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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?
You can take this one step further. The law is very vague here and is being challenged by Amazon.
Google, Microsoft and even Yahoo has employees working in New York State (Keep that in Mind).
So, if a New York State Publisher is running adsense for an out of state ecom site, does that mean that the New York publisher is considered an affiliate to an out of state ecom site? Well, that is not quite clear yet. It is a gray area.
Here is a link to the amazon lawsuit that they filed against New York State:
Economic forces have a way of "surprising" shortsighted profiteers.
The latest is Democratic Assemblyman Charles Calderon from City of Industry, California, who wants to start applying a sales tax of 8.25 to 8.75 percent on digital downloads in an effort to remove the state's $8 billion budget deficit.
Calderon wants to update a 75-year-old law that indicates taxes must be applied to "tangible goods."
What’s new is that states who have not previously taxed digital media downloads are starting to take note. New Jersey, for example, has proposed legislation that would tax iTunes and other downloaded media beginning October 1. States already taxing downloads use the rationale that it is the same as any other shopping or online purchases. Some states that do not specifically address this issue use other laws, such as those allowing taxation of computer software.
Of the 15 most populous states that, together, represent more than half of the U.S. population, three--Texas, Indiana and Washington state--tax media downloads, according to a News.com survey. In addition to the nation's capital, the lesser-populated states that impose such taxes are Alabama, Arizona, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, New Mexico, South Dakota, Utah and West Virginia, according to an industry lawyer.
[edited by: lorax at 4:58 pm (utc) on May 21, 2008]
[edit reason] edited for links to original sources and minor fair use [/edit]
"I was aware of this position and Amazon is fighting it. Without going into detail it is a decision for the U.S. Supreme Court as NY is going against current law and should lose the court case."
They further advise is that pulling out "based on [our] sales" would be premature.
1. Affiliates must generate $10K per year to be subject to the tax.
2. Pay per click compensations do not apply.
3. Advertising alone is not sufficient to create nexus. Some additional solicitation must occur, such as the use of flyers, newsletters, telephone calls, or emails. Site owners can rebut the tax by showing that they did not perform any additional solicitation which led to the affiliate sale.
Seems like there are a lot of loopholes here.
It really is only a matter or time before ecommerce and the tax man battle it out and if history is any indicator the tax man will win....unfortunately.
Yes, the U.S. Government will prevail in this instance. I'd say that we'll see a Statewide Tax API available from the .gov once they get all 50 States in sync. We will soon be taxing shipments based on the shipping zip code, no matter what State.
1. Affiliates must generate $10K per year to be subject to the tax.
Site owners can rebut the tax by showing that they did not perform any additional solicitation which led to the affiliate sale.
"I suspect we will drop our NY Affiliate program like a hot brick."
1) The tax law only goes into effect if you have more than $10,000 in sales over the past rolling 4 quarters.
2) 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.
VERY IMPORTANT FOR ALL:
Hope I can link to this, since the NY law was linked to, I hope the link to the DMA interpretation of the law can stay for everyone's benefit.
I reported yesterday that Linkshare has gotten the DMA (Direct Marketing Association) involved in the fight which is really good, since there is no affiliate marketing association to fight this and the DMA is much bigger than than the affiliate marketing industry anyway.
DMA LEGAL HAS WRITTEN AN ANALYSIS of the NY LAW
MERCHANTS - Important to read that doc, but if you're in a hurry skip to page 3. In a nutshell, they are saying that if affiliates just have links to the merchant this DOES NOT CONSTITUE A NEXUS according to the way the NY law is written.
A nexus is only created if affiliates are doing other types of direct marketing for the merchant in NY like passing out flyers, making phone calls or sending emails. Emails is tricky with some merchants. But with many retail products affiliates arent doing any emailing, just straight web based links and banners.
So anyway that doc is important to know about and have your lawyers review.
CONFERENCE CALL THURSDAY - For anyone that wants to get involved, Linkshare and the DMA are having an open conference call THURSDAY 5/22 11AM EST, to discuss the law and will have a Q&A session. I got an invite to do press coverage so will be covering the outcome of the call as best I can.
I can't find a link at Linkshare to give you for the full communication I blogged about, because I got it by email and it's long. So here's just the conference call info.
"Email: government AT the-dma.org to receive personalized dial in information. Please let them know you are a member of the LinkShare Network."
Note: Linkshare by the way is based in NY so could have it's own set of problems and is also Overstock's affiliate network, so I think that's why they've taken a proactive role as opposed to what CJ did on the issue which was just lame!
One of my clients got the IAB involved and they had a meeting about this yesterday. I have not gotten a report back yet but should have info this AM. But that's another big org that could help if they get behind us.
Oh and a small affiliate network I'd never heard of, based in NY was able to get a conference call with a bunch of NY government tax officials. They have another conf call Tues I think and some of our industry leaders are getting on that call. They'll call me right after to let me know what comes of that call.
What else? Oh someone here asks how they are going to track this to find out what merchants need to collect, pay and report tax? My guess is this... They are offering amnesty from back taxes for merchants that come forward and self declare before June 1. They threaten that if you don't pay taxes and should have and they catch you, they'll charge you with back taxes too. My guess is they will make an example of a couple other big merchants if they don't comply and use that to basically scare people into reporting and paying.
