Posted May 28, 2008 3:30 pm by with 12 comments

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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 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 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.

  • I fear that this just might be the beginning of a trend. It’s rare that governments let entrepreneurs go untaxed for very long.

    I think, then, the future of affiliate marketing lies with software that can help networks and their affiliate easily manage such taxation. Some networks already do this:

    Essentially, as affiliate tax becomes the norm, affiliate are going to seek out networks that take care of the paper work for them (like employers deduct income tax off your pay check for employees). Consequently, affiliate networks will need to develop software that can group affiliates according to location and deduct the relevant taxes from their earnings.

    It’s really going to be an accountant’s dream. The real nightmare is going to be in accurate reporting.

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  • NoTax

    The Democrats will tax everyone to death. I can’t understand why anyone wants a Democrat for President. I guess people love paying more taxes all the time.

  • There is a continual misunderstanding of the implications of this law including on this post. If a merchant has an affiliate in New York, and if the merchant has over $10,000 in sales FROM NEW YORK RESIDENTS (not from New York residents using affiliate links), then the merchant has to collect sales tax ON ALL NEW YORK SALES (not just those from affiliate links).

    Another point – that if the affiliates do no solicitation the merchant is off the hook ignores the reality that an affiliate can do anything they want to, including direct email contact with New York residents, without the merchant’s approval. Even if the merchant then kicked out the affiliate the next day the marketing already took place and therefore nexus was created.

    The only safe route for a merchant that has New York affiliates and New York sales over $10,000 is to remove all New York affiliates from their program until such time as the law is overturned.

  • We’re surprised something like this hasn’t happened sooner — it will be interesting to see if other states take after New York’s lead.

  • NY is going to lose more in income tax than they will ever earn with illconceived laws like this. Their short term greed is getting in the way of their long term greed.

  • I see some responses with links to websites. How do I put a link in my responses?

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  • very Good !

  • And this is a surprise?‘s last blog post..Free 4 pack of Goody hair elastics

  • thats bad, I would not do business there.

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