New York Changes Tax Law Affecting Online Affiliates
May 21, 2008
(Long Island, N.Y.) The State of New York recently enacted new legislation that addresses tax registration, collection, and other time-sensitive obligations related to affiliate advertising of tangible products. As with all laws, this law may or may not apply to a business depending on several circumstances. However, web based affiliates of online stores and web sites can, for the first time, be treated as extensions of the store itself and creates new obligations similar to if the retailer had a physical presence within New York.
Amazon.com is currently suing the State of New York over the new tax laws while other online retailers like Overstock.com announced last week that it has notified its more than 3,400 New York-based affiliate advertisers that as of June 1st they can no longer provide advertising for Overstock items until New York changes its controversial new internet consumer tax law or the courts say the law is unenforceable. Rather than just collect these taxes, Overstock has decided to cut New York affiliates entirely, removing their “physical presence” from the state.
“Unfortunately, due to the State of New York’s new legislation, we now believe it’s prudent to discontinue, temporarily, our current relationships with our New York affiliates while the battle over the constitutionality of the New York legislation is contested in the courts,” reads a letter (PDF) sent to one New York affiliate, BusinessKnowHow.
“We love New York,” said Patrick Byrne, Overstock.com’s chairman and CEO in an article on the Dow Jones Newswire, “but New York’s new tax law required us to choose between New York customers and New York ad businesses. In the end, we chose our customers.”
In the past, retailers were treated as a business of the state only if they had an actual brick and mortar location, but these new changes apply specifically to affiliates acting as agents for a retailer. Under the new law, beginning June 1st - any retailer with New York-based affiliate marketers is required to collect sales tax on all goods shipped to a New York address.
Affiliate marketing is a web-based marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate’s marketing efforts. Affiliate marketing has grown quickly since its inception. A Marketing Sherpa Inc research team estimated that, in 2006, affiliates worldwide earned $6.5 billion in commissions from a variety of online advertising and lead generation. Currently the most active sectors for affiliate marketing are the adult, gambling and retail sectors.
New York businesses engaged in affiliate based e-commerce should perform the appropriate due diligence as it relates to their business. Provided is a link to a memo from the New York State Department of Taxation and Finance, Office of Tax Policy Analysis, Taxpayer Guidance Division that addresses the new legislation:
http://www.tax.state.ny.us/pdf/memos/sales/m08_3s.pdf
Posted by News LI Editor · Edited by Brianna - Filed Under Business
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News Comments for this Article
2 Responses to “New York Changes Tax Law Affecting Online Affiliates”
Got something to say?
I am a New Yorker and was not aware of the new tax laws. I heard something a few weeks ago on a radio station about internet tax but did not here all of the interview. I am glad to get the info eventhough I don’t advertise for overstock.
Thank you very much
Michael
- Posted by: Michael
Democrats love to talk about “change we can believe in” these days. Believe this - they’re still dedicated to finding any way possible to raise taxes. Most of the affiliates affected by these laws are small home-based businesses. They operate on razor-thin margins, and the majority of them do not even have the technical ability to collect tax on a sale through their websites. Our new governor has sent a signal that he’s profoundly anti-small business.
- Posted by: Bob Sullivan