Paul Rafelson is an experienced attorney with over 15 years in complex tax, litigation and M&A matters. Paul is also a trusted resource in the eCom world, regularly quoted in the press on matters involving Amazon and eCommerce, and was the most-cited resource in the House Antitrust Committee’s report on Amazon’s business practices.
Prior to entering private practice Paul spent the majority of his career in-house at some of the largest companies in the world: Microsoft, Walmart & General Electric. Paul is also a professor at Pace University School of Law in New York, where he teaches a constitutional law course on state taxation. On this episode, we discuss tax controversy, what makes sales tax complicated for eCommerce brands, his involvement with the Online Merchants Guild, and much more.
Rafelson Law Firm
Paul Rafelson: We're an e-commerce focused law firm. We started about six years ago. It was just me and it was a by accident. It was like one of these things where I wrote a blog post with somebody and it turned into a law practice by accident. It wasn't my intent.
I had pretty good nine to five before that. I liked that the nine to five situation that I had. It's hard to be on your own in businesses. It's really hard even as a lawyer, and it's so hard. It's just a lot of work. There's a lot people don't understand about it, that it's just, the day to day is just, it's a grind. And you feel like you never get a day off.
And so, what I loved about my nine to five was we did get days off. They were called weekends and vacations and Fridays in the summer. So that's all gone now. But I love what I do and I'm passionate about like the big picture stuff that we do, so it's all worth it.
eCommerce law vs. Standard business law
Paul Rafelson: It's a great question. So the way I look at it, a little bit of my background, I was an e-commerce seller in the early two thousands, so when I wrote that blog post six years ago, it's based on that experience and some other experience I had that led me down this path of realizing that there was a need for e-commerce law and that it's a thing, right?
And you can look at it one way and say, well, it's kinda just hodgepodge of current law subject matters, right? So it's definitely ip, right? Also property patents, trademark copyrights. You got your business law, so you have LLCs, contract law, things like that. Compliance law, FDA, all of these areas of law that apply to like the national economy or international economy.
And it's not like you don't need to be the world's most out expert on FDA law. That's not what you need. You need to know enough, right? And you need to know enough about these areas of law. Your client does need that specialist, that expert, you need to be able to see that. But you've gotta be able to kind of dance in all these different areas of law because they all kind of work together and support what I call e-commerce law. And how do I sort of get there? I sort of back into it.
E-commerce law to me was born out of a concept. Something that happened in the dawn of e-commerce towards the tail end of the 90s, 2000s was that once when we all basically got the freedom to sell an e-commerce, what that did was it created this thing called the global small business.
If I said I was a global small business owner in 1980, people would look at me like I'm crazy. Right? There's no such thing as a global small business owner in 1980, right? How could you do that? But with like Amazon, for example, right? Where you're getting, I can come up with an idea for a product.
I don't need to go on Shark Tank. I don't need to go pitch it at Walmart. I used to work there by the way. I can just literally come up with the idea. And for not a lot of money bring it to market. And I could have mass scale logistics behind it with the Amazon FBA. And I can reach the entire country and I can reach other countries and I'm importing from China.
So you see like very quickly, yes, you're a small business operating from your laptop on your kitchen table or from Starbucks, but you're actually global small business. And that to me was the realization aha moment that made me realize I need to do something here. Because most lawyers who support small businesses are not supporting global small businesses. They're supporting local, small businesses, right?
So I'm not a lawyer you'd wanna go to, like, if you wanted to set up like a pastry shop in the middle of town, I'm probably not that lawyer you wanna go into. I can help you with some of it, but there's a lot of like permitting and local stuff that I don't, but none of that's really relevant when you're global small business because there you're not answering to your town, you're answering, it's not about your local permit.
You don't need a permit. It's you don't need to have hours in accordance with town ordinances. You're selling across the entire nation. You're selling across other countries. You're reporting from other countries. So that global small business concept that I've probably just beaten to death the last 10 minutes is really though to me, the essence of what e-commerce law is about, about how do you support that business.
In my life, I came from big law. I came from Microsoft, Walmart, General Electric, working for really big companies. So I grew up learning a Commerce Clause, constitutional law, which I teach in New York as well. It's putting that all together and sort of saying, okay, how does this stuff that I used to apply for, like Microsoft or GE or Google, how do you do that for the smaller businesses?
Cause they need it now too. How do you scale a large scale law practice, like a practice that's designed to support large businesses in interstate and international commerce? How do you scale that down to smaller businesses? And that's what we did. And the secret is, in part, has to do with the fact that there is a lot of overlap. There's a lot of repetition. Right.
I know most of my clients' issues before they even meet me. They're surprised. A lot of my clients are surprised to know that I know so much about their business, but it's not cause I'm smart, it's not cause I'm really good at business. It's cause there's a lot of overlap when you're in an eCommerce and Amazon business.
