Informed Consent – Back to Basics

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The Department of Health and Human Services’ Agency for Healthcare Research and Quality recently published notice of its intention to request that the Office of Management and Budget approve a proposed information collection project entitled “Improving Hospital Informed Consent with an Informed Consent Toolkit.” The Agency for Healthcare Research and Quality is concerned about the effectiveness of hospitals’ informed consent policies and processes. However, the issue of informed consent also affects other health care providers.

Whether you operate a hospital, long term care facility, physician practice, or other type of health care facility, you should be asking yourself the following questions about informed consent:

  • When is the last time you reviewed and updated your informed consent forms?
  • Does the informed consent form advise the patient of the risks and benefits of the proposed treatments or procedures?
  • Does the informed consent form advise the patient of alternative treatments and the risks and benefits of the alternative treatments?
  • Is the informed consent form easy to understand?
  • If your patient population has limited English proficiency, do you provide informed consent forms in other languages representative of your patient population or do you provide interpreter services?
  • Do you regularly review and update your informed consent forms to reflect new alternative treatments or newly discovered risks and/or benefits of existing treatments?
  • If you operate a long term care facility, do you have an informed consent form to obtain written consent from a resident who is competent prior to administering psychotropic medication?
  • Have you provided the patient with the opportunity to ask questions and have you adequately answered those questions?
  • Are your informed consent forms written in a way that minimizes liability?
  • Is the patient legally competent? If not, is the person signing the informed consent form the patient’s legally authorized representative?

If you have any questions about informed consent or would like assistance in updating your informed consent forms, please contact Rochelle H. Zapol, a partner in Prince Lobel’s Health Care Practice Group and the author of this alert. You can reach Rochelle at 617 456 8036 or rzapol@PrinceLobel.com.

Zapol

Asya Calixto Answers NENPA’s Media Law Hotline “Question of the Week” on Public Records

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Question: I am reporting on a Massachusetts town’s search for a candidate to fill the position of Town Counsel. The town appointed a committee to screen candidates for the position, and the committee announced that it will meet in a closed session to review and discuss the applications. Can they do this, or must their meeting be open to the public?

Answer: Massachusetts law provides that the meeting of a public body to discuss candidates for a job position is, like all meetings of public bodies, presumptively open to the public. If a public body tasks a subcommittee with screening the candidates, however, the law permits the subcommittee, under certain limited circumstances, to meet in executive session. (If a public body chooses to review applications itself, without appointing a subcommittee, it must do so in a public session.) A subcommittee must be comprised of less than a quorum of the public body, and it may only meet in private if the following two conditions are met: (1) the subcommittee’s meeting is a “preliminary screening” and (2) meeting in an open session would have a detrimental effect on obtaining qualified applicants for the position.

To read Asya’s complete answer, click here.

Asya Calixto

 

 

 

 

If you have questions about public records, please contact Asya Calixto, a lawyer in Prince Lobel’s Media and First Amendment Law Practice Group and the author of this alert, or Rob Bertsche, chair of Prince Lobel’s Media and First Amendment Law Practice Group. You can reach Asya at 617 456 8110 or acalixto@PrinceLobel.com, and Rob at 617 456 8018 or rbertsche@PrinceLobel.com.

The Media Law Hotline is a service offered free of charge to NENPA members in good standing, and is staffed by the media and intellectual property lawyers at Prince Lobel Tye LLP. You can reach the NENPA Hotline at 1-888-428-7490 or by email at media@princelobel.com.

Allianz’s Risk Barometer On Business Risks 2014: A Good Starting Point For Risk Managers and Insurers.

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For the past several years, global insurer, Allianz has issued an annual business “risk barometer” consisting of survey results ranking business risks faced by midsize companies and larger industrial companies. This year’s results are available here. And according to the survey, the top 10 global business risks are:

  1. Business interruption, supply chain risk
  2. Natural catastrophes
  3. Fire, explosion
  4. Changes in legislation and regulation
  5. Market stagnation or decline
  6. Loss of reputation or brand value
  7. Intensified competition
  8. Cybercrime, IT failures, espionage
  9. Theft, fraud, corruption
  10. Quality deficiencies, serial defects

The risks identified are hardly surprising, and some may question the validity of the survey of Allianz employees and consultants regarding risks facing their clients as an accurate predictor of business sentiment. Nevertheless, the barometer provides valuable insights for risk managers and specialty insurers – especially if one digs a little deeper into the data provided.

