NY State Sales Tax Update

Unfortunately I don’t believe this report will give merchants all the info they need, because the law was clarified.

It’s not total sales from NY affiliates as we originally thought. It’s sales from NY affiliates ONLY TO NY residents. Most affiliate programs don’t pull any personal customer information, like ’ship to’ state, from the merchant’s cart.

Here is the official quote from the May TSB. http://www.tax.state.ny.us/pdf/memos/sales/m08_3s.pdf

“The cumulative gross receipts from sales by the seller to customers in New York State as a result of referrals to the seller by all of the seller’s resident representatives under the type of contract or agreement described above total more than $10,000 during the preceding four quarterly sales tax periods.”

So I think this could require a change in the merchant’s privacy policy to collect and pass data about the purchasers ship to state to a 3rd party, plus a change in the network pixel to pull that data into the network reports.

Hehe.. that happens if you go into details with things that are not set in stone . Yep, your post is pretty long now. My comments look short, so yeah, definitely long.

Since the whole things is still not clear, am I just throwing in some general ideas for how to work around certain things or how to fight this thing. The folks who came up with this thing obviously didn’t look at the real world to worry about the question how and if steps can be implemented in order for businesses to comply to the law, without breaking any other law.

I am also thinking out loud for myself, which might also triggers an idea or thought for somebody else. I try to provide a different perspective on the same issues. Brainstorming is the word I was looking for.

Its an effective method to make progress with finding solutions and workarounds if you don’t have time to plan and research something in great detail.

“you can place an advertising link on a site and rebut, BUT if you get paid based on sales then it it’s a different story”

50% of display advertising is CPA based nowadays and that share increases every year. Google’s Exec Marissa Mayer calls CPA the holly grail where everything is heading to. Online and Offline. Now you can subs CPA with Pay per Performance , because that is what those non-affiliate marketing folks mean by CPA.

The privacy issue is one of the biggest strong points against this, if it really spells out $10,000 in sales at a merchant in NY per affiliate based in NY to customers who live in NY per Calendar year. No single entity can figure out this number without raising serious concerns about violation of consumer privacy. Folks would not be happy about that, regardless if it is legal or not to move personal identifiable information between 3 different parties in order to figure out a local state tax that no Joe schmo understands in the first place.

I have nothing to gain or loose here. I’m not a NY affiliate and not a merchant or even an affiliate manager. Just trying to be an industry advocate, because I see this problem mushrooming if the NY law isn’t challenged.

ALL that being said… everyone knows how committed I am to affiliates… but if I was a merchant with a limited or even say a good understanding of this problem, I don’t honestly know what I would do.

The part we are discussing, having to do with affiliates, nexus, rebuttals is only a small piece of the puzzle. If merchants have to pay the tax they are going to have to set up systems to collect it and I hear NY is crazy. Different taxes not only in different counties and cities, but I’ve heard certain types of products are taxed differently than others. So for merchants this is a big nightmare to implement.

I’m not an attorney (that should be obvious by now) but I would think merchants could challenge this based on the fact that there simply was not enough clear info and they were not given adequate time to implement everything by June 1. Merchants can’t even get the data to know if they hit the 10K threshold and need to pay, much less do they have time to deal with all the other ramifications and set up NY tax collection systems. Some merchants are now just getting wind of this and have no clue what to do. Just crazy!

You wrote in comment #2:
“Hmmm. I was banking on George’s interpretation, and even paraphrased it in an email to a merchant that just dumped me”

I still tend to lean that way – but there is some double talk or conflicting wording that makes it difficult to just go with George’s interpretation, which initially I thought was correct. But then read this and see if your eye’s glaze over.

“In addition, an agreement to place an advertisement does not give rise to the presumption described above. For this purpose, placing an advertisement does not include the placement of a link on a Web site that, directly or indirectly, links to the Web site of a seller, where the consideration for placing the link on the Web site is based on the volume of completed sales generated by the link.”

Even though other places in the doc, I read it the way George did, it was pointed out to me that the way it is written COULD be saying you can place an advertising link on a site and rebut, BUT if you get paid based on sales then it it’s a different story.

BTW you can find that paragraph on page 2.
The paragraph above Example 1.

I feel like you’ve possessed me. This post is getting so longs it looks like a “Carsten” post!

You said: “can only use affiliate links and banners provided by the merchant”

Well, you should, or commissions would not be tracked properly. I don’t think that this is a key criteria here. See my comment/question above.”

Sorry was in a rush and didn’t say that right. Also amended it after I talked to John Dozier Esq., Managing Partner of Dozier Internet Law. John is one of the leading Internet attorneys out there.

What I meant by that is should only use web based links, meaning links you get from the merchant and put on your site, as opposed to a flyer or newsletter with coupon codes, and links to the merchant’s site or any other form of advertising. John pointed out that every reference in the doc is about “links” they don’t mention banners. I had assumed and written banners. But they only say links – so I just removed any mentions of banners and that’s another point that needs to be clarified.

It’s not a matter of push-pull, there’s something else behind all this. That’s not it.

“If Advertisers add to the TOS the clause to make affiliates liable,”

This has nothing to do with making affiliates liable. The merchant is liable.

I don’t think it would be wise or even help if a few affiliates didn’t allow NY visitors on their site. Segmenting their email list to be sure NY residents don’t get any emails or at least emails that are selling the merchant’s products would probably be wise.

