a line of commerce based on physicality. Because what happened starting in 1992, the dawn of the internet and E commerce and all of a sudden, years later, huge companies like Amazon, right? Were and eBay were getting he had their tax obligations, because they were saying, Hey, there’s this 9092 court case that says you have to be physically connected to a state in order to be subject to tax. And after years and years and years of hoping that Congress would finally pass some common sense internet acts laws that would just make universals ads. They didn’t do it. Congress never passed those laws, they still have it, right. There is something called the Internet Tax Freedom Act, which covers little things, which does actually help us out a little bit of salaries, but they never really comprehensively passed any law. So in 2000, and we get to the Wayfair case is famous case, which finally said the Supreme Court said, You know what? physical presence is a really stupid, bright line distinction for whether or not a business should be taxed, especially because Wayfair is a multibillion dollar company. It’s hard to imagine that the United States Congress is worried about burdening Wayfair, the billion dollar company out of business just by having to do the same taxes that their competitors, like Walmart have to do. And so the court is night to worry about 2018 said, we’re no longer going to hold physical presence as the basis for which Nexus, you know, you have to have nexus it’s no longer physical presence. And the states had great we had these ideas of thresholds that you have to do 200 transactions, or $100,000 of sales are variations of that. The Supreme Court didn’t necessarily say that that there those are constitutional, because that’s not what the court does. They just basically said that the old rule was no longer in effect. So they basically invalidated his uprisings and they said, you know, the new rules will be subject to new cases. So that’s kind of where they left us and when He said to the Supreme Court in that case, what about small businesses, you know, some of these thresholds aren’t really that protective. And this could really hurt small businesses this report. So great point Wayfarer is a really big company. And if you bring us a case in the small business, we’ll consider that So until then, we’re all screwed, like, and that’s it. And so, in other words, until we bring the case to the Supreme Court with a small business, which we may be doing very soon, if they take it, it’s just left up in the air. So every stage has has their own interpretation of how Nexus works. And the only relief we got as Amazon sellers wasn’t from Nexus, but it was from something else that we lobbied for through the online merchants guild, which was the marketplace facilitator laws, as you remember the US which is where, at least officially Amazon and would become attached after, so that if you were selling on Amazon, you would lease would not be responsible for sales tax. And that took a lot of the burden off of small sellers. Do you remember when that happened? Yeah, yes, I do. So that changed the game. But it also said, Hey, if you want to sell on Shopify, that sucks, because you’re gonna have to be responsible Achlys beliefs on Amazon, you’re not. So it actually deters a lot of people from having their own website and wants to keep people on on platforms like Amazon. And eBay, unfortunately, has done nothing for income tax, because that is the new thing. So the long story short is we don’t really know what Nexus is. But Nexus is the concept of nexus for those listening who are just trying to understand is is, you know, at at first glance, you know, under our Due Process Clause Nexus is, you know, can I be sued in a state? And then, because we care about overburdening small businesses, there is a second layer of Nexus that is central for taxes, called Commerce Clause taxes, Commerce Clause Nexus, and that is, does my activity in this state significant enough to require me to to participate in their taxing scheme? Right, whether that’s paying income tax, property tax, sales tax at size tags, use tags, franchise tags, or whatever? bloke you know, baloney tax that they want to come up with? So that’s kind of how it works is that that’s probably the the the best way I can explain it all
Yeah, absolutely. No, I think that’s that’s really really helpful just to establish that and so let me let me ask you this as an Amazon seller in just talking about sales tax, what are you responsible for? To stay compliant?
Paul Rafelson 37:38
Okay, so at this point every state except for perhaps I believe Kansas, still may not have they I don’t know if they have yet but just about every state will the taxes are now being collected by Amazon and remitted by Amazon? And so sometimes, they’ll say but you still have to file the tax return. They doubt it. Okay, like if you don’t like I mean, like California, like like California, for example, we’ll say and every state has their own approach. But California for example, even California, the evil one right, will say if you’re only business activity is on Amazon, you do not need to even be registered for sales tax anymore.
