New York Shuts Down Affiliate Businesses
Friday, May 30th, 2008
Affiliate law sends e-commerce companies running for the hills.
New York residents already feel the pain of high taxes. But now the state has basically shut down many of its resident’s businesses that rely on affiliate revenue, including domain name owners.
In an effort to collect more tax revenue, the state decided that companies (namely Amazon.com) that have affiliates in the state technically “have a place of business” in the state. Thus, they are required to collect and remit sales tax on purchases shipped to New York.
What the bureaucrats in Albany didn’t think about is how companies with affiliate programs would react. I just received an email from Collectors Choice Music with the subject line “NY AFFILIATE NOTICE AND TERMINATION”. Here’s what it says:
Due to recent changes in New York law relating to the collection of sales tax, Collectors’ Choice Music, Inc. (CCMUSIC.COM) will no longer offer its products for sale through affiliates or other representatives (the “Affiliate Network”) that are residents of New York State and that are paid a commission on such sales. Accordingly, CCMUSIC.COM is hereby immediately terminating all participation in the Affiliate Network by all affiliates that are New York State residents through all performance marketing networks. A New York State resident is (a) any individual who maintains a permanent place of abode in New York State and (b) any corporation incorporated under the laws of New York and (c) any corporation, association, partnership or other entity doing business or maintaining a place of business in New York State. (See New York Sales and use Tax Regulations Section 526.15, 10 NYCRR §526.15.)
Therefore, if you are a New York State resident, your participation in the Affiliate Network is hereby immediately terminated and you must immediately cease and desist from any referrals of sales to CCMUSIC.COM and remove any links to all websites operated by Infinity Resources, Inc. and its subsidiaries, including without limitation Collectors’ Choice Music, Inc. dba CCMUSIC.COM, from your website. [The change in the law does not require CCMUSIC.COM to cease doing business with or through affiliates who simply advertise CCMUSIC.COM's products without compensation or who are paid a fixed amount on a "per click-thru" basis ("Affiliate Exemption").]
Granted, Collectors Choice Music isn’t a big e-commerce company. But if other online stores ditch their New York affiliates too, then the income of New Yorkers participating in affiliate programs will drop substantially. And that means New York won’t collect as much sales tax.
Brilliant. Simply brilliant.
Further Reading:
- California Law Would Emulate New York Affiliate Tax
- Amazon.com Fires Colorado Affiliates Thanks to Affiliate Tax
- Texas Considering the Dreaded “Affiliate Sales Tax”
Tags: affiliate programs, amazon.com, new york
I just had the same thing from jewelrytv.com a large company and high paying affiliate, a bad bad precedent…..
I thank God I don’t live in New York. But it does look like Texas will start taxing Amazon.com soon, since they think they’ve discovered a Texas distribution center no one knew about. I think the tax bill is over $1B.
Here’s a list of companies that are kicking of New York affiliates. Some big ones like uBid, eToys, and Overstock.
Ridiculous. First New York passes their own cybersquatting laws and now they are passing new internet tax laws. I think NY is now officially the most unfriendly-to-technology State.
Side note : I’m wondering do they charge sales tax to mail order companies ? What about Avon reps (or other companies with sales reps in the state).
What about international companies ? How are they going to collect sales tax from them ?
@ Adam – in most states e-commerce companies are charged tax the same way as catalog companies. If they don’t have physical presence in the state, they don’t have to collect the taxes, BUT the customer is required to remit sales/use tax to the state. Of course, very few people actually remit this tax.
[...] In an effort to collect more advertising revenue, New York has decided to tax affiliate businesses for any shipments made within the state. E-commerce companies are taking notice and have started sending termination notices to their affiliates. [via Domain Name Wire] [...]
Stay away from California as well; “our” govt officials–including our “esteemed” governator–are now aggressively looking high and low for new revenue (but call them anything except what they really are–new/higher taxes).
They too have the Internet in their cross hairs.
No wonder so many companies want to move to business-friendly, low-tax states like Nevada.
[...] companies are taking notice and have started sending termination notices to their affiliates. [via Domain Name Wire] Read the rest of the [...]
It seems to me like this is doubly short-sighted. When eveyone shuts down their affiliate programs, NY will fail to collect the hoped-for tax revenue. But they will also see a reduction in income tax revenue as the affiliates themselves go under. Not wise at all.
[...] to Domain Name Wire, New York has decided that any business which runs an affiliate program and has affiliates in New [...]
@Andrew – Most Direct Sales companies require their reps to collect sales tax.
My wife is a consultant for Premier Designs Jewelry and she has to account for sales tax. I’m assuming companies such as Avon, Amway, Pampered Chet etc. have similar policies.
Helllllooooo New Jersey.
@ BrianK – I believe that’s correct.
A lot of people think that the government continually passes laws that don’t require sales tax to be paid on internet purchases. This is incorrect. The laws apply to taxes on internet access, not purchases over the internet.
Technically, if you buy something on Amazon and it doesn’t charge you sales tax, you have to remit the sales (or use) tax to your state yourself. But that doesn’t happen 99.99% of the time.
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[...] some of the current CPA affiliate programs move back to CPC due to state laws. New York recently started charging sales tax to companies such as Amazon that have affiliates in New York. The state decided these people are similar to “sales agents”, thus giving Amazon nexus [...]
[...] reports about a new proposed law in California that is similar to a New York tax law. New York’s law requires online merchants such as Amazon.com to collect New York sales tax if it has any affiliate [...]
[...] set to ponder such a law, can just look at other states to realize this is a mistake. New York passed such a law, which is being fought in [...]
[...] in New York law relating to the collection of sales tax, Collectors’ Choice Music, Inc. more Новости | Comment [...]