Forum Moderators: buckworks
[tax.state.ny.us...]
The term vendor includes persons who solicit business within the state through employees, independent contractors, agents or other representatives and, by reason thereof, make sales to persons within the state of tangible personal property or services that are subject to salestax. Accordingly, if a business located outside New York State solicits sales of taxable tangible personal property or services through employees, salespersons, independent contractors, agents, or other representatives located in New York State, the business must register as a vendor and obtain a Certificate of Authority for New York State sales tax purposes. (See Tax Law Section 1101(b)(8) and Sales and Use Tax Regulations Section 526.10(a)(3).)
How does this impact ecommerce sites?
Also, an e-commerce retailer that uses persons to act as its representatives in the state to solicit sales or to make and maintain a market in return for commissions, referral fees or other types of compensation is considered to be soliciting business within this state through the use of independent contractors or representatives. Therefore, the e-commerce retailer must register as a vendor for New York State and local sales tax purposes.
If I'm reading this correctly, just having affiliates in New York means you're technically a New York Vendor.
Don't know how they plan to track it or enforce it but I'm sure we'll find out soon.
How will this impact your affiliate programs?
Will you drop affiliates in New York?
Don't think I can link to it but Brian from Shareasale has a really good blog about why merchant should not drop affiliates in NY. He's not just standing up for affiliates but has some valid reasons about how it can hurt merchants to do this.3) Overstock throwing 3,400 affiliates under the bus has caused lots of problems that will affect them in a variety of ways.
Just as a contrarian thought, the general public will probably never know or care about this - they are too busy watching American Idol.
But if every merchant would just ban NY-based affiliates and maybe even (gasp?) sales to NY based customers, that might get enough people to take the time to pick up the phone and call their state legislators.
FarmBoy
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I realize this is largely a rhetorical question, but
... let's say I operate a business from my home in Nevada and I sell ebooks. I have an affiliate in New York who places ads on his website that is hosted in California and someone in Illinois purchases one of my ebooks through the affiliate's link.
What exactly did the state of New York do to deserve a sales tax from me - other than they just want the money because they can't control their spending? No packaged traveled on New York highways, neither me nor my affiliate are putting extra demands on services like fire, police, public transportation, etc.
FarmBoy
[edited by: farmboy at 8:31 pm (utc) on May 21, 2008]
[edited by: lorax at 12:21 am (utc) on May 22, 2008]
[edit reason] delinked [/edit]
What someone posted at another forum was an email they say they got from CB. When I read the full email it sounded official and made sense. Just showing a snippet of it. It sounds to me like it was written to and worded for consumers/purchasers/customers, not publishers.
"This email confirms that ACTION IS REQUIRED to continue receiving your product.
Our records show that the payment information we have on file requires updating your county of residence to accommodate collection of sales tax as required by the state of New York."
This raises another issue I hadn't even thought of yet. Now not only do some merchants have to collect sales tax in a state they don't do business in, but every county in the state of New York could have different tax rates. But other vendors never ask your county when you buy something. They have your sales tax rate dialed in based on city, right?
Linda Buquet
... but every county in the state of New York could have different tax rates.
It's worse than that - different towns & cities within a single county can have different sales tax rates.
FarmBoy
NY has the most convoluted sales tax system there is.
Shipping is also taxable in NY so the sale of a widget in Suffolk county is taxed at the rate of 8 5/8% and a clothing widget is taxed at the rate of 4 5/8%. Shipping is taxed at the same rate as the product sold.
That is a big reason why Amazon is going to comply, yet still fight it in court. I think they fear that noncompliance can cause New York to freeze stock trading.
If the affilate is working through CJ and paid by CJ the site owner is in the clear.
That's not true at all because CJ's sending out letters to their network telling people that they may need to comply with this law, how is unclear.
The feds will stop this.
Don't count on it.
There has been a project underway for years to impose a special tax on online sales that would be levied nationwide. Instead of having merchants know thousands of different rates nationwide, the idea would be one flat rate of X% applied anywhere nationwide. It would function like a sales tax but would really be a special nationwide equal rate sales tax. So far, larger merchants have resisted.
