A New York court has upheld New York’s affiliate sales tax law, dubbed “The Amazon Tax”, which requires that sales tax be collected for all sales originating in New York pursuant to a commission agreement (such as an affiliate program), regardless of the fact that the merchant is not actually in New York – such as Amazon.
In deciding the Amazon tax law suit, which was brought both by Amazon and Overstock – and in which Amazon claimed that it was being singled out to help balance the New York state budget – the judge looked at Amazon’s connection to the state (their affiliates), and the amount of sales that were being generated (a lot), and found that there was a legal nexus which amounted to Amazon doing business in the state of New York, despite not being headquartered there.
The New York state provision requires that the vendor realize sales of more than $10,000 from the state of New York before the sales tax kicks in.
In her ruling, Judge Eileen Bransten held that “In the end, the Commission-Agreement Provision does not broadly tax any and all Internet sales to New York consumers. It requires a substantial nexus between an out-of-state seller and New York through a contract to pay commissions for referrals with a New York resident along with realization of more than $10,000 of revenue from New York sales earned through the arrangement. The neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax collection burden when using New Yorkers to earn profit from other New Yorkers.”
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While Amazon and Overstock are likely to appeal the ruling, unless and until they do, it currently stands as valid New York state law, and if they appeal and lose, it will remain the law.
While this may seem a small, fairly simple ruling affecting just one state, it has far-reaching implications, both for the administration of affiliate programs, and for the status of Internet sales as other states follow New York’s lead. For example, if, on appeal, Amazon loses, will they simply decline to accept affiliates from New York? And as other states adopt the affiliate sales tax, what then?
More immediately, this places a burden on affiliates located in New York, regardless of whether they are affiliates of Amazon, or some other affiliate program. It’s easy to foresee that at some point New York-based affiliates will be required to divulge their records, and render an accounting for all sales that they generate under the affiliate programs in which they participate – and to declare sales tax on those sales which are not declared by the affiliate program administrator.
It’s also easy to imagine that consumers will care very much whether the order they are about to place is through an affiliate located in New York – and that they may want to avoid placing orders through someone so located. In fact, we advise New York-based affiliates to make clear on their websites – and especially in their ordering areas – that they are located in New York and that, as a consequence, the customer may end up being required to pay sales tax.
Then, cross your fingers and hope that Amazon wins on appeal.
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