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18 comments…add yours

1. #1 Linda Buquet wrote on Friday, May 23rd, 2008:

   John just called to discuss some more issues and I got clarification on #4,5,6. Pretty complicated, but something merchants should know that fit into the following scenario.

   1) You want to continue to work with your NY affiliates

   2) You qualify and are going to register to pay the tax

   3) BUT IF there is no way you can implement all the technology and other systems needed in order to be able to charge and collect tax by June 1 - IF it could take a couple months for you to get systems in place, all the tax you have to pay NY will come directly out of your pocket - will not be a pass-through from consumer, to you, to NY.

   So what he’s referring to in 4,5,6 although not very clear in the blog, could help. I can explain by phone if you want to call, just don’t have time to type it all out.

2. #2 5 Star Affiliate Marketing Forums wrote on Friday, May 23rd, 2008:

   New York Affiliate-Based Sales Tax Law - IMPORTANT!…

   Dozier Internet Law: 10 Tips for New York Affiliate Tax Problems

   Yesterday, I took it on myself to contact a leading Internet attorney - John Dozier Esq., Managing Partner of Dozier Internet Law. A……

3. #3 72 Kilowatts Affiliate Marketing » Blog Archive » Unhappy Friday Reading, and a Message to New York State wrote on Friday, May 23rd, 2008:

   […] Linda at 5 Star was kind enough to point this post out to me on some thoughts from a legal brain on the current state of affairs for New York (and down the road, other) affiliate marketers. […]

4. #4 Phillip Dampier wrote on Friday, May 23rd, 2008:

   This morning’s media has news that consumer groups are now calling on retailers to ditch affiliate programs in New York to protect customers from the forthcoming sales tax. Newegg, Amazon, and Buy.com are all under pressure to temporarily suspend affiliate programs. I have always been surprised just how important Newegg is to the state of New York. They are always mentioned as part of the big three.

   What has happened in the last several days is Newegg has notified their NY customers of the forthcoming tax. As each Internet retailer sends out a new round of notifications, it prompts renewed coverage. As the media is reporting it, New Yorkers are being forced to pony up an average of 8% because retailers value their affiliate arrangements over those with their actual customers.

   But the biggest coverage of this story is planned for later this week as June 1st approaches. Most New Yorkers are only vaguely aware of this tax change until the media blitzes it in the coming week. Then watch out.

   The media narrative is very simple - who does the retailer value more - the end customer or the independent affiliate who is earning a percentage of revenue based on sales? The inevitable consumer backlash is against the retailer, especially when Overstock reps are delivering:

   “We protected our customers by treating them as our number one priority. We understand some websites who make a lot of money from us and our customers might be temporarily inconvenienced, but we decided to stand first with our customers until this tax can be overturned in the courts.”

   So, media reports indirectly advocate consumers contact retailers and tell them to suspend affiliate programs to protect consumers.

   Also not helping are some affiliates themselves, who are still whining only about their bottom line. All the media needs to do is quote from some of the blogs covering this where I’ve seen comments like, “I need to get paid! Screw Overstock, Yay Amazon!” or “This will cost me thousands. Overstock needs to charge tax like everyone else and stay loyal to their affiliates first! New Yorkers owe the use tax anyway!”

   Uh, no. Wrong narrative. Moronic positioning. Greedy affiliates willing to throw consumers under the bus is exactly why consumers are now telling retailers to throw affiliates under the bus.

   There is only one significant way an affiliate trade organization can make an impact that suggests a consumer-affiliate partnership. Take some of the thousands and hire an attorney with the specific objective of getting a temporary restraining order in place pending the resolution of the court case or help launch a PR effort to light some fire under the NY State Legislature.

   Everything else is frankly hot air that will not generate any interest in a partnership with consumers and state residents, who will vastly outnumber the political website operators with a profit agenda. The unfortunate reality in New York, which has among the highest taxes in the nation, is that the positioning that this is anti-business does not work in this state (otherwise taxes would not be as high as they are now). Instead, this has to be positioned as a consumer -and- business issue, particularly with the heightened political tension going on in the state over the governor and the state legislature. Consumer backlash stopped this the first time it was raised by Spitzer. It snuck back in during the turmoil with Spitzer’s resignation.

   BTW, as a business owner and resident of the state of New York, one important recommendation. Never ever dismiss the New York State Department of Taxation and Finance. They don’t play… ever. These people are Stalinist in enforcing state tax law and are extremely litigious - the most aggressive tax collection authority in the entire country and they are very proud of it. In New York, they padlock first, ask questions later. The penalties are enormous. It will be interesting to see the implications of exactly how the State of New York seizes the assets of some e-tailer in another state because they missed a quarterly tax filing, and demands jail time to boot. Businesses are routinely shut down very quickly after missing a sales tax payment. People go to jail routinely here for pocketing sales tax revenue owed to them.