But don't be surprised if some unreasonable tax is implemented that would call for merchants complying with thousands of rates across the nation. When merchants scream for mercy, government would offer the special rate plan as an alternative, which is what they really wanted in the first place.
It's very similar to paying for health care in the U.S. is playing out. Government mandates insurance policy coverages, amounts paid for medical care under government health care plans, puts other restrictions on health insurance companies, and just generally creates a mess. When people ask for something better, government just happens to be standing there offering to run the health care system.
FarmBoy
"A seller may rebut the presumption that it is soliciting sales in New York State through resident representatives. For the purposes of administering the new presumption, the Tax Department will deem the presumtion rebutted where the seller is able to establish that the only activity of its resident representatives in New York State on behalf of the seller is a link provided on the representatives' Web sites to the seller's Web site and none of the resident representatives engage in any solicitation activity in the state targeted at potential New York State customers on behalf of the seller."
And here's my interpretation of this:
A merchant may rebut they are selling through a New York State resident if the Internet sales facilitator (ie affiliate marketeer) residing in New York State does not specifically target New York State buyers such as by using more conventional means of generating sales such as flyers, newsletters, telephone calls or e-mails.
So affiliate marketeers would be advised not to run conventional ads, for example, in the local newspaper saying "visit my website at www.mywebsite.com for a super deal on ZZZ's skis". Nor would they place targeted ads on their website saying something like "New York State skiers take notice of the great deals on ZZZ skis. Just click here!"
If my interpretation is correct it seems to me that if a merchant properly words their affiliate agreements to exclude the affiliate from using local targeting or conventional off-line means of promotion for the merchant then the merchant should be off the hook by giving a copy of this agreement to the New York State taxman.
And if I were an attorney challenging this law I would be asking myself why the New York State lawmakers felt the need to include this rebuttal. Are they trying to use this rebuttal to skirt some federal laws that define limitations of state's rights to collect sales tax?
If my interpretation is correct it seems to me that if a merchant properly words their affiliate agreements to exclude the affiliate from using local targeting or conventional off-line means of promotion for the merchant then the merchant should be off the hook by giving a copy of this agreement to the New York State taxman.
I agree with your interpretation but I disagree with the assumption the merchant would be off the hook.
Let's say I live in New York and I'm your affiliate. I sign such an agreement with you then I promptly go out and ignore it by advertising locally, sending out emails locally, etc. and generate $100K in sales.
The state comes along and asks you for 8% or $8K. You show them your paper signed by me.
The state isn't going to say, "I'm sorry, I didn't realize you had that signed form, just keep the $8K"
Instead the state is going to demand the $8K. You have to exercise oversight and control over your representatives to make sure they are following the law, just getting a signed form isn't enough. I can make a list of situations where businesses are liable for the actions of representatives (employees, contractors, affiliates, etc.) regardless of any signed agreements.
Are they trying to use this rebuttal to skirt some federal laws that define limitations of state's rights to collect sales tax?
Federal laws that limit state's rights to collect sales tax? Can you provide examples? I know federalism is hurting, but I didn't know it was that severely injured.
FarmBoy
1. A New York State affiliate can incorporate out of state and hold a physical presence out of state. Then the affiliate can get paid through corporate payroll and be taxed only in income tax from their pay. Incorporation is a separate tax entity. Payroll can only be taxed on income tax.
2. If New York wanted to reach into an out of State incorporation financials and scream about the legality of it, it would have to be fought off in Federal Court since it is across state lines. (With the exception of publically traded companies on the New York Stock Exchange). That right there could be a gamble and could become costly.
A New York State affiliate can incorporate out of state and hold a physical presence out of state.
That's not as simple as it sounds because you have to also operate your business out of the state to avoid NY claiming you operate out of NY. Therefore, an affiliate incorporating in DE for example but lives and does business full time in NY would probably lose the battle even with a presence in DE.
It is not that simple and it is still gray, but you could fight the battle in federal court about financial records for the corporation going to New York State.
And if other state become copycats the same will happen there. In the end, the whole US affiate marketing industry will be driven to offshore operations.