So we can figure out like we know where your barriers are, we know your problems are be for the most part, and then there'll be some unique problems you have based on what you sell. But 80 odd percent of what you do, we probably already know your issues. Before you ever call us. I think that's a key element of what we do. Cause it's efficient. Otherwise, how else do you do this? Cause it would be extremely inefficient to provide big law, legal to small businesses. It wouldn't work.
Alex Bond: I'm extremely interested. I'm sorry to cut you off. I was just the way tthat you were thinking about it e-commerce law is so different than anything else because it's not like you can look at a constitution and say, oh this is exactly, how the law should be operated in e-commerce.
And for me personally, I was pretty, pretty young, but I know that like the very first example of e-commerce that I could think of is like eBay. I mean, that was probably the first thing that I remember in terms of e-commerce law. And I guess my question that I'm trying to get to is, at what point are laws decided and regulated in the scope of e-commerce?
I mean, is it the wild west until people start suing each other and IP has to come into it. Or, when e-commerce started to be popularized, there was legislation that then had to dictate, you can do this, you can, you can't do that. I mean, how is precedent decided in e-commerce scale, and how is it continuing to be decided to this day still?
Paul Rafelson: So from the federal level, we have to rely on the federal statutes that are in place. Right. We have to rely on things like the Internet Tax Freedom Act. We have to rely on act or trademarks, and we have to rely on what's out there. Where it gets dicey though, it's actually the state laws that really make it messy. Right?
And that's where the Constitution, even though it was written a very long time ago, It's still relevant. So, I sort of was joking something today, part of what we do when we do state law analysis and state law issues is we kinda have to think about it like, sort of asking ourselves the questions like, what would George Washington, Thomas Jefferson, Ben Franklin think about this situation?
Like, we kind of have to do that, right? We have to look at the analysis and say, look, they designed, they actually wrote, there's a commerce clause in our constitution. It's designed to protect interstate commerce. It's designed to say, when things like e-commerce come around, don't let states regulate it and burden it to death.
Which they've already done right, and they're already doing it. We're just kind of like resisting it, but it's done with the taxes. So that's the issue that actually got me into this is right. It's like you see all these states, like there's this new thing where like people from all walks of life are just making a lot of money being their own business owner in this new way.
It's just really cool. What I loved about it? For the freedom, the sort of the privileges and news aspect is that like, here I'm meeting people who are making six figure salaries or more six figure incomes. Or more. Or a lot more, right? But at least in areas where that's not common, right?
So like somebody making a six figure income flipping stuff in Walmart, in like Western Kentucky, that's pretty cool because there's not a lot of ways you can make six figure incomes in Western Kentucky unless you're in the coal mining industry, right? So the way it opens up America, and you have this concept of the nomads world, right? The digital nomad, right?
People who can run business from anywhere. Kind of like what we saw with the pandemic. We went from, work from home. Like it doesn't, we don't need to be tethered to these big megapolis and have outside New York City or San Francisco. And it's like that freedom is really cool and the fact that people from different opportunity backgrounds are like getting this opportunity to make a lot of money.
Like these are all things that in my mind as somebody who's studied the constitution, who teaches this, is like, I would think that our forefathers would've protected that. I think that they would not wanna see the states overburdening commerce with their laws. And that's something we all the time, right?
Wee fight that kind of overburdening behavior. About state governments who are trying to sort of, instill their will, but they don't think about their cons. They don't think about the consequences of their actions from a 50 state perspective, right? You're not the only state in the country. Think price gouging.
Price gouging was a lawsuit we took on a couple years ago during the pandemic, and it's not because it wasn't because we support toilet paper price gouging. We definitely do not. But what that case was about was that it had gotten a little bit crazy. People were getting accused of price gouging on a Nintendo switch cause they were flipping, right.
People were getting accused of, states were saying that it's price gouging if you sell steak seasoning, but it's not price gouging if you sell peanut butter or vice versa. it's like, it was so arbitrary es that was like we had to do something because like states one of the mistakes they were making when they were going after the Amazon sellers for price gouging was like, well, like, wait a minute.
Well this is really Amazon's responsibility. Cause as a reseller, as somebody who goes out and brings product to Amazon for resale, right? Not that people do that. It's like, we don't control estate pricing. So if I can't set the price of a good in Kentucky and only Kentucky versus say Ohio, how can I really be responsible for price gouging? Because Amazon only, unless you set a national price, there's no state specific prices.
So if we're gonna yield to a Kentucky price gouging law, that's gonna affect the availability pricing of goods in 49 other states. Right. And then the 48 of those states have their own price gouging regime and you can't control, so like what it basically does is you understand what's going on here is you're basically putting like interstate commerce to a grinding halt because it's impossible to comply.
All of a sudden I find you find yourself as a seller, it's like, I can't comply with this law because this state says I should be this price. This state says it should be that price. This state says this is, I can't even sell it. And what do I do? And so that's sort of what we call a burden on interstate commerce that we took on because we're like, that's really wrong. And our solution wasn't that price gouging laws were invalid.