There is no way they can audit this! I have merchants DESPERATELY trying to get the info they need from the networks to find out how many affiliate they have in NY and how much sales revenue they have generated. The merchants have NO access to affiliate addresses to run that type of report and the networks don't either. So how can NY find out.
Exception - Shareasale is the only network so far that has come up with a way for merchants to run a NY affiliate sales report, so if you are on SAS you can easily find out what your NY volume is. MOre info at the SAS blog about the report and how it works.
There is so much more going on... Sorry if I rambled. I scanned pages and pages, trying to figure out the most important snippets to offer here. I'm pretty much covering this story full-time, so as more important info comes to light I'll try to get over here to let you know.
DISCLAIMER, I of course am not an attorney, not even close, only passing on news and info as I find it. Have to be careful with this issue, because there is a ton of misunderstanding and bad advice going around right now.
RE: Attorney's and legal advice. I know some OPMs and merchants who are desperately trying to get legal advice but their biz atty is clueless either about affiliate programs and the Internet or about dealing with tax issues from another state. I have a call into the biggest Internet lawyer out there to see if there is any way he can help - either merchants individually or collectively in a class action or something.
Also if anyone has any specific questions I'll try to keep an eye out here and get back to answer.
[edited by: lorax at 6:50 pm (utc) on May 21, 2008]
One other question I meant to address...
RE jkwilson78's question about whether this affects digital products. I somehow got the feeling it didn't, HOWEVER
Clickbank is reportedly having customers (not affiliates) verify their place of residence and is notifying them if they live in NY they will have to start paying sales tax June 1. I have a copy of the email, but that's it in nutshell.
So I don't know if CB found that digital products do count, or if they are being overly cautious or what?
"Do they mean the actual companies or affiliates? Is it $10K in revenue or $10K in commissions? So if I had 100 affiliates each generating $9.9K/year, I'm not subject to it. But if one of those breaks $10K, I am subject to the tax on on revenue for all the NY affiliates or just that one?"
My understanding is it's more than $10,000 in total retail sales from the entire NY based affiliate sales channel, (not a single affiliate) over the past rolling 4 quarters. (Oh and that's not calendar quarters, it's something else. I think it's spelled out in one of the docs somewhere.)
[edited by: Catalyst at 4:39 pm (utc) on May 21, 2008]
"Could we see sites start to block any NY IP or not take orders from any customer address?"
That's part of what's so ironic about this law. It does not matter if NY affiliates are making sales to NY residents.
EXTREME example. A company only has 3 affiliates that live in New York. All 3 are focusing sales and selling efforts to west coast customers. Not a single sale is ever made by these affiliates to a NY customer. The law says 10K in total affiliate sales volume from NY based affiliates. Does not matter if no sales are made to NY consumers, the merchant still has to charge sales tax on all NY sales.
I know that's an odd example that may never happen, just illustrating the point.
Could we see sites start to block any NY IP or not take orders from any customer address?
That's an interesting idea to send NY lawmakers a clear message by firewalling the entire state from big sites on the internet.
Could you imagine if they couldn't get to G/Y/M for a few days? ;)
2. Pay per click compensations do not apply.
I'm not sure AdSense is entirely safe because they also have REFERRALS which is the same as having affiliates. The exception that the vendor doesn't directly know who the affiliates are or whether they're in NY or not.
Let's just hope Amazon wins and this law goes away, for now anyway.
[edited by: incrediBILL at 6:15 pm (utc) on May 21, 2008]
That does not necessarily hold true, because that's the same problem merchants on the big networks are having. They don't know which affiliates are in NY and how much they are generating in sales revenue.
A friend of mine that's an OPM is just pulling her hair out and having nightmares. Her clients are too. They've tried everything they can think of to get the info they need to be in compliance and to see if they even qualify to have to collect tax and the networks can't/won't tell them anything.
I can see a whole rash of lawsuits if NY hits some merchants with back taxes for non-compliance and the merchants tried to get the info they needed but the networks would not provide it, the merchant could sue the network.
I told her to have all her merchants document all attempts to get info or reports from the network and save all emails in case they need it for court.
I had wondered about Google too. Not traditional Adsense because it's CPC, but the CPA program.
[edited by: Catalyst at 6:49 pm (utc) on May 21, 2008]
Then again just because you are an affliate in NY doesn't really mean your sales are from NY. There are so many loops holes in this law it will be tossed.
"I would assume the ones the law is going after is the ones that do their own affilate programs and pay the vendors themselves... If the affilate is working through CJ and paid by CJ the site owner is in the clear."
Nope not the case at all. Overstock is on Linkshare and they were worried enough to can 3,400 affiliates.
NY was very smart about the way they worded it. (the part below) They avoid spelling out affiliate network, I think partly because it's affiliate marketers who are most concerned about the law.
They mention "service provider" but the scenario they use in detail explains the relationship between merchant, affiliate network and affiliate and says it's the merchant that is liable EVEN THOUGH it's the "service provider" that is doing the tracking and cutting checks - the sales are happening on behalf of the merchant.
Don't know if I can quote it here, so just scroll down and read example #3, page 3.
T is the merchant and S is the service provider/affiliate network.
[edited by: Catalyst at 7:47 pm (utc) on May 21, 2008]