V I D E O • A G E MA R C H/ AP R I L 2 0 1 2 32 (Continued from Cover) Taxing Downloads (Continued on Page 34) Currently, when consumers buy things in a brick-and-mortar store, they pay the so-called “sales tax” (VAT in Europe and GST in Canada). In the U.S., 45 states have sales taxes ranging from five to 10 percent of the goods’ and services price. In Europe, VAT can reach 27 percent in Hungary, and countries such as Norway and Sweden have sales taxes in the order of 25 percent. Online stores, on the other hand, lacking a physical presence, are not required to collect sales tax on behalf of the state and cities. The U.S. Census Bureau estimated that in 2010, online retail sales in the U.S. reached $165.5 billion, which translates to anywhere from $8.3 billion to $16.5 billion in uncollected total revenue for the states. According to the Digital Entertainment Group, a Los Angelesbased industry association (there is also a London chapter), in 2010, U.S. sales and rentals of DVDs reached $14 billion and digital $2.5 billion, but while DVD sales dropped 11.4 percent since 2009, digital sales increased 16 percent. Blu-ray discs sales and rentals increased from $1.5 billion in 2009 to $2.3 billion in 2010. In terms of sales taxes, DVDs from brick-and-mortar stores represented for the U.S. states average global revenues of $1.3 billion a year, while digital produced a $200 million void, with this trend increasing every year. Without proper legislation, in 1992 the U.S. Supreme Court declared it unlawful for states to require out-ofstate sellers to collect sales taxes for them. But now the U.S. Congress wants to get into the act with a bill that is not considered a tax increase, but simply a means of collecting existing state taxes. The Marketplace Equity Act is currently pending in Congress. The bill, sponsored by Reps. Jackie Speier (D-Calif.) and Steve Womack (R-Ark.), would give U.S. states the authority to compel online retailers to collect sales tax. The act “empowers states to require online companies that do not have a physical presence in the state to collect and remit state sales taxes,” according to its authors. The bill — which was introduced in October 2011 — is not that different from the Main Street Fairness Act, an online sales tax bill that was introduced last summer by Sen. Dick Durbin (D-Ill.). One major difference is that the Marketplace Equity Act gives states flexibility in how they craft their tax systems. What that probably means: Good news for states, bad news for large online retailers (both bills offer exemptions for small retailers and start-ups). Unsurprisingly, retailers are coming out in favor of the bills, whereas the tech industry — especially eBay, the Computer & Communications Industry Association and the Electronic Retailing Association — are not. According to Steve Ronson, EVP, Enterprises for the New York-based A+E Networks, who oversees the International, Consumer Products and Home Entertainment teams, “Online sales tax will help level the playing field between brick-and-mortar and online e-tailers. That said, there are still many convenience and pricing advantages through online shopping that are certain to continue to benefit consumers. It is unlikely that there will be a significant shift in the business as a result of this legislation. As for transactional media purchases, I don’t foresee a change in buying habits and volume for DTO, [Download-to-own] EST, and SVOD purchases because the tax is insignificant on a per transaction basis. On a side note, a benefit of the tax legislation is that it will lift the burden of consumers reporting their online sales activity for personal income tax purposes,” he said. Similarly, a former Starz executive expects that the minimal fee to customers won’t be an issue. The problem he sees is in terms of clearing houses. “Content providers would like to avoid the middleman, and go directly to the consumers,” he said. “The sales tax could add a new element that could slow down the process of getting entertainment directly to the consumers.” Internet companies (Incos) such as Amazon, are equipped to deal with retail issues, while content owners have to get familiar with and set up complex structures to deal with over 7,500 taxing jurisdictions in the U.S. alone. Zdenek Vajnlich, the senior VAT manager at the New York-based Meridian Global Services said that there are companies such as his that deal with sales tax/VAT/GST compliances around the world. The matter is more complicated because, according to Vajnlich, there are sales tax rules in each country, and rates for physical (DVDs), and service goods are different, and downloads and streaming fall in the “service” category. However, there are precedents to follow because the interactive games industry has been collecting sales taxes all along. In 2007, New Jersey became the first state to tax digital downloads (the “iTunes tax”) and, currently, 25 states collect such a tax. However, thanks to a law stating that businesses can be taxed only if they have a physical presence in the state, many Incos don’t collect sales taxes. If the U.S. applies sales taxes to download sales systematically, it is guaranteed that other countries will follow suit. Currently, 140 countries worldwide tax goods and services, whether it is called VAT (value-added tax) or, in Canada, GST (good and service tax). In addition to the GST, Canada has a provincial sales tax of up to eight percent. According to VideoAge’s London contributor Bob Jenkins, in the U.K., VAT is only levied if the Inco is registered in the U.K., even if the sale is made abroad. A regular Internet buyer from Italy commented that for his online purchases VAT is always incorporated into the sale price. This aspect is better explained by Meridian’s Vajnlich, who said that as far as sales tax in the European Union (E.U.) is concerned, there are different VAT implications for companies selling physical goods such as DVDs and providing services (downloads and streaming). Products sold by a U.S. Inco to consumers in the E.U. are generally taxed in the country of the customer and VAT should be incorporated into the selling price. However, according to Vajnlich, U.S. companies are often not aware that there are VAT compliance obligations resulting from the provision of electronically supplied services. Whether or not U.S. Incos register for VAT and remit the VAT to the respective VAT authority is another matter entirely. Vajnlich further explained that, in respect to the sale of physical products, U.S. exporting companies may not necessarily run into a liability to remit the VAT to the respective countries, as import VAT imposed on the goods shipped directly from the U.S. to the consumer in the E.U. has to be paid by the customer upon arrival in the E.U. However, when goods from a U.S. company are imported into the E.U. into a distribution center and from there distributed to customers in the E.U., VAT registration liabilities and related VAT compliance obligations arise. services — to keep companies and people in or out of the spotlight, to help market a product, to serve as spin doctors (i.e., damage control), to take or deflect blame, to create an image and, at times, to “babysit” temperamental personalities — let’s find out what exactly the role of a PR company is for our type of media. Lynette Piong of Singapore’s Red Bug Communications said simply that the function of a PR company is “to help its clientsgeneratepositivecommunications to its public (shareholders, customers, partners, etc.), primarily through media channels.” “The key is effective communication and getting a client’s brand out there in the marketplace,” said Celine XerriBrook, of London-based Magena Media. “Functions will vary depending on the client’s remit, but in the case of corporate TV/film PR for example, the main function of the PR company is to first understand the client’s primary objectives — who are their target audiences, how are they trying to build their brand, in which markets etc… then pitch a variety of stories into the relevant trade publications or online feeds that would increase exposure, which in turn helps them sell their product,” she said. But, “PR has become more versatile,” Xerri-Brook added. Companies are “offering aspects of marketing, copywriting, translation work, and even creating connections that will help their clients’ business,” she said. Blair Metcalf of Ogilvy Public Relations’ London office concurred. “PR companies have evolved over the years from pure media — creating press releases and events — to being partners in the success of their clients’ business. Increasingly, PR activities have a role to play in overall business performance and a company’s perception in the marketplace.” From Los Angeles, Steve Syatt of SSA Public Relations added: “The economy is such that conducting PR for image alone is a luxury. Today, PR should be focused on helping achieve sales, new business development — contributing to opening doors of opportunity,” he said. “Many times we consult with our clients on issues as far ranging and apparently minor as the color schemes for their new electronic media kits to what kind of cocktails and hors d’oeuvres to serve at their booth at MIP,” commented Sheila Morris of Los A+E’s Steve Ronson (Continued from Cover) The TV PR Biz
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