We actually didn't, we just said Amazon itself is the party that needs to be regulated. Amazon should be able to either seed control on a state by state basis or manage the pricing of goods as it is their store on a state by state basis. And so that the seller who's went out there getting the stuff knows how to safely price items because Amazon's basically responsible.
That's all we were saying. We weren't trying to get rid of price gouging, we're just trying to say like, you had to understand the agenda too. Amazon spent tens of billions of dollars in states like Ohio, Kentucky, right, to make these giant hubs. So obviously the states aren't going after Amazon, right.
Amazon gets a free pass. I think from a state law perspective, it's really interesting. Now going back to the federal the biggest issue right now is obviously whether or not Amazon should stay together, right? Whether they should break it apart. This is something that the antitrust committee is trying to do. We're very vocal in supporting the antitrust investigation with real life example, but, where did it end up? What do we actually think Amazon should be broken up?
That's a different question. But they're looking at perspective of, is Amazon too dominant? Have we created a monster here? And do we need to do something to sort of like make the playing field more level for everybody involved in commerce? And that's what the government's trying to do. So that's what we see mostly the federal level these days. And there's ways to take advantage of that because obviously Amazon doesn't wanna be broken up. So there's ways you can play that as well.
Sales tax in US
Alex Bond: Is that also the same reason why sales tax is such a complicated subject is because all of these different states have have totally different positions on what that looks like. I mean, I personally, when I go up to Massachusetts, I do a lot of shopping, like clothes shopping and stuff like that cause they don't have a sales tax, but I know that's more like brick and mortar small business. I guess my question there is why is sales tax so complicated and what are the various US states' positions on sales tax?
Paul Rafelson: So sales tax is a class example of like a state over burning interstate commerce, and it's disgusting and it's terrible and it's fraudulent and in the way it's been administered in the past.
So, I mean, this is a Pandora's box of a question you've just asked. Where do you begin with sales tax? So sales tax yes. Every state has the right to administer their own sales tax at their own rate. Right. However they want. Right. That's the basic. Massachusetts chooses not to tax clothing.
That's great. States like Washington, where they have no income tax tends to have a higher sales tax, and they tax everything. They'll tax anything and everything. Clothing, medicine, they don't care. Right? So that's sort of how tax policy works across the different states. Everyone sets their own policy with e-commerce.
You had the Wayfair case, which was this case that sort of said like, Hey, this old understanding that there was this sort of barrier to taxation called physical presence that you couldn't be subject to state unless you're physical presence, we're gonna take that away. That case made a lot of sense because what states were arguing was like, it's too much of a burden.
What companies were arguing in the past was that it's too burdensome to have to deal with 50 state sales tax, which is really like 12,000 jurisdictions or something stupid like that. Cause you have account all the cities and towns that have crazy taxes, which it's common in a number of states.
It's like Arizona for example. Colorado for example, right? You could have like a hundred different tax jurisdictions in just one state. You have these sort of different, different tax laws that now the Supreme Court's saying, well now you don't have to be physically present. And here these thresholds that the states are promoting such as a hundred thousand dollars of sales or 200 individual sales transactions.
And it triggers Nexus and you have to collect. Well, the problem is that, well, the court never really endorsed this. What the Supreme Court really said was a company the size of Wayfair, multi-billion dollar company, a company where speaking of Massachusetts, you walk outta government center in Boston and you look right up that big skyscraper in front of you says, Wayfair is used to right on top.
This company has no business arguing that is burdensome to collective sales taxes. Every state, no business they can afford, they can clearly afford a tax department of hundreds of people. They just don't want to. They don't want to because it's a price advantage, right? They don't wanna collect cause they wanna be able to sell stuff cheaper.
They pretend it's a burden, but it's not them. So the court put the kibosh on that. I appreciate that. That's fine. But what the states are really doing is they're going after the small businesses and they're saying, Hey, you've gotta collect our tags. And that's where it gets problematic cause it's really, really expensive to collect taxes. It's really complicated.
And when you register at all of these individual states, like you're not just registering to tax you income tax. Because all the states wanna get you for income tax. We just want a court case. In Pennsylvania, that was a sales tax case, but it was really about income tax. It was really about the state trying to get all the sales tax people into income tax collection payments.
Right. So now you're paying income tax in every state. Like you have no idea as a business owner how burdensome it would be if you have to start paying all the taxes in every state. Oh my god. They expect you to pay. So when these software companies sell you 50 state registration and oh, it's so cheap, they're lying.
They're lying. They've been lying since day one. Avalara the big one, they went public right before that Wayfair case came down, cause they do, it was just game over. And they trick a lot of small business owners who have no business registry, who probably have constitutionally constitutional protections to doing it.