For example, cybercrime made it to the list for the first time this year, and that was before the recent data breaches reported by Target and others. The 2014 ranking of loss of reputation or brand value, which would seem to be related to concerns over cybercrime, jumped nearly 50% and was ranked as a top three risk by 21% of respondents for 2014 vs. 14% for 2013.

Risk managers that fail to take measures to identify, mitigate and/or efficiently transfer such risks, will have a hard time explaining their failures when the risk perception by their peers has been publicly acknowledged and documented.  Specialty insurers, already enjoying strong growth for insurance products addressing these risks, should also take notice of these developments.  Indeed, the survey results may imply a reverse in a trend observed by some. Click here for an article by IDG about the rise in data breaches and the resulting interest in cyberinsurance.

As is frequently the case, it will be important for insurers and risk managers to contemplate and converge on whether, and to what extent, these risks involve opportunities for efficient risk transfers vs. uninsurable core business risks. While insuring the value of an entity’s reputation from fortuitous (from the insured’s perspective) events presents a number of difficulties for insurers (e.g. valuation uncertainties, insurability of core business risks), the risk that a particular insured may suffer a defined event that warrants intervention by a crisis consultant to address reputational damage at the insurer’s expense may be eminently insurable.

For property and casualty insurers, the barometer may suggest that their core products (first party property insurance and CGL insurance) are becoming less relevant to their insured’s perception of business risks.  While many property insurers offer generic business interruption coverage (replacing business income when the Insured’s property suffers an insured physical loss), sophisticated supply chain interruption insurance (contingent business interruption) is difficult to underwrite and price and is far less available, notwithstanding the increasing importance of this risk to insureds as noted here.

In addition, while changes to the standard CGL policy over time have diminished coverage for reputational and soft IP risks (trademark and copyright) available in connection with the Personal  And Advertising Injury coverage available under the CGL Policy, the perception of the importance of such risks to insureds appears to have grown.

If you have questions, please contact Joseph S. Sano, a partner in Prince Lobel’s Insurance and Reinsurance Practice. You can reach Joe at 617 456 8000 or jsano@PrinceLobel.com.

Joseph S. Sano

Joseph S. Sano

Hiring Minors for Photo Shoots Isn’t Child’s Play

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Does your magazine, advertising agency, or film or television production company work with child models in photo shoots or videography? If so, have you budgeted time for snack and study breaks? Have you considered whether you need to arrange for nurses to be present?

Those are among the questions you must now ask, as the result of a recent change to New York law that brings models under the age of 18 under the protection of the state Department of Labor’s child labor laws – and New York’s new approach is part of a nationwide trend.  Most states have adopted laws regulating the employment of child performers, and many of the laws apply to the use of child models and child actors in photo shoots.

For example, Pennsylvania’s law governing child performers, enacted in 2012, explicitly applies to child models.  It requires that those conducting the photo shoot obtain third-party certification that the child’s work will not interfere with her academic studies, and that the child model obtain a work permit.  Massachusetts imposes strict age and hour restrictions for work by minors, and in many cases requires court approval before children may be exhibited in performances on radio, TV, or movies.

New York’s new law, DOL § 186, took effect November 22, 2013, and applies to a range of child performers.  It imposes additional paperwork requirements and, in some cases, compels magazines and others employing child performers to provide special accommodations. Even if your company is not based in New York, some of New York’s requirements will apply if you hire models that live in New York or if your shoot takes place there.

Employers that do not comply with these requirements may face fines of up to $1,000 for their first violation, $2,000 for their second violation, and $3,000 for their third violation. After a third violation, employers may be barred from employing child models altogether – not to mention the negative publicity of allegedly mistreating children.

If you engage in photo shoots with minors in New York, we suggest you plan ahead, staff the photo shoot appropriately, and be sure to allow enough time and physical space for the project.

Plan ahead: To help keep your company out of trouble, make sure that your paperwork is in order.  Here are five steps you should take in advance of a scheduled shoot in New York in order to comply with the updated law.

