New York Collecting Sales Tax from Affiliates?

A serious post concerning the possibility of affiliates sales tax collection for affiliates based out of New York recently went up (April 17th 2008) on the internetretailer.com website. Due to the downtrodden economy Gov. Eliot Spitzer of New York revived a plan to enhance New York’s tax revenue. Much of the buzz online considered that once Mr. Spitzer was out of the scene that this plan would eventually die down and fall to the way side. However, Gov. David Paterson is expected to sign the budget bill, making it effective June 1, according to the state budget office.

The bill which is expected to be passed June 1 is an effort to raise $50 million in tax revenue from online retailers; the fear here is that other states might also consider increasing internet sales tax collections to extend to affiliates collecting sales via their online sites and or properties within their respective states.

“The provisions would amend a sales and use tax law on the books since 1965. That law requires New York state residents who purchase items outside of the state to pay New York a “use” or sales tax if they were not charged sales tax in the state of purchase. Following similar procedures in other states that charge sales tax, the law also requires out-of-state retailers to collect and remit sales tax on products sold to New York residents if the retailers maintain a physical presence, or nexus, in the state.” (internetretailer.com)

“New provisions proposed for a New York State sales tax law, if signed by the governor, would require online retailers based outside of the state to collect and remit sales tax on customer orders received through affiliate web sites based within New York.” (internetretailer.com)

Linda Buquet at 5Star heralded an important comment that other states might be caught up in a ripple effect and impose sales tax collections from affiliates as well. Her full post can be seen here. Affiliate sales tax is a topic which will concern any affiliate in the affiliate marketing space and is causing a great deal of discussion amongst community members. InternetNews has an incredible post concerning this issue which they as well as others online are calling the “Amazon Tax” due to Amazon and it’s affiliate program being the nexus for the revival of the tax plan.

This is a matter that the affiliate community as a whole could be impacted by. As the industry grows more attention from big brother concerning how they can grab their piece of the pie will be inherit with that growth, we can only hope that if this bill passes it will stop with New York.
Internetretailer.com full article can be viewed here

About Heather Paulson

Heather Paulson is the President of PaulsonManagementGroup.com which provides Affiliate Management, Paid Search Management, Search Engine Optimization, Social Media Management and affiliate video production and affiliate recruiting services.

Heather was appointed to the Affiliate Summit advisory board in 2006. In 2007 Ms. Paulson was appointed to the advisory board for Affiliate Classroom. In 2007 Ms. Paulson was elected as PPCClassroom.com’s education manager. in 2008 Ms Paulson was nominated as a FAB member of the Performance Marketing Association and is an honorary recipient of the ACC Certified Affiliate Managers Course. in 2008 Heather Paulson was invited to become a member of The Internet Oldtimers Foundation. She has passed the Google professionals certification twice. Heather also blogs at Paulson Management Group Blog. You can follow Heather on Twitter: @Heatherpaulsons.

10 Responses to New York Collecting Sales Tax from Affiliates?

  1. There is a lot of really good reading out there about this… I imagine that what NY thinks it has done will not be the last of the discussion. But make sure to check out the court decision from 1992 regarding Quill as it provides a lot of insight into how the Supreme Court feels about remote merchants, and what constitutes a "physical presence", etc…

    My personal interpretation of this is that "affiliates" do not meet the criteria met in the Quill decision and that the federal court has already decided states are prohibited from collecting sales taxes specifically due to the heavy burden this would place on interstate commerce and those merchants engaged in it.

    But…my opinion matters little here :)

    In the meantime, we will start looking up ways to report to our merchants the information that will be necessary to carry out this (ridiculous) requirement. From the looks of it, merchants will need to know if they have ANY affiliates in the state of NY who produce more than $10,000 in annual sales…. if they have even 1 affiliate who meets that criteria, they will need to collect sales tax on all visitors from NY.

    That is how I read it anyhow at first glance… we'll have to do a more thourough review obviously.

    Maybe this will again become a federal issue by the time elections roll around… who knows.