Okay, if you’re
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Paul Rafelson 38:23
only businesses with Amazon now if you have a Shopify business that’s a different story. But right and some states say well you’re supposed to do is register and then report your Amazon sales as exempt sales or marketplace facilitator sales on the Tasha so does picked up as taxable, but at least it’s being reported but really, the way these laws are ringing is Amazon is officially the retailer now. The argument was they were the retailer before the law change too. But you know, there’s a whole nother shady sides why that didn’t, that didn’t happen, but the reality is, is that you don’t need an Amazon store so you’re not really responsible, generally speaking for anything and even if you were like what’s the harm? Like let’s say the state of Alabama said you should have filed a tax return in our state and you did well what did what did what did they not get? That you’re not filing that tax return? If it’s just sales tax, we’re just talking about sales now. Yeah, I don’t go out there.
In what I’ll say is like it seems like tax is kind of a scary thing. Like to a lot of people they there they don’t know it is what exactly they need to do to be compliant. You know, from a seller standpoint, you see that like on an invoice you see the taxes coming on the sale, but you never see that cash. And so what we see is a lot of sellers don’t do anything. And I think when you don’t do anything, you have this little man in the back your head saying this may be an issue for you up the road in so from what I’m understanding from you based on how things are set up if you’re selling on Amazon, Amazon’s taking care of that for you.
Paul Rafelson 40:03
Is that fair? In just about every state, I believe, except for perhaps Kansas, and I believe that’ll probably change in very short future making Missouri. But my guess is it’s so immaterial. And we actually believe it’s against the law for you to be responsible for the taxes on the Amazon. This is one of our arguments in the Internet Tax Freedom Act. Because the Internet Tax Freedom Act says that physical debt online stores must be taxed in the same manner as physical stores. And we say, look, Amazon’s like a consignment store, right? I give them my inventory, but it’s their cash register is their credit card is their their customer. They’re the ones charging my customer. So they’re like the consignment store. And they want and I do consignment store in the middle of the city. I give them my inventory. And I say Okay, you go sell it. They’re responsible for the sales taxes, their stores their cash register, right? I just take whatever they just say, hey, sold your stuff. Here’s your money. Right. And that’s how Amazon should work, too. Because that’s the parody of the Internet Tax Freedom Act. So there’s a million versions of other versions of that example. I can give what consignment stores can the easiest one to follow. But you’re right, people feel like there’s a need to do something. But the good news is really, with sales tax, there isn’t Now should you maybe be doing something, could you argue you might have to do something Kansas or Missouri? Or the dollars that big? I mean, that’s the other thing, right? Like, I mean, I mean, there are people who, you know, you may have to register to pay like Washington state, for example, will say you should still register and remit a tax return. Why? Because Washington state has a business and occupation tax. The business occupancy occupation tax is like, it’s like point 2% something stupid, small, don’t quote me on what it is. But Google it, it’s done a tiny percentage, to where the average, you know, Amazon seller is probably going to owe like 30 bucks a quarter. And you’ll spend, you know, $200 paying tax jar to figure it out. Right? It’s just not even worth it. Right? Like, I mean, you have to use your brain and realize, like, the states are the ones who are acting out of order right now. And so like, unless it’s your home state, where you live or where you have employees. I’m not, we’re not going off of anything, you know, this stick to, you know, but there’s, but like I said, for the most part when it comes to sales tax, because especially now the last the last state to hold out that really mattered was Florida. That was July of 2021. Right, like Florida, is typically every Amazon seller is what like second or third largest state, depending on whether their sell outs or not. Right. So Florida took a while to get there. But at this point, pretty much any state that matters, the tax is being collected by Amazon, by law, it’s being remitted by Amazon, and it is Amazon’s responsibility, primary responsibility is the taxpayer to remit those taxes under what’s called a marketplace facilitator wall. And if you Google marketplace