And it's sad because then when they do it, they're buying themselves in a situation where now they're being set backpacks. All these s well you should have registered. That case is great, but you were using Amazon. Even physical presence went back to 2012. So you owe six years of ag taxes. I mean, just really, really awful stuff.
And they, these states terrorize people constantly. So we took the stand against them. We're still taking a stand against it cause we think it's wrong. But that's an example of like states overburdening it. And the reality is a lot of the sales tax issues in the past centered around Amazon. And the irony of that whole thing is that under the law there's a federal law called the Internet Tax Freedom Act.
Which says that whatever you do in the brick and mortar world has to be the same in online. So you can't like make the taxpayer, the customer in one. In the offline world, but then make it like the wholesaler in the offline world, right? Because maybe the wholesaler has more of a connection to the state than the company.
You can't do that. You have to do the same. And typically in sales tax, what you do is wherever the cash register is, that's where the taxes paid, right? Whoever's holding the cash register, right, like whoever's processing transaction. And with Amazon, they were always the ones processing transactions.
So it's their store and, but yet through their sort of quid pro quo bribery of different states, like, oh, we're gonna put headquarters here. We're gonna put warehouses there. I mean, they fucking lied and bribe the shit outta these states to basically like turn their blind eye into the reality that Amazon and, and not collecting taxes on their own sales.
On their sales that they would blame the sellers. Oh, the sellers are the stores? Well, no, they're not the stores. Cause they don't even know is they're just literally supplying you inventory. Amazon, it's your cash register. Right. At all times. But they lied and they got away with it. During the whole like sales tax issue, when that was a really big heated issue.
Amazon always said they were not a store. They say we're just a mall. We're like a flea market. But then for antitrust purposes, and it's really funny, they're saying the office, they actually say it's our store and it's our selling partners, our share customer, our store. Why are they flipping?
Because one, the sales tax issue is kind of dead because for the most, Amazon now does tax, but the other is from an antitrust. Amazon gets accused of competing against their sellers. Right. It sounds awful, right? I started selling this product and then Amazon's competing against me. Well, you change the narrative, which is what we tell the antitrust committee Amazon is doing, and it did.
It doesn't sound like Amazon's such a bad company when they're competing against their seller, because have you ever been to Costco or Sam's Club. When you go to Costco, right, and you go to like, there's like that snuggle. Snuggle is like that blue fabric softener with a with a cute little bear.
So you snuggle and right next snuggle, you get a very blue container says Kirkland. So is Costco competing against its sellers or suppliers? No I mean it's, but it's doing it in a way that's always been sanctioned, the store brand. And so when Amazon's really telling, now they're saying we're store.
And just like any other store such as Costco, we're not competing against our sellers. We're just doing store brand. We're allowed to do that. Costco can do it, Walmart can do it. So you can see how to change the narrative to fit their own like, but they do that all the time, right? To whatever suits the narrative.
Right? When somebody gets killed using a product that's sold in Amazon's platform, right? We're not the store, it's not our responsibility. We didn't sell the product, we're not liable. But when it's antitrust, oh it's our store and we can do whatever we want cause it's our store. So it's really fascinating how Amazon just blatantly, it's under oath too.
Cause they also lied under oath Congress saying there know oath. The sales tax thing is a scam. Now, as far as as website sellers today, it's still a problem because website sellers, don't know what to do. It is really burdensome. And if you read the Supreme Court's ruling in Wayfair, they actually talk about this notion about we didn't really decide the question of what small business owners whether they have an obligation.
But one thing we think is the court says that if the burden of multi-state tax were to be lifted. Then there would be no argument for the sellers on Shopify to refuse tax collection. And I agree with that, but that's not what's happening. The states are not working together to come up with like a streamlined solution to tax collection, which is all we want.
We don't want the states to have to change their laws. We don't want them to conform to anything. We just want streamlined tax solutions like fuel tax, national fuel tax. But the idea is there were the truckers, back in the day. The truckers were complaining cause they had to like literally report taxes every time they drive through a state and burn fuel, they have to report use tax on that fuel.
And they had to report it, file a tax return with every state. And that was burdensome. And so that's where Congress eventually passed the fuel tax act. Basically just requiring that the states, there's one state, one state, you report to your home state where you drove who you owe tax to. And it's between the states and their clearing house to distribute the money.
That way the persons pay the tax only has to register once with one organization or home state and put the burden on the states to figure out the rest. I like that approach. Why can't we do that with, with Shopify? Why do we need to have individual sellers registering in a million in all these different states and local jurisdictions just to pay a bunch of tax, figure out a better way, figure out a way that's less burdensome on the seller.
Figure out a way where it's like service providers like Shopify or BigCommerce can use certify data reports and just send a report to a clearing house and the seller makes one payment and that covers all their taxes. It's certainly doable in the year 2023. The state refuse to and their laziness.
And their unwillingness to get with the times is no reason for them to burden interstate commerce.
