Merchants Ban Affiliates Based on New York Tax
Affiliate marketers in New York have reason to follow politics – and it’s not the presidential race. Instead it’s a new law (pdf of law) that has retailers collect taxes for sales through affiliate marketers based in New York. The law applies to all online transactions for companies that have no physical presence in New York. It starts June 1, 2008.
The bad idea started with Governor Spitzer, and was recently signed into law by New York’s new governor David Paterson. They figured it would be an easy way for them to collect more taxes. Affiliates make money by referring people to products and services online. They get a commission when someone makes a purchase.
To avoid the tax, affiliate programs have started kicking out affiliates who live in New York. Otherwise, the merchant will have to charge sales tax on those orders. Affiliates are outraged, and so are many of the merchants they promote.
The law means that online retailers like Amazon.com would have to collect taxes for orders that come from New York, or from affiliates who live in New York.
According to a New York Times article: “The issue is not whether people should pay tax when they buy goods from out-of-state sellers like Amazon. For decades, the state has required them to pay sales or use tax.
The question is whether the vendors must collect that tax on behalf of the state. Generally, only those companies that have a physical presence — like an office or store — in the state where the purchase is made are required to collect the tax.
The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer.”
Merchants like American Blinds & Wallpaper, One Step Ahead, Overstock, and REI, have already removed their New York affiliates.
Things are rocky for Amazon.com lately. Since they would be particularly hard hit by the new law, Amazon filed suit against the state of New York at the beginning of May. They called the law “overly broad and vague” and said it is impossible to determine which of its affiliates are actually in New York.
Then today Borders announced that after seven years, they will no longer partner with Amazon for online sales. Amazon handled fulfilment for Border’s online sales. Now they’ll do their own.
Affiliate marketing expert Shawn Collins has been blogging about the issue and how it affects affiliates. You can follow the merchants that are pulling out of New York on ABestWeb affiliate marketing forum.
I’m hoping that, like Utah’s attempt to make bidding on trademarked keywords illegal, New York realizes that this law is a hindrance to business and decides to reverse it. Or, hopefully the courts will side against the law.