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A New York court yesterday affirmed that New York can charge sales tax on sales made through affiliates who are based in New York state. Known as “The Amazon Tax”, and indeed the primary plaintiff in the case was Amazon, the rule says that so long as the affiliate is located in New York, and the company for whom the sales are generated has sales of at least $10,000 attributable to affiliates in New York, then the company must pay sales tax to the state of New York.
[You can see our full write-up of the decision here.]
So why am I writing about an affiliate sales tax issue here in Getting Email Delivered? Because a large percentage of companies that do email marketing also have affiliate programs. And while many companies have done away with email-based affiliate marketing, for ever so many reasons (mostly having to do with both what an email delivery nightmare it can be, and the potential for legal liability), I know that many of Getting Email Delivered’s readers still are administering – or participating in – affilliate programs in one form or another.
So, it’s important for you to be aware of the ramifications of this new ruling.
To understand what’s behind this, it helps to take a look at what the official New York State budget comments say about it. They say that this rule “Prevents a company from avoiding charging sales and use tax on internet purchases by creating independent but affiliated out-of-state entities to make those sales. Under this [law], a company would create a “nexus” in the state (and thus be required to collect sales tax) if an in-state affiliate uses a trademark, service mark, or trade name the same as or similar to that of the remote affiliate or if an in-state affiliate engages in activities that help the remote affiliate develop or maintain a market for its goods or services.”
Is your mind already reeling? There are several things about which you should be thinking. Does your company have affiliates in New York State? Or are you in New York, and a member of one or more affiliate programs headquartered outside of New York?
Are your email lists segregatable by state? Might you want to start considering omitting your affiliates in New York from some mailings or affiliate offerings?
Finally, think about the end users to whom you send email. If something in your email could lead them to make a purchase through a New York-based affiliate (either your own, or an advertiser’s) you may want to add some language letting them know that because there is a New York connection, they may incur sales tax that they otherwise wouldn’t, and that their sales transaction could end up being revealed in an audit should either the company – or the affiliate – be called in for a New York state tax audit.
Then, hope that Amazon appeals the rulling, and that they get the ruling overturned on appeal.
In the meantime, what actions is your company taking – or will they be taking – as a result of this ruling in New York?