Thanks for weighing in! We are compiling a list of questions for the NY tax officials and I’ll include as many questions from you guys as I can.

Thanks for reading the blog, Linda. This is an issue that impacts me very personally, so I’m trying to stay on top of it.

It’s affected me beyond affiliate marketing as we define it here too, as a distributorship deal I had in the works is now on hold as well.

Onwards and upwards

Anyway, I’ve been editing and re-writing much of the original post based on info from the Internet attorney I talked to. He said there were different ways to interpret the info in the TBS and didn’t necessarily see in the same way the DMA attorney did. Could be even just links would count, even with no other form of solicitation.

SEE ORANGE UPDATE for info from my call with the attorney and his contact info for anyone that needs help.

RE your questions on mandates, registering, rebutting. Have not been able to get a good answer – but we have a Q& A Session set up with NY tax officials and all the Q & A will be published in a new FAQ. That’s one of the questions I want to submit.

Also Kevin I just edited, updated and added lots of info about the issue you raised re: “NY affiliate sales to NY residents?” That opens a whole new can of worms. That post has gotten so long it’s hard to point you to the right part to will just copy it here:

One of the big problems some merchants are facing right now is that they have not been able to get the info they need from networks to find out IF THEY ARE EVEN LIABLE for charging/reporting/paying the NY sales tax.

The magic number is $10,000 in sales made by NY affiliates TO NY CUSTOMERS over the past 4 quarters (see actual wording below.)

QUOTE: “cumulative gross receipts from sales by the seller to customers in New York State as a result of referrals to the seller by all of the seller’s resident representatives under the type of contract or agreement described above total more than $10,000 during the preceding four quarterly sales tax periods”

Merchants with affiliate programs on networks are not privy to affiliate addresses and have no way to run a report of sales based on affiliates in New York. The exception being Shareasale who jumped right on this and set up a report for merchants, Kudos again to Brian and team! The last I heard merchants on the major affiliate networks have been unable to get sales figures for NY-based affiliates.

The “to customers in New York State” is a new distinction from what we can tell. It’s good news in a way in that some merchants now won’t hit that threshold, but throws another big new wrinkle into the picture. The networks could possibly run a report for merchants based on total sales from NY affiliates. HOWEVER the networks don’t capture personal data on the customer, like where he lives. So there is no way for a network to tell a merchant how many sales from NY affiliates were to NY customers – NONE! So it’s impossible for any merchant working with a network to know if they meet that 10K criteria. as it’s currently written!

Even Brian’s report won’t work (I don’t think) because it’s pulling total sales volume, not sales volume only from NY consumers. I would think for a network to pull personally identifiable data, like a consumer’s address from a merchant’s cart, would violate a few privacy policies and make consumers pretty upset that their addresses were being passed to a 3rd party!

In other words “push marketing” Noe (=tax) , “pull marketing” Okay (=no tax), right?

“can only use affiliate links and banners provided by the merchant”

Well, you should, or commissions would not be tracked properly. I don’t think that this is a key criteria here. See my comment/question above.

A button/banner and/or affiliate link on a site won’t do any good. They are usually surrounded by something that has to do with what the merchant offers but is also of interest for the customer and the reason why he comes to the affiliate site (or clicks on a PPC ad of an affiliate).

flyers, newsletters, telephone calls and e-mails (emails that have the primary purpose of “selling” a product on behalf of the merchant) are all push marketing methods.

Search (Paid or Organic SEO) and Website Content are pull marketing. The customer is not solicited, but asks for it.

If they go further than that, then they expand the reach of their law to incorporate a lot more than just affiliate marketing. Coupons and Cash Back sites are border line cases, push and pull at the same time, but if you look at behavioral targeting in display advertising things get really blurry. That would be a good tactical move by NY affiliates to make themselves appear more like entities of traditional display advertising, even if that means to form another company, one that generates the content and acts as publisher and another who acts as Ad Server or Ad Network that provides the advertising and does the ad targeting and tracking.

If Advertisers add to the TOS the clause to make affiliates liable, affiliates who might be affected (who have email lists for example) should update their TOS as well and prohibit consumers from NY to register, sign-up for the newsletter or use the website. Warnings could be shown to users on a website based on IP addresses. That helps with proving to the merchant or the state of New York that you did everything you could to prevent to do business with people of the State New York.

Most affiliates should be able to survive the exclusion of New York residents from their sites, newsletters etc.

It would also trigger a backlash to the state of New York, because its people will probably not like if more and more online sites and businesses refuse to do business with them and state as the reason for the refusal that they don’t want to break any law that is limited to the state of New York only.

You might don’t have to ban New York state residents from your website, but you have to exclude them from any push marketing or something that could be considered push marketing (depending on the type and content of the email sent to a user, lines between push or not push can be very blurry)

Both mentioned tactics can be used together and work the issue from two sides at ones.

Having been on the call today as well, I have to mostly agree with your assertions above. At the same time, perhaps you can shed some light on the one thing that would possibly make me disagree with parts of it (hopefully this comes up with your attorney friend).

One is the governing principle mandating whether or not a merchant must register with the State as having to collect tax?

Are all merchants with NY affiliates bound to do so ahead of rebutting?

Is it just the ones who have more than the $10k in annual NY affiliate sales to NY residents?

Short of that, there’s no real harm in adjusting TOS to apply differently to New York affiliates, so long as it is stated in a way that is in concurrence with the law, and not broad, unnecessary restrictions.

Heather