Don't forget, Internet marketing is global in scope and US affilate marketers are already at a disadvantage to affiliate marketers working the US markets from abroad in offshore enviroments with lower tax burdens.
That's one more domestic industry biting the dust thanks to short-sighted tax revenue dreaming.
If NY can do that, you bet they can make people who live in NY and conduct a business collect and pay sales tax. And you bet they will try to collect from anyone who sells anything here, whether over the internet or not.
Talking about banning all NY affiliates or not doing any business with NYers is silly. This is the future. NY is just first.
And actually they are not even that. Couple years ago I got a letter from an agency of the state of Ohio demanding that I pay $500 a year to sell anything to Ohioans and that I even set up an office or at least a PO box there. So states are getting the idea of collecting something from internet merchants. They see how they are losing sales tax income because of the Internet, and they are going to remedy it one way or the other.
Florida is listed as the person's address on all affiliate application forms.
I wonder if New York would consider this person to be a NY-based affiliate for the purposes of this law?
FarmBoy
The way it is now, any resident of the state of NY has to pay sales tax on what they buy from out of state...
A lot of states are the same. The intent is to collect tax from the buyer because the state can't collect tax on the transaction from the merchant.
But if states are going to find ways to start taxing the out of state merchant on sales to customers within the state, it seems like requiring the customers to submit taxes would have to be repealed. Otherwise, the state is collecting double taxes on a sale.
FarmBoy
A lot of states are the same. ... Otherwise, the state is collecting double taxes on a sale.
I guess I don't get why people here are so mad. Sales tax a merchant has to pay is deducted on federal taxes, so it doesn't count as income anyhow. I must not be understanding something here.
I was on the call with the Linkshare DMA New York Tax conference call with DMA Tax Counsel George Isaacson. I was able to get some good questions in and we got some good answers. It alleviated some concerns, however I'm not certain now that the advice was all that valid. You can search and find a variety of opinions about the interpretation of the May 8 Technical Services Bulletin, which is primarily what was discussed on the call. It was linked to earlier in this thread I think, but here it is again for any merchants that want to read it.
[tax.state.ny.us...]
After I blogged all the advice given on that call to help merchants understand how they can rebut this and avoid the tax (based on advice from the DMA tax counsel) I contacted one of the biggest Internet Attorneys and we spent a ton of time dissecting the TSB. He said he didn't necessarily agree with the DMA's assessment. If you critically read that doc, there is a lot of conflicting language and he reads it that even just links - if its pay per sale, then a merchant can't rebut. So then I blogged about that to try to give people opinions for 2 opposing legal viewpoints. Plus that attorney blogged about 10 things merchants can do to deal with the NY law.
BOTTOM LINE TO MERCHANTS - This is an extremely complicated and convoluted law. You REALLY need to talk to a lawyer that understand affiliate marketing + tax law. Doing the wrong thing could cost you back taxes, that you never collected from custmers, that therefore come directly out of your pocket,
So since the law still isnt clear, there is so much conflicting info and merchants have less than a week to make a decision and act or risk being charged back taxes. We are taking further action.
A group of industry leaders and I are in direct communication with Jim Connolly, Staff Attorney in the Office of Counsel to the Tax Department of the State of New York. We are pulling together a list of important questions in order to get clarification on numerous issues. Jim has agree to answer the questions publicly in writing. There are many gray areas and much of the language is unclear, so this should help everyone a lot.
I can't link to the places you can submit your questions. But I should be able to offer a link here to the Q & A/FAQ that comes out of our efforts, because it will be somewhere on the official New York State government site. Unfortunately, I just don't know how quickly they will get around to answering our questions and posting the answers publicly. I'm afraid it may be after the June 1 cut off.
So my best advice is don't wait for it, get an attorney NOW!
But we are pushing and once we get the answers from them it should clarify a lot.
HRoth said:
"I guess I don't get why people here are so mad. Sales tax a merchant has to pay is deducted on federal taxes, so it doesn't count as income anyhow. I must not be understanding something here."
1) Sales tax itself does not cost the merchant. They collect from the consumer and pay same amount to the state, so it's a wash.