  1. Obtain a Certificate of Eligibility. You must obtain a Certificate of Eligibility before employing a child model. To do so, visit the New York State Department of Labor website to complete an Application for a Certificate of Eligibility to Employ Child Performers. Certificates are good for three years, and must be renewed no later than 30 days prior to expiration.
  2. Request to see the model’s Child Performer Permit. If you employ a child model for an individual performance (not as part of a background scene), you should ensure that the child holds a Child Performer Permit. To obtain such a permit, the child has to provide: (a) her school’s certification of her satisfactory academic performance, (b) her physician’s certification of her physical fitness, and (c) trust account information (see below).  Because the certifications and trust information may take some time to gather, it’s a good idea to start the process early, especially if you are dealing with a child model that is new to the business.
  3. Obtain an Emergency Contact and Permission Form. Prior to the shoot, you must also obtain emergency contact information from a parent or guardian, an authorization for emergency medical treatment, and the parent’s permission for the child’s performance.
  4. Make sure a financial trust has been set up.  A child model’s parent or guardian must set up a trust account for the child, and ensure that at least 15 percent of the child model’s earnings go into that account. Check with the child’s parent or guardian to verify that the trust has been set up and to make sure you have the information necessary to transfer payments into that account.
  5. File a Notice of Use.  At least two days before the shoot, you must file a Notice of Use with the Department of Labor. The notice is a one-page document, and requires basic contact information for your company and the child model.

Staff appropriately.  Make sure to arrange for a “responsible person” and a pediatric nurse to be present at the shoot, if necessary. 

  1. Designate a responsible person. You must make sure that someone 18 or over is present at the shoot to supervise the child model. This person can be the child’s parent or guardian, or it can be another adult.  The required ratio of responsible persons to child models depends on the ages of the children.
  2. Determine whether you need to hire a nurse.  If you employ a child model who is less than six months old, you must have a registered nurse with significant pediatric experience at the shoot. The required ratio of nurses to child models depends on the ages of the children.

Budget time and designate a space for breaks.  Familiarize yourself with the restrictions on the number of hours the child model may work, and the requirements for breaks. Keep in mind the following as you schedule the shoot:

  1. Limit Hours. The number of total hours, and of consecutive hours, that child models may work depends on their age and, if they are old enough to attend school, whether school is in session. For example, children between six and eight years of age may not spend more than eight hours on set.  They may not begin before 5 a.m., and may not stay later than 10 p.m. on school nights and 12:30 a.m. on other nights. Of the eight hours they may spend on set, children in this age group may not work for more than a total of four hours. For more information about restrictions on hours, see the DOL’s Child Performer Permitted Working Hours worksheet.
  2. Provide Food and Rest. You must allow for snack time and at least ten minutes of rest for every four hours a child model works. You must also provide a safe, clean, secure, and age-appropriate space for a child model to relax and eat.
  3. Accommodate Education. If you employ a child model who is required to be enrolled in school, you must allow time and space for studying and, under some circumstances, you must also provide a teacher for the child.

If you have questions about complying with the child performer rules in your state, please contact Asya Calixto, a lawyer in Prince Lobel’s Media Law Practice Group and the author of this alert, or Rob Bertsche, chair of Prince Lobel’s Media Law Practice Group. You can reach Asya at 617 456 8110 or acalixto@PrinceLobel.com, and Rob at 617 456 8018 or rbertsche@PrinceLobel.com.

Top 10 Considerations for Health Care Providers Under Massachusetts Medical Marijuana Law

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What recent statute and regulations describe actions that are legal under state law but illegal under federal law? The Medical marijuana statute and regulations. While it is now legal to use marijuana for medical purposes here in Massachusetts, it remains illegal under the Federal Controlled Substances Act and has not been approved by the Food and Drug Administration.

Health care providers seeking to comply with the new Massachusetts medical marijuana statute and its related Massachusetts Department of Public Health (MDPH) regulations will find that these contradictory state and federal laws raise some significant issues, such as:

  1. Will you “certify” in writing that it is appropriate for a patient to use marijuana for medical use if the patient’s medical conditions meet the MDPH regulatory requirements? The word “certification” as opposed to “prescription” is used in both the statute and the MDPH regulations.
  2. Have you developed policies and procedures for certifying or administering marijuana for medical use? Even if you don’t intend to issue such certifications or administer marijuana for medical use, what if patients who have been certified as appropriate to use marijuana are admitted to your health care facility?
  3. What is the potential liability for physicians who certify marijuana for medical use and for health care providers that administer it?
  4. How will the United States Attorney’s Office in Massachusetts follow the guidance regarding marijuana enforcement set forth in the so-called Cole Memorandum issued by the United States Department of Justice, Deputy Attorney General on August 29, 2013? The Cole Memorandum says that, where states have laws legalizing marijuana-related conduct and have regulatory systems in place to control compliance with those laws, the federal government will defer to state and local law enforcement and regulatory agencies to enforce those laws.
  5. Will physicians who certify marijuana for medical use retain their federal Drug Enforcement Administration (DEA) registrations?
  6. Will health insurers cover the cost of marijuana as a prescription drug when certified for medical use? Will they cover the cost of the clinical exam a physician is required to perform before certifying marijuana for medical use? Or the cost for a health care provider to administer the marijuana to a patient?
  7. Will Medicare or Medicaid cover the cost of marijuana for medical use?
  8. Will the Medicare/Medicaid certification status be at risk for providers who prescribe and administer medical marijuana?
  9. Will federal funding of community health centers be adversely affected if they certify and/or administer marijuana for medical use?
  10. Will federal grants and federal loans to health care providers be adversely affected if the providers certify and/or administer marijuana for medical use?

MDPH is now in the process of selecting the finalists who will receive one (or more) of the 35 medical marijuana dispensary licenses that will be available in year one. In the meantime, health care providers and administrators should consider the potential impact of these new regulations.

If you have any questions or concerns about how the medical marijuana regulations might impact you or your health care facility, please contact Rochelle H. Zapol, a partner in Prince Lobel’s Health Care Practice Group and the author of this alert. You can reach Rochelle at 617 456 8036 or rzapol@PrinceLobel.com.

SEC Finally Issues Crowdfunding Proposal

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Late last month, the Securities and Exchange Commission (SEC) finally released its proposals setting out the crowdfunding framework as required by Title III of the Jumpstart Our Business Startups Act 2012 (JOBS Act). The rules, once finalized, will become known as “Regulation Crowdfunding,” and are intended to provide another avenue to entrepreneurs and startups looking to raise capital outside of the more heavily regulated securities framework. The proposals attempt to bring crowdfunding under the securities law umbrella by establishing some protections for both prospective investors and companies looking for investment.

The JOBS Act established a new Section 4(a)(6) that exempts certain crowdfunding transactions from registration under the Securities Act of 1933. The three main prongs to qualifying for the exemption are:

  1. The amount raised by the company through crowdfunding offerings must not exceed a maximum aggregate amount of $1 million (subject to periodic inflation adjustments) in any 12-month period. Funds raised under the Section 506 “safe harbor” exemption of the 1933 Act, or through methods that do not involve the sale of securities (e.g. loans or gifts from family members), would not be included in any calculation. An issuer must comply with certain disclosure requirements regarding its business and operations, as well as the terms of the offer, and other material facts that an investor would need to know. Securities sold in a crowdfunding transaction would be subject to a one-year transfer restriction following the sale.
  2. From the investor perspective, the aggregate amount of securities sold to any investor through a crowdfunding transaction, over a 12-month period, cannot exceed the greater of: (i) $2,000 or 5% of the investor’s annual income or net worth, if both annual income and net worth are less than $100,000, or (ii) 10% of the investor’s annual income or net worth, whichever is greater, if annual income or net worth is equal to or greater than $100,000. During a 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding transactions.
  3. All exempt crowdfunding offerings must be conducted through an SEC-registered intermediary, either a broker-dealer or the newly-designated “funding portal” entity.  The funding portal would also be regulated by the Financial Industry Regulatory Authority, which proposed its own rules for comment on the same day the SEC released its proposals. As part of the crowdfunding offering, the intermediary will have to meet specific disclosure requirements about the company seeking investment, the risks of crowdfunding, and take other steps to protect investors.  Funding portals would be prohibited from offering investment advice or making recommendations, soliciting purchases, sales or offers to buy securities offered on its website or holding, possessing or handling investor funds or securities.

The SEC is currently seeking comment on the proposed rules for a 90-day period after their publication in the Federal Register.

For any information on the issues raised above, or about crowdfunding in general, please contact Darren L. Braham, an associate in Prince Lobel’s Corporate Practice Group. You can reach Darren at 617 456 8014 or dbraham@PrinceLobel.com.