facilitator, while you’ll probably see, like tax jar and Avalara, will have these like color coded maps, and they’ll show you exactly what year the state became marketplace facilitated, the last thing I would recommend most sellers do is just go out and blindly register in a bunch of states. And that’s the last thing you want to do, especially without talking to somebody first. And when I say somebody, I don’t mean to be self serving, but talk to me talk to a lawyer, don’t talk to TakStar Avalara. Because they’re MCs always need to register. Like I’m having a little bit facetious, but I’m not but like they, you know, they convince companies that are making like 60 grand a year in profit that they need to register in every state, and that will bankrupt that will destroy you. You just don’t understand what it’s like to be registered in the States because it isn’t going to end at sales tax. It’s income tax, too. And it’s not like, you know, global, you know, income tax. I pay and say, okay, $10,000 of income tax to the state of the state of Oregon, you know, and now 49 or 45 other states want my income tax? Well, they have to pay all of it to them. Well, technically, there’s a division mechanism. So you don’t have double tax. So you’re not even really even going to be Kenya’s owner, he necessarily would be paying a lot more tax because of this. But the filing fees, I mean, having to file tax, I mean, think how much of your accountant charges you just to file a tax return to the IRS and to your state. And then just you know, extrapolate that by 50 or something, you know what I mean? It gets expensive. It’s just it’s an unreasonable ask that you should have to spend 500 or $700 on a Mississippi tax return just so you can remit $20 to Pacific. It’s just idiotic. So right now we’re in a world where we have to use our like materiality has, in common sense has because the states are and we have constitutional protections behind us here. That’s the difference and we can rely on solid constitutional arguments for our positions and because of that it’s not like tax evasion. And I know Wesley Snipes went to jail for similar arguments but if you Any concerns about the constitutional law re our Pennsylvania read the online merchants guild case in Pennsylvania that we just want. We just proved that there is no tax obligation for you simply because Amazon puts your inventory in some state. So don’t start thinking that you have an obligation Now, does that mean for sure 100% Every other stage and to take that position? No. Should they? Well, yeah, they should, because it’s the federal constitution, not the Pennsylvania constitution. But, you know, state courts should differ. And this thing could go to the Supreme Court, or a variation could but my point is the fact that an appellate court and Pennsylvania looked at our fact pattern and said, Yeah, Amazon is not Nexus Amazon in and of themselves. Now Nexus should give you comfort that you should be able to use your common sense hat, not just your you know, don’t just be afraid because the government says one thing that you have to do with government said, you can use your common sense and your materiality hat to decide what to do. And this is what yeah, this is something we offer when you give us a call, and you want to schedule a consultation with us through our solid basis program. So we’ll sit down chat with you about that, you know, we can spend 20 minutes going over your business and seeing if there’s any reason why you shouldn’t be worried about registering somewhere.
Yeah. Well, that sounds good. I’ll tell you what, I think we could talk to you all day about this. But I want to definitely be respectful of your time. So Ken, I’m going to turn it over to you for the fire round.
Paul Rafelson 46:25
Yep, absolutely. All right. All right. Let me pull up here all are you ready for the fire round?
Now if you weren’t used? Really go? What is your favorite book? What is my favorite books outliers? Malcolm Gladwell. Awesome, it’s a great What are your hobbies? Was that one of my hobbies? Video games and flight simulators. And I use oil I use like running until I hear myself. I’m not much of a runner anymore. So I’ll stick with that. Also just like playing my kids and watching TV and should in fact, I hate reading. I like listening to audiobooks because I read so much as a lawyer. Actually, opening a book to read annoys me I have to listen to it.
That’s what is one thing that you do not miss about working for the man.
Paul Rafelson 47:10
What is one thing I do not miss about working? For the man office politics is just brutal. And just the sense of like, being on somebody else’s schedule.
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Cool. Last one. What do you think sets apart successful ecommerce entrepreneurs from those who give up fail or never get started?