HOWEVER setting up systems to collect tax from another state, and NY has the most complicated sales tax there is - is a huge feat that takes time, money and resources to implement. Different cities have different taxes. Worse yet in NY, some things like clothes have no tax unless it's over $100 (or something). So some things are taxed, others aren't, others only over a certain threshold. I've heard there are something like 160 different sales taxes in NY.
2) The reason lots of people in this thread and affiliate forums a blogs are upset is:
A) Affiliates are not employees or even independent sales reps. They - are separate businesses that just do advertising - they don't sell. The US government says a merchant only has to pay sales tax in a state where he has a PHYSICAL presence like a store or sales rep.
Affiliates don't count as a reason for a merchant to have to pay sales tax according the US government or any other state - only in NY and only because if this new law.
B) Another reason affiliates are upset is that some merchants like Overstock are terminating affiliates to avoid having to pay the tax.
Imagine you are a NY affiliate making $4,000 a month from Overstock commissions. You support your family on this income. You've been a "valued affiliate marketing partner" for Overstock for 3 years and count on that income.
Suddenly, without warning Overstock pulls the plug and you lose all your income and your business. Over a NY law that many feel is unconstitutional in the 1st place?
3) The biggest concern is that if this NY law isn't challenged, other stats will implement it. California and some other states are getting ready. It could hurt our entire industry, not just those affected by the NY law.
=================================================
Well there are a lot more issues, but my blood is starting to boil again! So I need to stop at those main points. But if you search for New York Affiliate Tax you'll find a bunch of news stories from NY times, Forbes, InternetNews and others that go into the problem in more detail. If you search those KW + Amazon you'll find some specific stories about Amazon suing NY over this and if you search with Overstock in the search string you'll find new stories about Overstock terminating 3,400 affiliates over this.
Linda Buquet
The flip side of the coin is that in-state merchants who are collecting sales tax are loosing sales to out-of-state online merchants because the in-state buyer saves a fair chunk of money when they buy online and skirt the sales tax. So not only does the state miss out on the sales tax revenue from online purchases but thier in-state merchants loose revenue, jobs and taxable profits.
So there's two sides to this story and they're both valid. Rather than opening fire on each other the states and the internet sales industry should sit down and try to work out a rational solution.
Some organization (sorry can't even remember who it is) has an initiative to at least simplify all the online interstate tax issues. I think I read they are lobbying for a flat 5% for online sales for every state.
Now I'd rather not see online sales taxed at all BUT if there is going to be tax eventually anyway - rather than have it be convoluted - based on affiliate presence, with different rules and different taxes for every state, I think a smaller flat tax would be preferable and so much easier for companies to implement.
Linda Buquet
Some private third party taxing service is established and offers to collect a uniform tax nationwide. Participating states contract online sales tax collection to this service.
Merchants agree to pay sales tax to this third party service at some acceptable rate, like maybe 2.5%. By collecting and submitting taxes to this service merchants are absolved of current or future sales tax collection liability and states agree not to hold their resident buyers liable for any other sales tax.
Merchants don't have to deal with the idiosyncracies or buracracies of individual states.
This could be extended to mail order commerce as well.
The third party service skims off .5% for their servies and the states get 2%. Two percent is a whole lot better than nothing.
Consumers probably won't balk at 2.5% sales tax for online purchases, especially if participating states find they can reduce their normal state sales tax revenue a little by the added revenue from participation in the uniform third party tax program.
Furthermore, by buying from listed participating merchants the consumer is no longer a law-breaker and I have to believe this is important to a substantial number of buyers.
This could be a step toward leveling the playing field for in-state merchants who are losing sales from in-state residents who buy online to skirt onerous state sales taxes. In time, if state lawmakers can exercise constraint, maybe the playing feild can be re-structured to be even more level.
Maybe something like this is already evolving. I haven't researched the concept so I apologize for my ignorance.
We need an across the board internet tax that the Fed's need to divy up.
MLHmptn, why do you pay the CA tax then?
[edited by: MLHmptn at 6:08 pm (utc) on June 1, 2008]