Rhyme and Reason Rap for Health Care Providers

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  1. Whether a MAC or RAC review, documentation is key when it comes to medical necessity.
  2. If you are a hospice provider, make sure you comply – have a physician certify the patient is expected to die.
  3. Follow a care plan to prevent accidents of residents or you could be in jeopardy and subject to a penalty
  4. If a resident receives undergarments bought from a store, it is the skilled nursing facility’s responsibility to check for proper size and fit, to prevent the resident from getting a pressure sore.
  5. In Medicare billing for a hospital stay, be sure to note if it is an inpatient or outpatient day.
  6. Avoiding a HIPAA breach is within reach, when  a health care provider follows HIPAA policies and procedures consistently.
  7. If you have received a Medicare overpayment and hardship is a factor, then apply for an extended payment plan by contacting your Medicare administrative contractor.
  8. Hospitals report quality measures to CMS, to avoid being paid even less.
  9. If you are a physician practice and bill Medicare as a provider based entity, make sure you meet the regulatory requirements to avoid a penalty.
  10. Post-acute providers – what will be their fate? Will they be paid based on a bundle or a site neutral rate?

If you would like to learn more about health care regulatory and administrative law, as well as HIPAA rules and regulations, please contact Rochelle H. Zapol, a partner in Prince Lobel’s Health Care Practice Group and author of this post. You can reach Rochelle at 617 456 8036 or rzapol@PrinceLobel.com.

Massachusetts Repeals Controversial “Tech Tax”

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Updated to include DOR guidelines:

On Friday, September 27th, Gov. Deval Patrick signed the repeal of the short-lived sales and use tax on certain Computer and Software Services following  near unanimous votes of in both the state House and Senate to withdraw the controversial legislation.

The tax became effective July 31, 2013, and since enactment had been criticized broadly by lawmakers, lobbyists, businesses, and the tech community at large.

According to MA Department of Revenue records, over $700,000 has already been paid by vendors responsible for collecting from customers liable for the tax before its repeal.  According to DOR guidance in Technical Information Release (TIR) 13-17:

Vendors that Have Collected but Not Remitted Tax:  Vendors that have collected but not remitted tax on software and computer services described in TIR 13-10 must make reasonable efforts to return that tax to the retail customers from whom the tax was collected.

Vendors that Have Filed Returns and Remitted Tax:  Vendors that have collected and remitted tax on software and computer services described in TIR 13-10 must electronically file abatement applications no later than December 31, 2013

Other than the shortened statute of limitations provided in St. 2013, c. 95, for filing the abatement application, all other provisions of G.L. c. 62C, § 37 and 830 CMR 62C.37.1, governing abatement applications will apply, including the need to provide supporting documentation if requested by the Department.  No actual refund will be made until the vendor establishes that the tax has been repaid or credited to the retail customer. See 830 CMR 62C.37.1(6)(b).

Vendors that Have Filed Returns but Not Remitted Tax:  Vendors that have collected tax on software and computer services described in TIR 13-10, filed a return, but not remitted the tax shown due on the return to DOR must (1) make reasonable efforts to return the tax to the retail customers from whom the tax was collected and (2) electronically file abatement applications no later than December 31, 2013 in order to eliminate the self-assessment of tax.

Other than the shortened statute of limitations provided in St. 2013, c. 95, for filing the abatement application, all other provisions of G.L. c. 62C, § 37 and 830 CMR 62C.37.1, governing abatement applications will apply, including the need to provide supporting documentation if requested by the Department.  If a taxpayer has filed a return showing tax due and fails to file for an abatement, billing and collection activity may result.

While we hope for all refunds to be returned promptly, there will inevitably be a number of disputes between vendors and customers concerning the refunds.

If you have any questions about the tech tax, or any corporate law question or concern, please contact John F. Bradley, II  Serge Bechade or Darren Braham. You can reach John at 617 456 8076 or jbradley@PrinceLobel.com, Serge at 617 456 8016 or sbechade@PrinceLobel.com, and Darren at 617 456 8014 or dbraham@PrinceLobel.com.

Massachusetts Legislature Debates Shield Bill for Reporters

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BOSTON, Wed., Sept. 25, 2013 – I attended this afternoon’s spirited hearing at the State House on the proposed Massachusetts shield bill, before the Legislature’s Joint Committee on the Judiciary.  The bill is titled the “Free Flow of Information Act,” H.1553, described as “An Act providing against compelled disclosure of certain information by the news media.”  Here’s a quick account of the proceedings.

