Legislative Update: Limits on Databases, Use-Tax Proposed

Legislators are making it harder for bankrupt companies to sell their databases. On March 15, the U.S. Senate voted 83 to 15 to approve a bill that would prohibit companies from selling customers’ personal data after filing for bankruptcy if they had promised that they would never release such information to any third party. As of early April, President Bush was expected to sign the bill, S. 420, into law.

Titled the Bankruptcy Reform Act of 2001, the bill does allow the sale or lease of customer information if it is consistent with previous company policy or if the move has been directed by court. The Senate approval comes two months after Disney, the majority owner of defunct dot-com Toysmart, paid $50,000 for its customer file. Disney then destroyed the file rather than allow another marketer to buy it, because Toysmart had promised customers it would never share their personal data with third parties.

Banning the sale of customer data by bankrupt companies could strengthen consumers’ trust in e-commerce. “Companies establishing relationships with online customers are provided personally identifiable data based on their stated policies and the consumers’ trust in those policies,” says Jeff Schline, corporate privacy officer/director of corporate communications for Portland, OR-based @once, an e-mail marketing provider. “The continued selling of data would have undermined the confidence of consumers wanting to transact online.”

But some believe the legislation could hurt the sales of bankrupt catalog and Web companies. “In purchasing a direct mail/online company, the most important asset is usually the customer list,” says Andy Ostroy, chairman/CEO of list firm ALC of New York. “If you’re the buyer, restrictions as to what you can or cannot do with this list may make you reconsider the purchase.”

New bill seeks use-tax ban

In other Capitol Hill news, catalogers have new allies in the fight against use-taxes. On March 29, senators Judd Gregg (R-NH) and Herb Kohl (D-WI) introduced the New Economy Tax Fairness Act (S. 664). The bill would prevent states from forcing businesses to collect sales tax on goods sold online to buyers in states in which they have no nexus, or physical presence.

Businesses are already protected from collecting remote sales taxes by the 1992 Supreme Court decision Quill Corp. v. North Dakota. If passed, S. 664 would change the status of the court’s law from decisional to statutory.

The proposed legislation challenges that of Sen. Byron Dorgan (D-ND), who on March 9 introduced the Internet Tax Moratorium and Equity Act (S. 512). While Dorgan’s bill seeks to extend the current moratorium on all new Internet taxation until Dec. 31, 2005, it also seeks to give states authority to force out-of-state sellers to collect sales tax on Internet purchases. As per Sec. 2 (5): “States that adequately simplify their tax systems should be authorized to correct the present inequities in taxation through requiring sellers to collect taxes on sales of goods or services delivered in-state, without regard to the location of the seller”.

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