And that's our point of view. And so it's like this shit that they put on all these people they have to deal with all this stuff you have to deal with. Like you're not, if you do 5 million on Shopify, you're not Walmart.
You still can't afford a tax department of of 50 people or a hundred people or 200 people, it's on you or people you pay. So it costs real money to have comply these taxes. That's why we, why we such a stand against could be so right. A bunch of old men in tax departments basically not refusing to get the time and that's no excuse, right?
Would George Washington want technological progression, commerce to halted because a bunch of old in state tax departments can't figure out how to work. That's stupid. Does it make sense? Is that in the American way, that when small business owners, when minorities have opportunities that they've never had before.
Because you really have a truly equal playing field level, playing field platform, all of that good stuff, promoting small businesses, women owned business, minority owned business. All that goes away because a bunch of in tax departments across a bunch of states can't figure it out. I mean, it's just idiotic. So that's a burden that needs to be resolved.
Rights online business owners have
Alex Bond: So the sellers clearly have rights then that are protected. So what automatic rights do online business owners have when they start selling that? That our audience or anyone else should know?
Paul Rafelson: They have constitutional rights, but whenever there's a tax and controversy, you're supposed to pay the tax and then sue for a refund, which is one very expensive, right? I mean, tax controversy cases can cost hundreds of thousands if not millions of dollars, right? Like it's not something we average small business.
So when you're a lawyer and you understand that the courts are not a place of justice for your typical client, which is how we, we do run our law firm on that for a minute. Like we, most of our clients we know belong, do not belong in a courtroom. You have to be a little bit more creative because like that your client doesn't have the court option to go get justice.
Because that doesn't exist for most of us. That's something that only wealthy companies and rich people get, like typical business owners do not wanna go to court. You just, it's not worth it. It's never gonna be worth it what I'm saying.
Alex Bond: You just generally end up losing money. Honestly. I mean, once everyone gets paid once you get paid out. Once everyone gets paid out. I'm usually down 5K or something like that?
Paul Rafelson: Probably more. Yeah. I mean, nowadays, like to get for court case involving anything like peace. I mean, you're starting is is 30 to 40k, right? That's most lawyers. Any lawyer who takes a retainer of like 10 K for a litigation for court case, or you're gonna be filing, actually going to court, not trying to settle, they're lying. Like that's misinterpreted. Cause you're gonna burn through that in 10 seconds.
Like you're not filing a complaint and all that stuff for less than 10. It just doesn't happen these days. And even if you do, it's gonna burn. But yeah, I mean when you don't have court as a remedy and you have to be creative, but so we have to come up with ways and we have to, well, our clients through, through this maze of e-commerce, understand that they don't, may not have the remedy that they want.
That they should have. Right. They should have that they should have that remedy, but they don't. It's too expensive. So how else do you, how else can you do it? So we have to work on, be strategic for those that do, or when we do those cases on behalf of our nonprofit, then we can potentially bring those cases.
They're hard though. Like I said, we've been fighting with California and we have a case at the foot of the Supreme Court just trying to get all about how, whether or not we can just get into federal court just to get in. Like we've already won state court. We want our court one court case at state court in Pennsylvania, but we cannot get into federal court.
We think this is a federal issue cause this is multi-state. Every state's taking this position, the Amazon sellers. Like that's wrong. So we're trying to just convince the courts like we have a basis for getting the federal courts, cause there's no law out there that says you can't get the federal court when you have a state tax issue.
You're supposed to get a state court. And we're like, well, but the state court won't hear us unless we pay an absurd amount of money. So what happens when the state court wants, when the state government wants you to pay millions right back taxes, the only way to get out of it is to pay those millions and then sue for refund.
And it's like, my constitutional rights were violated at the start of this thing. Why don't I get a right to say that? Well, Because the federal courts the Congress specifically excluded state local tax court cases from federal court. And there are some exceptions, and that's what we're trying to get in under. But they're not easy. Cause the judges in federal court hate state taxes.
They'd rather, they look at you like, you like just murdered like a family of five. Like when you bring a tax case in federal court, they look at you like you're worse than that guy. What I mean? Like, it's a horrible feeling when you bring a state tax case to federal court. You just feel like you just feel like they're the immune system and it is what it is. So that's what we keep contending with. That's what we keep having to deal with.
Online Merchant Guild
Alex Bond: So the other end of the spectrum then, if you're consistently Paul, trying to fix a scenario or treat a scenario, is to actually cure it. And part of your organization, you're essentially the executive director of what's called the Online Merchant Guild.
To my knowledge, that is an organization that is created to try to give online sellers a voice in legislation. So instead of trying to fix the problem, it's kind of curing the problem a little bit. Can you walk me through, is that accurate? Am I getting that wrong or can you gimme a little, little more information there?
Paul Rafelson: It was jokingly, I said my time in those big companies was great. I loved working for those huge companies. I love the work like balance, which is a word you're not supposed to say, but I mean, I had a great identify experience, right? Working with these companies. They pay well. You didn't have to work 24 7 like when you're in your own business.