Paul Rafelson 47:32
As people? I think it’s fear. I think it’s just getting out, you got to get over the fear. And I think it’s fear of sailing, you have to be fully willing to fail. accept failure as a learning mechanism. When you do sale, he do sale and be willing to get pick yourself up and get down. We really gotta be willing to go for grain. And it doesn’t mean the stupid with your ads. Like I’m not saying like take, take out a home equity loan on your house. But bet it all on on. That’s not what I’m saying. But like, you know, I think you really have to just take action people, it’s analysis paralysis, right? People just think about it all day. And the last thing I’ll say, I think what I think people make big mistakes is I think, and of course, I’m gonna say this as a service provider, but I really see this in a lot of ways. Like, let me give you an example PPC. Okay. Do you guys offer PPC services? I don’t want to be anything like that. I don’t know. Okay. All right. So I don’t think so. Hey, have you ever been to a PPC conference? Like you’ve ever been to one of them? They received like a PPC presentation. Yeah, we’re really good. Want it? Yeah, it’s like data science. And I talk to people who are like, you’re not a data scientist. Like if I had an Amazon business. If I restarted the Amazon business, and I were building a brand and I wanted, like, I would find the best version to run my PPC I wouldn’t have to get it because I know my weakness, like knowing your strengths and weaknesses. And like, I’m not a data scientist. Why are there so many people in this room trying to learn this PPC thing? It’s just like, to me, it bothers me because you know, people like Richard Branson always say like the the key to success is knowing what to delegate right? Knowing what and when to delegate, and I feel like Amazon sellers, you know, and I get it because everyone’s out. Everyone’s out to fleece us everyone’s out to get us everyone’s out to say that they’re the best at this. And a lot of times they suck so I get it and nobody wants to get burned. And believe me I got burned to my first year in business. I got burned by people offering me Google ads like you know, no rights and searchable website. So like I’ve been there but I feel like we have to delegate like you have to do it. So I don’t know. I think it’s there’s a fear and there’s there’s a failure to delegate. There’s the common common things and they tell you to learn from others. You know, because I think people, my clients who authored times are struggling. I’ll tell them things I know Just because I’ll know 10 other sellers who are doing it, they’re like, Where were you? So it’s like, they’re just not in the loop and they’re not, you know, they’ll be social, go to the conferences, talk to people learn, you know, be out there. You know, don’t be afraid to learn from others or take advantage. So I guess those are my, my Paysera Those are good.
Those. Those are very good. Those are very good. Excellent. Yeah. So yeah.
Paul Rafelson 50:22
Sorry, too chatty.
It’s all good. You’re a great podcaster. So yeah, Paul, thank you so much for being a guest on our podcast. And we’re looking forward to staying in touch. We’re gonna have to have you back on because there’s some things we didn’t get to today and definitely want to cover those in future episodes. So thank you so much.
Paul Rafelson 50:39
I absolutely would love to come back on anytime. Anyone. There’s a lot of fun. I’m excited for more firearm questions. So that was fun. Got it. So you just use it. You tell me when and where. And I’ll be there guys actually love hanging out hanging out with you. It was a lot of fun. Thank you so much.
Thank you. Thank you everyone for tuning into today’s Firing the Man podcast. If you liked this episode, head on over to firingtheman.com and check out our resource library for exclusive Firing the Man discounts on popular ecommerce subscription services that is firingtheman.com/resource. You can also find a comprehensive library of over 50 books that Ken and I have read in the last few years that have made a meaningful impact on our business, or that head on over to www.firingtheman.com/library Lastly, check us out on social media at Firing the Man in on YouTube at Firing the Man for exclusive content. This is David Schomer and Ken Wilson. We’re out
before you go fun fact for all you Amazon sellers out there when you start selling in international marketplaces, all of your reviews come with you. At the beginning of this year, Ken and I sat down and talked of ways that we could double our businesses in size and landed on international expansion as our number one initiative this year. We partnered up with Kevin Sanderson from maximizing ecommerce and he has made the process an absolute breeze walking us step by step through the process. If you want to grow your revenue and reach new customers head on over to https://maximizingecommerce.com/fire and connect with Kevin Sanderson today. Now back to the show.