Bottom line: Passage is far from assured, but the bill got its most thorough airing in years.  Longtime Boston news anchor and reporter Susan Wornick spoke passionately in favor of the bill, backed up by three media lawyers (including my partner, media lawyer Jeffrey J. Pyle) and Rep. Josh S. Cutler (D-Duxbury), one of the bill’s sponsors.  The Committee’s House Vice Chair, Rep. Christopher M. Markey (D-Dartmouth), was most outspoken in opposition.

Wornick, of WCVB-TV Channel 5, recounted her ordeal of being almost jailed in the mid-1980s for refusing to reveal her confidential source to police and a grand jury investigating alleged corruption by Revere police.  “I made this promise because this man had important information.  Without his information, I could not have told the story, and law enforcement could not have done their jobs.”

“I was terrified,” Wornick recalled, but she said she received widespread public support for her courage in protecting her source.  “People were infuriated that I was being harassed and demonized by law enforcement because I wouldn’t break my promise.”  Ultimately the source identified himself in order to save Wornick from jail time.  It was big news at the time; she received a standing ovation from a packed Boston Garden when she was introduced to the crowd at a Celtics game.

“We need a shield law in Massachusetts so that journalists can do their jobs,” she said. “Anonymous sources are crucial” to journalists – “we all know that.”

Media lawyer Jonathan M. Albano followed.  When he started working in this legal area in 1982, the most recent case on the subject was In re Roche, two years earlier, in which the Supreme Judicial Court noted that it might be beneficial if Massachusetts law provided reporters “more clearly defined protection against intrusive discovery” than existed under the common law balancing test then (and now) in force.  With clearer standards in place, “news reporters and sources might be able to base their behavior on better defined expectations, thus encouraging informed expression,” the court wrote then.

“It has been 32 years since that case and there are still no definite rules in place to guide reporters,” said Albano, managing partner of Bingham McCutchen’s Boston office.  “Today, whether a source will be protected, and whether a reporter will be required to testify about that source, depends on which judge you draw,” and that judge’s exercise of her or his discretion, he said.

Prince Lobel partner Jeffrey J. Pyle, appearing on behalf of the New England Newspaper and Press Association (with 230 Massachusetts daily and weekly newspaper members), then described the provisions of the proposed shield law.  “The bill provides much-needed clarity that would protect the future Susan Wornicks of the world,” he told the filled hearing room.

As Jeff explained, the proposed law would apply to “covered persons,” those working for “news media” and who prepared the information at issue in that capacity.   “News media,” in turn, is defined to include not only mainstream and student media but also “any entity that is in the regular business of gathering and disseminating news or information to the public by any means….”

The bill offers a near- absolute privilege as to disclosure of information identifying any news source (whether confidential or not), subject only to an exception where necessary “to prevent imminent and actual harm to public security from acts of terrorism,” in which case disclosure may be compelled if disclosure of the source’s identify “would prevent such harm” and if “the harm sought to be redressed by requiring disclosure clearly outweighs the public interest in protecting the free flow of information.”

The bill offers a qualified privilege as to unpublished information, the disclosure of which may be compelled only if a court finds, after notice and hearing, that there is “clear and convincing evidence” establishing that (1) the information is “critical and necessary to the resolution of a significant legal issue” before a governmental entity, (2) the information “could not be obtained by any alternative means,” and (3) “there is an overriding public interest in the disclosure.”

Jeff reminded the committee of Providence television reporter Jim Taricani’s four months of home confinement in Rhode Island for defying a court order to reveal a source;  James Risen’s ongoing battle to protect his source for national security secrets published in his 2006 book about the CIA; and Fox News reporter Jana Winter’s battle to protect a confidential source for her story about the notebook that James Holmes sent to his psychiatrist, previewing the shooting spree that resulted in the death of 12 moviegoers in Aurora, Colorado.  “In the absence of a shield law,” he said, “Massachusetts reporters face a real and imminent threat of going to jail” simply for doing their jobs.

Speaking for the Massachusetts Newspaper Publishers Association, attorney Peter J. Caruso, Sr. told  legislators that the bill offered them the opportunity to provide courts, prosecutors, and litigants with “direction and clarity” as to the information that can be obtained from reporters.

State Rep. Josh Cutler, himself a former third-generation newspaper editor, assured his fellow legislators about what the proposed law is not:  “It is not about protecting journalists – it’s about protecting journalism,” he said. It’s not the creation of a new evidentiary privilege, but rather the codification of an existing common law privilege.  It’s not a “roadblock” to district attorneys, but rather “a road map setting forth the rules.”  It’s “not a new, unproven legal theory,” but rather a piece of legislation already in place, to a greater or lesser extent, in 40 states.  And it’s “not about helping media conglomerates,” but rather about “protecting the little guy,” including the small-town newspapers for whom even the “mere threat of a subpoena can have a chilling effect.”

