NY Sued Over Affiliate Tax on Companies with an Affiliate Earning Affiliate Income in New York

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As promised, the state of New York has been sued over its new “affiliate tax” – being affectionately called the “Amazon Tax” – by which it is looking to boost state revenues by collecting as much as 50 million dollars in sales tax from companies that have affiliates in New York who are earning affiliate income in New York. That means that if your company has a super affiliate guru in New York – someone who can really make money with your affiliate program – you are going to get hit with a super affilliate tax on all the sales that they generate for you.

(And if you don’t think that this affects you, Mr. Consumer, you’re wrong – as from whom do you think companies such as Amazon will collect that sales tax, ultimately? Bye bye great “without tax” discount when ordering online!)

New York is trying to squeak this through by saying that when a company has an affiliate who is a New York state resident, that provides enough of a “doing business” connection to reel the company in and put them on the hook for sales tax.

Hoping the courts will say “no dice”, but not being sure, large companies are both dropping their New York State affiliates, and suing New York state.

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In fact, Amazon filed their lawsuit a few weeks ago.

Now giant Internet retailer Overstock has followed suit (no pun intended). Explained Overstock CEO Patrick Byrne, in a recent interview on the excellent Meet the Innovators:

“About 15 years ago, the Supreme Court found that you cannot hold a catalog company responsible for collecting out-of-state sales tax. … The Supreme Court wisely said that the burden cannot be put on the out-of-state retailer. Therefore, I think New York’s law is directly unconstitutional. We’re not suing the state for any money. We’re suing to enjoin them from ever acting upon this law, and we’re trying to get the Court to throw out the law.”

You can read the full text of Patrick’s interview here and, in fact, yours truly was featured on Meet the Innovators’ sister site, DM Confidential, [Page no longer available – we have linked to the archive.org version instead].

Of course, we all know that lawsuits can take years to wend their way through the legal system, and that’s not even counting the appeals. In the meantime, what Overstock, and Amazon before it, are hoping for is that the Court will issue an injunction, enjoining the state of New York from collecting the affiliate tax.

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