  2. Hi Brian,

    I have been reading up on the 1992 U.S. Supreme Court ruling in Quill v. North Dakota which states that only businesses with a physical presence in a state are required to collect sales taxes on purchases shipped there.

    Yes the debate on “physical presence” will become a primary focus I would think, and we all know how savvy affiliate marketers are concerning knowing how to cloak this “physical presence” which I am sure might also become an issue in the future if this all comes to pass. Each state apparently has different opinions on “physical presence” so this will get interesting.

    So far you are the only network I have seen respond to how to manage this issue should it come to pass with your statement below..I am hope other networks are preparing for this issue should it become a viable one.

    "From the looks of it, merchants will need to know if they have ANY affiliates in the state of NY who produce more than $10,000 in annual sales…. if they have even 1 affiliate who meets that criteria, they will need to collect sales tax on all visitors from NY."

    Brian, do you see affiliate managers and OPM's needing to overly scrutinize applications to determine location of the affiliate website and their visitors? I see so many issues with differentiating New York affiliates, now imagine if this goes to multiple states, now we are talking managing lists of affiliates per state and clustering them as such..

    This could get wicked real fast..We are preparing strategies for managing this situation here at PMG should this come to pass.

    I appreciate your comments!.. :)

  3. We will definitely prepare for it… I expect there will be some challenge prior to that but we shall see.

    The issue of "nexus" or "physical presence" will be of interest because if a company has it enough to dictate that they collect sales tax, that means that they will have to also pay income tax to that state (assuming of course that the state has an income tax for corporations, etc…).

    Collecting sales tax is one thing, but paying income tax will raise some eyebrows for corporations who really don't have a presence there. Slippery slope, etc…

    There are thousands of implications. If an affiliate is a "nexus"… than what about a lawyer, an accountant, etc…etc… The federal government has already decided on all of these things (no) in my opinion …

    Anyhow, we will prepare for it of course, but it certainly is an extremely dissapointing move from our governments.

  4. Todd Crawford says:

    I see affiliate marketing as a form of online advertising, similar to other forms like, sponsorships, paid search, display, etc. It seems to me that the argument that if affiliates drives more than $10k in sales it require advertisers to pay sales tax could easily be extended to any form of online advertising that drives sales.

  5. Hey Todd!

    Well you bring up an excellent point and we could have an issue with the entirety of CPA monetization type for merchants concerning sales of products and sales tax. Now what happens however if the model changes to a CPA based on a percentage of the AOV or if it is CPC, or CPM based? How can tax regulation come to pass on these monetization models? And who is expected to collect and report the sales tax on the item? The merchant or the affiliate.

    There are so many issues surrounding this, I am also wondering how the sales tax is instituted to be collected to affiliates how the CPA monetization model might have to change to compensate this loss to affiliates?

    If sales tax becomes enforced we have other regulatory bodies that will come into our world to enforce them..

  6. Mike Allen says:

    NY better be careful or they will force the outsourcing of a thriving portion of their tech sector — affiliates and related services (including web hosting). States cannot rewrite federal law and court cases and I don't see how this plan can survive the legal challenges that will emerge.

    While the states are losing tax revenues due to remote sales (catalog and Internet), the issue is a federal one when there is no nexus. Web presence does not constitute nexus just as catalog orders over the phone do not.

  7. Heather,

    Thanks for the post, I really don't know if we can stop "Big Brother" or not, seems when they see a way to grab money with no effort on their part they will get it somehow.

    I am sure it is something we will have to face in the future, whether it's the near future or futher down the road.

    Thanks Again,

    Pugsley

  8. Hi Pugsley,

    Well, June 1st we will know what the outcome of this is and during affiliate summit I am sure someone will round table this so we can all discuss..

    Appreciate your comments!

  9. Mike Allen says:

    Today (May 2, 2008) Amazon.com sued to stop this tax. http://www.nysun.com/news/amazoncom-sues-stop-ny-tax

  10. Thanks Mike for the update – We are now formalizing internally a process for segmenting these affiliates from our programs in preparation for this… Just in case..

    Go Amazon Go!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>