When the floor was opened to questions, State Rep. Christopher M. Markey, who worked for 15 years as a prosecutor in the Bristol County District Attorney’s office, vigorously challenged the shield law advocates.  He objected that the proposed law would deprive prosecutors of an important investigative and prosecutorial tool.  He also lamented that as to identification of sources, the law would provide an undifferentiated privilege for reporters, the applicability of which would not vary based on the level of public importance of the issue about which information is sought.  Markey said he believed the law would shift control of criminal investigations from prosecutors to journalists: “You’re putting the burden on government to show there are no alternatives” before seeking testimony from a reporter, such that a “journalist who hasn’t taken an oath is now the only person who has that knowledge” about certain criminal activity.

Albano disagreed, reminding Markey, “The journalist does not decide, the judge decides.”  Markey retorted that the “clear and convincing evidence standard” to be met by those seeking a reporter’s testimony would prove a difficult hurdle to surmount.  He ended with an emotional appeal, saying he is concerned about the law’s impact on “a 39-year-old mother who has a 19-year-old son who has been shot, and who is going to a wake that night, “and who wants the police to do all they can to find her son’s killer.  “You’re telling the police, ‘Go to everyone else, but don’t go to [the reporter]. “

Few of the other Committee members spoke.  State Rep. Sheila C. Harrington (R.-Groton) asked a few clarifying questions, but the committee co-chairs, Sen. Katherine M. Clark (D.-Melrose) and Rep. Eugene L. O’Flaherty (D.-Chelsea), did not offer their views on the bill. As the hearing wound down, State Sen. Richard J. Ross (R.-Wrentham) spoke directly to news anchor Wornick and saluted her for her battle to fight for her source 30 years ago.  “You went through hell,” he told her.

Robert A. BertscheIf you have questions, please contact Robert A. Bertsche, a partner in Prince Lobel’s Media Practice and author of this blog. You can reach Rob at 617 456 8018 or rbertsche@PrinceLobel.com.

Copyright (c) 2013 by Robert A. Bertsche, Prince Lobel Tye LLP. This work is made available under the terms of the Creative Commons Attribution-ShareAlike 3.0 license, http://creativecommons.org/licenses/by-sa/3.0/

Massachusetts DOR Provides Additional Information in Effort to Provide Clarity to Controversial Sales and Use Tax on Certain Computer Services

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Businesses in Massachusetts that use computer software or provide computer services are generally aware of the expansion of the Massachusetts sales and use tax to certain computer software and services, and of the controversy it has generated.  Since its revision and the widespread fierce criticism that arose, the Massachusetts Department of Revenue (DOR) has made repeated attempts to clarify the expansion of tax.

The new legislation, which took effect on July 31, 2013, requires the 6.25% sales and use tax to be applied to:

  1. Computer system design services, defined as: “the planning, consulting or designing of computer systems that integrate computer hardware, software or communication technologies,” and
  2. Software design services, defined as: “the modification, integration, enhancement, installation or configuration of standardized software.”

Initially, the DOR issued Technical Information Release 13-10 to provide guidance on the expansion of the tax. However, the Release did not address many concerns of software purchasers and service providers and there remained much confusion over the application of the new law.  Subsequently, the DOR released a series of frequently asked questions (FAQs) and their responses to provide further guidance and fact-specific advice.  Most recently, the DOR has also released Working Draft TIR 13-XX: Further Guidance Regarding the Scope of Sales and Use Tax on Computer and Software Services.  The accompanying commentary to the draft TIR states that once adopted, it will supersede any previously issued FAQs that conflict with it.

A review of the FAQs reveals the following:

The DOR’s FAQs allow a business to draw a “bright line” test of taxability with respect to the “software design services” portion of the tax based on whether services are provided to modify or adjust “pre-written software” (or “off-the-shelf” or “canned” software) and “custom software.”  However, this bright line test may be of little value as it is likely a small number of taxpayers who will have only custom software.  In all likelihood, most taxpayers will use or interface with pre-written software.  The DOR’s distinctions between “custom software” and “pre-written software” mean more for identifying what is NEWLY taxable, rather than what is taxable.  Sales or licenses of software (custom or pre-written) have been taxable for years (see 830 CMR 64H.1).  Only custom software that is not sold or licensed (e.g., developed on an hourly basis for the customer), is not taxable (FAQ 36).

