comments Written By: Scott Jangro
June 28, 2008

The Amazon Tax. Are You Next?

iheartny.jpgYou’ve probably heard by now of the “Amazon Tax” imposed by the State of New York.

Most states in the U.S. requires online retailers to collect sales tax if they have a physical presence in the state that the customer is from. Therefore, if an online retailer has a physical store in New York, or even an office or warehouse, they must collect sales tax from a customer from New York.

New York State passed a new tax law this past April that a retailer must collect sales tax from NY residents if any New York based website earns referral payments from that retailer, in other words, Affiliates. It doesn’t matter if the purchase is made through one of those affiliates. One “affiliate” means that ALL purchases must have sales tax collected.

This isn’t about paying taxes on out-of-state purchases.

Most states that charge sales tax require that residents pay sales tax on purchases, regardless of where they buy.

Since it is simply impossible to enforce that, the key is for states to get merchants to collect tax for them.

Amazon claims that this law was enacted specifically to collect taxes from Amazon, stating that state officials have described the statute as the “Amazon Tax”. In any case, the reach of this law is much more broad, and in fact has caused many merchants to drop ALL relationships with affiliates from New York. Apparently, the prospect of having nexus in New York immediately imposed on them (as of June 1st) was too much to take and they’re avoiding the situation entirely by separating themselves from New York based affiliates.

I wonder if the brains behind this law considered the harm that this would cause to their resident web site owners.

The law does seem to be a stretch, if not downright arbitrary, which doesn’t bode well for its enforceability. It is an extension of an existing rule that companies employing independent agents to solicit business must collect taxes for the state. Using the broadly applied term of “affiliate” to mean “agent” seems to go too far. While some may arguably be acting as representatives of a merchant, many “affiliates” are no more than publishers who provide advertising to merchants through performance based advertising. The difference between that and CPM or CPC advertising being virtually nothing.

The problem is that the law is now passed, and merchants must either adhere to the law and collect taxes or separate themselves from the situation.

Amazon and Overstock have filed lawsuits and are fighting it. The wheels of justice turn slowly and until that or something is settled, more merchants may drop New York affiliates.

So What?

It sucks to be an Affiliate Marketer from New York, eh? Chances are that you, like me, are not from New York. Then so what?

Honestly, my first reaction was just that. But I did spend some time to get more informed about the issue and to better understand how this is affecting folks in New York.

If you are an affiliate, imagine getting dropped by your largest merchant. Imagine getting dropped by a handful of important merchants.

Now imagine that this exact same law gets passed in the state that you live in.

People Doing Something About It

Short of the law getting overturned, some folks are looking for ways to legally work around the law. For example, if the law cites getting a “referral” payment for a sale, perhaps if the merchant pays New York affiliates a flat CPC or CPM then they fall outside the letter of this law.

Much effort has been expended in the past few months discussing such potential solutions, but the problem is that merchants are unlikely to take a chance with loopholes and workarounds without a legal opinion on the matter, or even a statement by the New York State Department of Taxation.

The ABestWeb message board has established a section called New York Affiliates (NYAffiliates.com) which has become a hotbed of activity around this issue. This is where ABestWeb shines, but in addition to community, discussion, visibility and sharing that it provides, this issue requires the work of lawyers.

There is a group of NY-based affiliate marketers who are trying to do something about this. They’re planning a meeting in July where they will discuss the issue and obtain legal services to help better understand the issue and the potential recourses.

What Can You Do?

I’ve followed the lead of a few others and gave $250 to this group to help cover the costs of meeting and legal services. I’m not from NY, but these guys are taking it on the chin for the rest of us.

There’s a lot of money in this industry and I hope that many of us will consider helping out. If you’d like to donate, there’s a donate button here and here (they go to the same fund).

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