But the issues that we were dealing with at the time were just too good to just walk away from. I wanted to be in front of these issues. They were important to me as a former e-commerce seller who knows the subject matter, who knows constitutional law, who teaches common law class, teaches state taxation class and constitutional law.
Like this is what was really important. So what I set out to do was sort of like build a law practice where like I can make money and support my life. But I could also spend time doing this volunteer work through the online.
Meaning we don't have a goal. Most of the time it's just like, Me just trying to get things done and I'm happy to do it. I don't take any money from members and have that use that money to pay me. Cause that's not appropriate.
We don't need it. And what we do with it is we basically go on, we take seller issues. So we challenge issues that we think are important. So when I say, we want a case in Pennsylvania, it's usually not my market that brought the case. So we have this platform where we can say, Hey, we represent Amazon sellers.
We have these members who sell on e-commerce or Amazon it tends to be more Amazon these days. Cause Amazon first. But we are an e-commerce organization. Amazon's just a subset of it. But we have these issues and we can go and we can say, look, yeah, we're gonna challenge this in court. We're gonna challenge this tax policy.
We're gonna challenge the price gouging laws like we were talking about earlier. We're gonna challenge any issue that's affecting small e-commerce sellers. We're gonna take it to court. We also use the platform to speak up against the antitrust investigation. So when Amazon was being invested, investigated by the antitrust subcommittee.
We were the number one cited, online Merchants Guild was one sided resource. We submitted all this documentation and, and stuff, and you go back and read it. You'll read the report from 2021, I believe you'll see our name all over it in the footnotes as, as being a cited resource in that I don't think anyone was cited more than us for what we did.
So we know, we look for ways. We can kind of insert ourselves into the narrative and things that are involving Amazon or e-commerce to advocate for the benefit of, of seller kind, which is not easy. Partially cause it's hard to get buy-in in the community. I was originally, when I started this thing wasn't told I wasn't responsible for buy-in, but the people that were responsible for buy-in kind got check it out a little bit, I'll be honest with you.
So we've never had massive buy-in that we had. Like, I love the program. I think so eCommerce. I mean, just the numbers involved, right? Proves we could be the most powerful coalition. We could have the biggest lobbying, lobbying organization in all of Congress, bigger than any of them. But it's just like pulling teeth to get people to see that and be a part of it.
And the funny thing is coming from big corporate, like, okay, I remember there was this issue with Chicago, I think wanted tax soda, right? And none of the sugar, none of the sugary beverage companies, Pepsi, Coke, Starbucks, Jamba Juice, none of them wanted that to happen. The second it was even announced that that was gonna happen, all these companies got together.
They came together, they hugged each other, held hands, sank, raised millions of dollars in a couple lifting the fight that hand the tax law, they called it tax campaign, right? Through court cases, through lobbying, they did it and they raised that money in a heartbeat. Here we we're going on four years.
We still cannot raise the money. We still cannot get the buy in. To do what we really, to really see our full potential. What we really need is we need those people who are the influencers in the community to kinda help, , see the point of this organization. I think that's hard though, cause a lot of the influencers don't know any better.
They don't understand what we do either. Cause they've never been corporate, they don't understand logging. But , to me, like my basic preference would be if we could have $30,000 a month to pay for lobbyists in Washington. Like why do we not have full-time lobbyists in Washington every day knocking on Congress's door talking about this, that, and the other.
Right. $30,000 a month in an industry of 80 billion is nothing. Right. Which is what the seller sold on. This is just Amazon, right? I even, the numbers is much bigger when you go outside Amazon, eBay. So a month, , earmarked for lobby, I mean, I should. But out of the sea, we just don't have the execution ability.
We just haven't been able to do it. And I don't know what the cure is for that. I just think it's, but meanwhile, we sit here, we end up just being victims all the time. So bad things happen at e-commerce. They don't get upset. They're upset that Amazon's mistreating them. Well, why do you think they're, you have no power, right?
Do you think it's hard to get power over? Amazon's not. It's very easy. Have to be organized. Amazon, no one Amazon's. What's Amazon afraid of? They're afraid of Congress. They're afraid. Afraid of being broken up. So what? It would be really great to have right now, a really well organized like congressional coalition slash lobbying effort.
That would be really good because Amazon's already spending a ton of money trying to, trying to lobby Congress that Amazon sellers are happy. But where are we? Where are the e-commerce sellers lobbying Congress about better tax policy? Like, cause the federal government could fix the state tax issues.
All the state tax laws that have been causing us, hell, like that could be fixed to the federal level. The Congress never acts. So that's what we should be doing and that's what the online skills should be. But we make do with what we have and we try to and we'll keep trying one day it either just takes off finally and people get it or.
