Earlier this year, the State of New York passed legislation using affiliate programs as a way to force merchants to collect sales tax. Rather than rehashing the legal ramifications, I’ll focus on three choices that merchants are making regarding this new law – and share some of my opinions on each of them.
Before I share my thoughts, I would like to go on record that I believe the fault ultimately lies within the law itself, and those who wrote it. It is ambiguous, confusing, and I believe overreaching.
In enacting this law, New York placed Internet retailers in an impossible position, and I believe the law has a very good chance of being challenged successfully.
Merchants Dropping New York Affiliates
Personally, while I understand wanting to “be on the safe side”, I think this was a mistake. I’ve read through the law countless times and didn’t find anything that allowed for amnesty from the law if affiliates were dropped.
Assuming a merchant qualified, it would appear the only way to receive amnesty for prior tax periods was to begin collecting tax – there was no such allowance for closing the program to New York affiliates.
In a non-Internet analogy, imagine having an office in Manhattan for 364 days/year, and then closing on December 31st and pretending it never existed.
Merchants Modifying Terms
One of the more ambiguous sections allowed for the presumption of nexus to be rebutted. The allowance was possible when an affiliate’s only action was placing a link on a website. Some merchants re-wrote terms to disallow affiliates from email, PPC, and several other channels.
It is my opinion that rewriting terms could only be considered if the merchant had already received approval from New York. The law indicates a process whereas a merchant establishes proof, and possibly gains exemption.
I gathered that merchants who were taking this route were assuming that they could declare themselves exempt when I am not sure that is truly the case.
Merchants Who Began Charging Sales Tax
I argued on my blog that this was the only real option available to merchants. While the ambiguous and confusing law has many gray areas that could be exploited – most merchants are very conservative when it comes to pushing tax law.
I anticipate other states emulating New York and enacting similar legislation. When other states follow suit, there will be two groups of merchants: those who geared up for this and are ready to begin collecting tax for certain states, and those that are not prepared. I believe it will be a competitive advantage for merchants that are equipped to adapt.
Those who dropped New York affiliates, for example, will be faced with the prospect of dropping another group, and then another, and so on.
There will come a point when they will be forced to start collecting the taxes, but will be far behind in the process, and the alienated affiliates will be busy promoting programs that have already adapted.
Brian Littleton is the President/CEO of ShareASale.com, Inc., a retail focused affiliate network for businesses of all sizes.
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