What is taxable?  The new tax on computer/software services has two components, which are being treated by the DOR as “distinct and having a different scope,” but clearly overlap.  The first relates to the modification, integration, enhancement, installation, or configuration of standardized/prewritten software and the second relates to computer system design services.

Examples of taxable modifications include the installation or update of pre-written software, the creation of a local area network (LAN) with the installation of an operating system, the set- up and implementation of a new server system sold by a third party, and the installation of firewalls with continued monitoring.

Examples of taxable services include, the consulting, customization, or design services related to modification of pre-written software, the design of a server system, creation of macros or plug-ins that operate in conjunction with pre-written software, and the design of a website using pre-written software.

What is not taxable? According to the Release, the new tax won’t apply to personal or professional services that do not themselves constitute computer services, and that are not directly related to a particular systems integration project involving the sale of computer hardware or pre-written software.  Examples of non-taxable services noted in the Release include: (a) consulting and evaluation services used to identify deficiencies and needs for existing computer systems, (b) services that prepare a business to use modified software, such as training or support, (c) website hosting, (d) data storage and cloud-based disaster recovery services, and (d) data conversion. It is important to note, however, that none of these examples require any use of the software or hardware (other than perhaps the disaster recovery services, which may then become taxable).

What is not yet known: 

The FAQs leave some open questions, such as:

  • FAQ 10 overtly acknowledges that the DOR has not yet determined how website design services are to be treated.
  • FAQ 15 acknowledges that a vendor does not need to collect the tax on design or consulting services that “do not result in a sale of a computer system that integrates computer hardware, software or communication technologies.” It is unclear, however, what the vendor’s obligation to collect the tax will be if at a later point (even the next tax year) the buyer purchases the system from that vendor.  The draft TIR indicates that the sale of taxable pre-written software does not need to occur at the same time or from the same vendor in order for the services to be taxable.  Will the designer have to collect the tax at the time of the sale of the system on the cost of the system and the design services previously rendered or partly upon the provision of services?  Even if the vendor fails to properly collect the tax at either the time the services were rendered or at the time of the sale of the system, the purchaser would be required to pay the use tax on both the design services and the system purchase at the later time of the system purchase as the design services were provided with regards to the system.
  • Another conundrum is how to bill for a combination of services.  FAQ 39 lists a series of activities typically involved in the introduction of new software into a business, and identifies which are taxable (the sale of the software and the installation) and which are non-taxable (training, data conversion, editing reports or queries that do not require altering the pre-written code).The requirement is that the charges for the non-taxable services must be “separately stated, reasonably allocated charges.”  However, while separately stating the charges may reduce the taxes, it may lead to a missed opportunity to avoid them altogether:  FAQ 45 posits a situation where a vendor is integrating a third-party’s software into the customer’s software and notes that the exception where taxable services are bundled with nontaxable services, and the value of the taxable services is inconsequential within the meaning of 830 CMR 64H.1.1, that is, valued as less than 10% of the total sale, the services will not be taxed if (1) the value is determined in good faith and (2) the service provider is not the vendor of the taxable prewritten software or product being integrated into the customer’s software.   As a result, it may be advisable to only separately state the charges where the taxable services exceed 10% of the total invoice.

Next Steps.  While the FAQs are not “official” public written statements of the DOR, the positions taken are unlikely to be reversed or altered significantly. However, until the bill is amended or further official clarification is provided, caution should be taken. Vendors and purchasers should review their service contracts to ensure that they adequately specify the services being provided, which of those services will be taxed, and the amount of tax that the vendor is obligated to collect. To alleviate the tax burden, vendors should determine if their contract fees can be more heavily weighted toward non-taxable services.

To determine whether you, as a vendor or a purchaser, are impacted by the new sales and use tax, and what you can do to mitigate your risks, please contact the authors of this alert: John F. Bradley, Darren Braham and Serge Béchade. You can reach John at 617 456 8076 or jbradley@princelobel.com, Darren at 617 456 8014 or dbraham@PrinceLobel.com, and Serge at 617 456 8016 or sbechade@PrinceLobel.com.

John Bradley, Serge Bechade, Darren Braham

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