It doesn't, I don't know. It's been six years, man. We wrote that first amicus brief in Wayfair six years ago. Had some really cool experiences and some cool wins, but it is one of those things money would really help. And again, I don't wanna dime with the money. I don't care. Just so we can do cool stuff with the community of e-commerce.
Alex Bond: No, but especially if it's being used productively in such a noble effort.
Paul Rafelson: And it is. And everything we do with public record.
Process of selling a business to a larger corporation
Alex Bond: So we've kind of talked about the inception , taxing and the other part of what's really important to businesses is making sure that they don't get taken advantage of in terms of when they're selling a business to these larger corporations. How do you help navigate that? What are some examples that companies should look out for when they're going through that process?
Paul Rafelson: Yeah, I mean, I think it's one of the most complicated transactions you'll ever do do when you're a small business, right? So our law firm is we're a launch, grow, exit, repeat style law firm.
Like we're looking at you from launch to the growth phase. You're gonna exit. And most of our clients exit what they wanna do. They wanna start it all over again, or they already have, they're already working on, while they're sling, they're already working on number two, right? Or. That's what we do.
And that's kind of who, what we're focused on serving. That cycle. When you're selling your business a lot of times your brokers might make it oversimplify it, the buyers might oversimplify cause they just want you to sign and go, but, but you can't. This is not like you're buying a house, a standard MLS contract.
This is really, these documents that they put in front of you are really, what's the word? They have a lot of screw power. Am I allowed to say it that way? And you have to sort of like, balance that out.
Well, hopefully we're working with you before you get to that point. In fact, we think we should be working with you before you even find a broker, cause that contract has to be negotiated.
But let's skip to the point where you get this letter of intent, this letter describing the transaction you're about to do, how it's gonna work, what your roles responsibilities are, and what their, what the buyer's roles, responsibilities are. You got this letter how due diligence is gonna work, and it's describing this transaction.
And it also talk about how much you're gonna get paid. So maybe it says you're gonna get paid four x times your earnings at closing and then the potential for another four X based on future payments. So, a couple things. One we always teach our clients like anything that's not being paid out to you like today, closing is like, has to be subject to sort of what call, like a valuation allowance. You can't value. You're not gonna get it.
And unless that number really big go back to the earlier part where we talked about court and justice. Like if somebody owes you 50 or grand, you're gonna not sue. And if you lose, you gotta fees. So usually for clients like. , it has to be a big number for them to go to court. But then again, we still say you're always better off because the way these contracts work in terms of risk, which we'll get into, you're always better off negotiating for more closing cash than you're for future payouts because the other thing we can't do is what if they don't have the money?
They don't have the money to pay you, then what are you gonna do, right? Like, I can't make money. Like you can win a court case against them and you can't make money grown fees, though they're still broke. , maybe you can try to claim your brand back, who knows? But those aren't easy things to do. So, but what really what we're here to do for you is we're here to help you negotiate your risk.
So if you think about what you've done in the letter of intent, you negotiate the price for your business. But if you look at the first draft of the document they sent you and they send you, most of the time it usually says something like this and I'm paraphrasing, but it'll usually say something like you're guaranteeing us the sure thing in business and that we're gonna be successful and make a lot of money.
And if for any reason we don't do anything other than make a lot of money, become really successful with your brand, you have to, you right. It doesn't say that in plain terms, but it does say that. And so it's our job to say, well, that's a little unreasonable, don't you think? I mean, this is a risk that you're taking. It's a risk my client taking.
So you've gotta divide that risk up appropriately, and there's a sort of market risk of what's appropriate, what should be, should there be a cap? Depending on certain issues, should there be a time limit? Right? I've seen documents where they've referenced a quirky Delaware law that most people dunno and it says something like statute limitations as the maximum statute limitations allowed Delaware law, blah, blah, blah, blah, blah.
Well, if you don't know, the Delaware law is, it's a 20 year statute of limitations. It's basically what it says. You can set it up for 20 years. You can be looking over your shoulder for 20 years that something somebody might come back you for your brand. For something you sold 20 years ago, so that's absurd.
So it's our job to help you negotiate that risk. It's what we call sort of a more market risk when you're exiting your business. And if you don't do that, we've had clients who've sold their business and literally like two months later they've been told they're gonna food and they didn't buy it back.
We've had clients who've been hit up for money. Not my clients, my clients typically understand, like they share our philosophy and they wanna be protected and they want us to work really hard to keep their risk management. And it's also disclosure, this is the other thing we do, people go this thing called due diligence. You upload a bunch of stuff, the data room. I love this. There's a lot of contracts.
So most of the contracts you signed will say something to the effect of anything that you uploaded to the data room, we get to pretend like we never saw. So if something that you told us in the data room turns out to bite us in the butt we can go to court and pretend that we never saw that thing you told us that.
What I'm saying? So basically they say it's not within the four corners of documents. So how do you get, how do you get it in the four corners? Well, you have to have your seller's lawyer. Basically we have to run due diligence on you, on the Inver and take all the stuff in your data room and stuff that they didn't even ask about.
