Wednesday 08th of February 2012

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Home New York's and California's misguided affiliate tax laws
New York's and California's misguided affiliate tax laws
New York's and California's Affiliate Tax Law Print E-mail
There is an ongoing saga in the state of New York regarding a new affiliate tax, which kicked in June 1, 2008.
California has recently initiated the same taxation laws in an attempt to tax their way back into solvency. The result will likely be the same as New York’s, the Amazon’s and Overstocks of the internet world will drop their affiliate programs in this state and California wil slide down the slippery slope of actually raising less taxes. Affiliate marketers will move out of California and we will see a further trickle down in housing values and income taxes.
Back in November of 2007, New York’s then Governor Spitzer tried instituting the plan to tax all online transactions for companies that had no physical presence in New York.
The premise was that if a company has affiliates in the state that these affiliates constitute a physical presence for the company and these companies will be liable to collect taxes on each sale to be sent to the state of New York.
At the time, there was a public outcry, and he quickly backed off the plan, which was intended to kick in for Christmas 2007 sales online.
The bad idea came back around in February 2008 when Eliot Spitzer championed it, again.
Around that time, Governor Spitzer became embroiled in scandal and the affiliate world hoped the affiliate tax was going to get derailed as he was forced from office.
But the new governor, David Paterson, was just as gung-ho as Spitzer to push this tax scheme on the people of New York in March 2008.
Come April 2008, Stephen Dubner reported in the New York Times that the New York State budget has this new affiliate tax worked into it with an expectation that New York would get $50 million out of the tax. Because legislators are not business people, they did not anticipate that Amazon and Overstock would cancel their contracts with affiliate marketers operating in the New York market.
The dream of working from home and staying at home to be with family is being back-handedly slapped in the face by California and New York. Many state politicians “say” that they are for the American citizen’s rights to start and grow a business, but actions like New York and California prove they have no real knowledge of business opportunities as they shut the doors on the American Dream.
The bad idea started with Governor Spitzer (A self described liar who cheated on his wife), 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. Affiliates get a commission when they find someone who makes a purchase through their online marketing.
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 in New York are outraged, and have lost their source of income as merchants they promote are dropping them and their programs within the state.
On May 14, 2008 Overstock sent notices to their affiliates in New York that they would no longer be in the affiliate program as of May 20.
When the internet giants pulled out, the affiliates went from paying substantial personal income taxes on their earnings to not paying any personal income taxes to the state. This, coupled with the 30% drop in sales added up to a substantial negative in regards to personal and corporate tax revenues for the state of New York. In addition, as the former affiliates scramble to recover their livelihood, find that the only solution to start earning again is to move out of state. New York and California will be facing another source of pressure on their housing values as more homes in the “For Sale” market cause the values to continue to drop.  
At the start of May 2008, Amazon filed a complaint in State Supreme Court in Manhattan objecting to the new law.
Since then, affiliate marketing forums and blogs have been active with outrage on the issue. Some folks got the ball rolling to form an industry trade association to try and combat this and future attacks on affiliate marketing.
The affiliate networks have also gotten involved with ShareASale providing data on New York affiliates to their merchants, Commission Junction educating their affiliates and merchants on the issue, and LinkShare working with the DMA to host a call today to clarify the law.
Also, Jim Kukral, Lisa Picarille, Sam Harrelson, discussed the situation in detail on GeekCast.
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 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.
Amazon.com would be particularly hard hit by the new law, Amazon filed suit against the state of New York at the beginning of May, 2008. They called the law “overly broad and vague” and said it is impossible to determine which of its affiliates are actually in New York.
Borders announced that after seven years, they will no longer partner with Amazon for online sales. Amazon handled fulfillment 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.
We hope 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.
 

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