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Merchants – Don’t eliminate your NY Affiliates.
While this is not legal advice, it is often helpful to look at the two possible outcomes regarding the NY State sales tax laws.
As many of you are aware, Amazon has filed suit in the State of New York to contest the State’s claim that Amazon has nexus in NY and thus is required to act as their sales tax collector on all sales to NY consumers.
There are two possible outcomes:
1. NY State will win, and the existance of an affiliate program will have been proven to create a nexus in NY State.
In my estimation, it will take other states about 5 minutes to enact similar laws.
How does this affect online retailers and their decisions… To remove all NY affiliates would simply be a temporary stop-gap. Delaying the technology and infrastructure needed to collect tax would put merchants at a competitive disadvantage to those merchants who took the task head on and began collecting NY Sales tax on June 1, 2008. Next would be Michigan, Illinois, California, etc… and the merchant would need to start building those in unless they were to also eliminate affiliates from those states.
2. The other possibility is that the court will rule in favour of Amazon and having affiliates in a given state will not indicate a nexus. In this case, if a merchant had already eliminated all NY affiliates – it will be nearly impossible to get that relationship back.
So – in summary… in both cases, Merchants are at a disadvantage if they eliminate NY affiliates.
It is imperative also that merchants understand the law completely. As taken directly from the law – this is the most important paragraph with regards to the Affiliate Marketing Industry.
“The cumulative gross receipts from sales by the seller to customers in New York State as a result of referrals to the seller by all of the seller’s resident representatives under the type of contract or agreement described above total more than $10,000 during the preceding four quarterly sales tax periods. (Sales tax quarterly periods end on the last day of February, May, August and November.)” Full text of law located here
Of particular note is that there must be $10,000 in gross sales to customers in NY State through the affiliate program who were referred by affiliates who reside in NY.
Merchants will need to cross-reference data from their affiliate network or internal program with their own sales data in order to figure out whether or not this threshold is met.
-Brian Littleton
-President/CEO ShareASale.com, Inc.
By Brian Littleton
Brian is the Founder and President of ShareASale - a 13 year old Chicago based software firm that helps connect online retailers with bloggers and webmasters. He can be found online at @brianlittleton and on brianlittleton.shareist.com Brian writes about internet marketing, College Football (CF Show), golf, hockey, social media, and cartoons!
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Brian,
Great tool below. I think your points are logical. Unfortunately, many merchants will feel they don’t have a choice, particularly because collecting the taxes can be so onerous.
If NY succeeds other states will probably adopt similar measures. But affiliates will probably simply get out-of-state mailing addresses.
I don’t imagine this will be successful at getting retailers to collect and remit sales taxes over the long run but it does have the potential to seriously harm our industry.
Another angle on this law. It’s actually the network that pays the affiliate (in most cases). It’s the network, not the merchant that sends the W-2. Can this new law only apply to the affiliate networks based in New York, like Linkshare? Essentially, merchantes pay the network, not the affiliate.
Jason,
There is language in the law that addresses service providers. From my understanding, the onus is still on the merchant.