We know more about it. We know more about your business than they probably do and put it onto exhibit and get negotiated about that. Well, it happened. I mean, and you have to negotiate. So then you have to negotiate some sort of indemnity to that issue. So, I mean, to say that this is by any means a sort of like boiler plate. I mean, I love that expression boiler. What does that mean? Still need a pilot?
That's what we do. I mean, we're here you're selling your business for millions of dollars, it's a small amount of money to have to pay for the help, but it's I strongly recommend it and I strongly recommend you work with a lawyer who knows eCom, especially Amazon, if you're doing Amazon, because it's like, there's Amazon specific issues such as, like the most basic one I deal with is like the Amazon sellers, is that they have to they have to have Amazon, they have to represent, which basically means they have to promise.
They have Amazon's permission to enter into this deal and transfer the account. Well, if anyone who knows Amazon and knows Amazon's term service knows that you do not get Amazon's permission ever to transfer the account, they're not gonna give it to you. And also knowing that that's how every deal works.
You transfer the Amazon account, how do you, if anything, were to happen to your Amazon account afterwards? The buyer would have a claim against you and say, you lied. You told us you had Amazon's permission, you didn't. Well, how do you handle that? Well, we have to handle permission. We don't have Amazon's permission, so don't thought you did.
And those little things protect you in the event of, well we dunno, right? Amazon has talked about cracking down on account transfers, so if that ever happens, you're protected. So that's why it's so important, in my opinion, to like have legal help. Andwe created this program called sellerbasics which is basically designed like at a hundred dollars a month.
You can have like a lawyer, you can contact me and a whole other team of lawyers and you can have just like three little conversations and, and account help if you need help, help with the ambulance account. And we've made it so cheap cause we're just trying to get people like, I dunno, I feel like the legal community has done a number.
Maybe we've traumatized people in the past with hourly rates and whatnot, but we're trying to make out for that. Just get people comfortable with lawyers again. Cause at the end of the day, building your business is about building a value, building a value. And last thing you wanna find out is something stupid.
Some stupid thing that you over you, you didn't see. And now you're now you, no value your business, right? They had no idea that that was out there. That's like the whole thing just falls apart. So those are sad moments.
Alex Bond: Well, and a lot of these CEOs and founders and owners are operating in 20 different directions that they don't think about certain things that you could be thinking about in that meantime?
Paul Rafelson: Exactly. But it just seems like a lot of these people teach these courses, like they don't value legal. Like they almost wanna say like I've seen like course traders. The first thing I'm gonna teach you my course is open up a Wyoming llc legal there and then they'll be like, see I just saved you $10,000 in legal fees cause you didn't have to pay a lawyer.
And I'm like, ok, that justifies your $10,000 course. But I'm like, but I don't know a lawyer in the right mind who charge 10,000 for an LLC in Wyoming. And it doesn't really help. I mean it doesn't really do the person you good like you do need, if you want an to protect you should talk to a lawyer.
And make sure your LLC is in the right state and make sure you get an operating agreement that works to protect you from the various threats out there. Not just in generic legalism schlock, right. That just doesn't work and call entity.
Alex Bond: In my personal opinion, a good lawyer is like insurance. It's something that you have in case something goes wrong, not something that you get once things are going wrong.
I feel like what you're saying is the latter is happening when really it should be the former where someone, a company retains counsel in perpetuity for when something goes awry instead of like, oh, great, this company's suing us, or this client is suing us and now we need to get a lawyer. And then their adversarial relationship with lawyers then turns around and bites 'em.
Paul Rafelson: Yeah, I think that's right. I mean I agree with you. Obviously it's sooner, a lot of legal works like that works like insurance. Like, we have our, I always tell our clients are into like the asset protection of setting up trusts and things like that.
More complicated structures, in case they get sued. You can't call us up after you got sued to do that. You gotta do it before. So, yeah, I mean, working with legal is like, you gotta work with a lawyer and learn what's what you need to do now. Not when you need it. Right. If you don't wanna find out, your LLC is garbage.
When you need your LLC, you wanna find out now when you don't need it so we can fix it. And working with a lawyer will do that. Now I do get it, but some lawyers look, they oversell. Like, I mean, I think I do a really good job of making sure, like I'm not gonna sell a client like a restructuring their whole entire life package if they're not making a lot of money.
Right? Like, somebody who sells hoverboards and makes 10 million a year probably needs to do some asset protection structuring for a lot of reasons. Right? But if you're reselling Nike product and you buy at the Nike store on an Amazon, and you do hundred grand a year in profit, I don't think you need, that's necessary.
So I mean, obviously I do see like, again, not to be critical of the legal. That's why word's not, and it's why we work really hard to be like, what's appropriate for this person right now versus, we can always revisit it later when the risk profile changes. But what does this person need right now?