   They don’t listen to excuses. They don’t care about your problems. Our extremely complicated tax system (each county or community can and do impose their own local tax rate on top of the flat state tax - and those tax rates change constantly) is never their problem - it’s yours. All they care about is getting paid.

5. #5 Linda Buquet wrote on Friday, May 23rd, 2008:

   Wow Philip, thank you so much for the long insightful feedback. I’ve posted over at Revenews too that it’s the consumers we need to align with as they have more of a voice in NY than affiliates or outside etailers do.

   It’s so helpful to hear viewpoints from people that aren’t in the affiliate marketing industry and also people who are in the state and have more insider info on what’s happening.

   And good to hear some of the misconceptions the public has about the affiliate marketing side of this. See my new comment #7 below.

   I need to hit my feedreader and catch up on todays news. I was reading til midnight last night, but I figured a bunch of news would hit this AM.

   Thanks again.

6. #6 Kevin wrote on Friday, May 23rd, 2008:

   Phillip: I agree with 99% of your comment with the exception of this:

   “Uh, no. Wrong narrative. Moronic positioning. Greedy affiliates willing to throw consumers under the bus is exactly why consumers are now telling retailers to throw affiliates under the bus.”

   Greedy? How about business continuation. If you were getting dropped like some NY affiliates are (I’ve been fortunate as my vertical primarily has merchants that previously charged the tax), I’m sure you’d be “whining” too.

   Yes, the affiliates need to recognize their role in this conundrum, but to not voice an honest public opinion of this situation, and how it affects them as NY residents would be folly.

   When we over “frame” arguments, it amounts to just a pack of watered down half truths.

7. #7 Linda Buquet wrote on Friday, May 23rd, 2008:

   Hi Kevin,

   Totally agree with you!

   However there is something very important in Phillip’s comments that I think we in the affiliate community need to be sure we are aware of.

   Note: he’s made other, pro-consumer anti-affiliate comments and MUCH more negative comments about affiliates other places.

   From Dampier at the Slickdeals forum:

   “Instead, I am reading the bottom feeder greed patrol whine about their bottom line and how evil Overstock is for standing for their actual customers first instead of their affiliates, some of whom are running sleazy spelling error link sites, “product review” cookie cutter web pages which purport to be independent reviews but actually exist solely to shill products for their cut, and worse. Think late night infomercial and then sleaze it up more and you’ve got some of these folks.”

   BOttom line - because of the spammers and scammers in our industry we don’t have a good rep and many consumers, other marketers and politicians
   probably have the wrong impression of affiliate marketing too.

   So back to the tax law:

   1st we need to realize that if we were a NY consumer who knew nothing about affiliate marketing or who worse yet had misconceptions such as affiliates are just a bunch of spammers - then we would have a totally different viewpoint on this issue.

   If we were NY brick and mortar stores who have to collect tax and compete with online merchants who don’t, we’d have an entirely different viewpoint.

   I wrote this over at Revenew in response to Phillips comments on my Overstock throws affiliates under the bus post. See: Overstock Your PR Sucks - Plus Affiliates Fight NY Tax Law comment #8.

   Quote from my post at Revenews:
   “we as an industry are highly misunderstood, don’t have a positive image with consumers and have little to no leverage with politicians. We don’t have a chance of fighting this law from our own narrow perspective. (see his Phillips comment #8 on Overstock thread)

   HOWEVER, if we can get some NY affiliates, merchants and networks to join with the NY CONSUMERS who are also fighting against this law, maybe we’ll get somewhere. There is power in numbers and it’s the voters of New York that count! Not a bunch of “rogue Internet marketers” and bloggers from other parts of the country.”

   So my point is I LOVE comments like Phillip’s because it helps us see how the “other side” is thinking. Keep your friends close, your enemies closer!

   I don’t know what consumers initiatives are working to block, stop, fight this tax law, but I think finding and joining the consumers is our best shot. THERE IS POWER IN NUMBERS.

8. #8 Linda Buquet wrote on Friday, May 23rd, 2008:

   RELATED NEWS: Per the bottom of this post:

   “FURTHER ACTION: A group of industry leaders and I are in direct communication with Jim Connolly, Staff Attorney in the Office of Counsel to the Tax Department of the State of New York. We are pulling together a list of important questions in order to get clarification on numerous issues. Jim has agree to answer the questions publicly. There are many gray areas and much of the language is unclear, so this should help everyone a lot. If you have questions please post them and we’ll include the most relevant ones in the list that goes to Mr. Connolly.”

   I got all my questions in yesterday and the rest of the group is finishing theirs and then they will all be sent to the NY tax authorities. There is a lot of conflicting info out there and I’m afraid from what I’m learning now that the much of advice that came out of the DMA call may be wrong. “MAY” is the KW.

   I’m hearing from more than one source now that the DMA interpretation was wrong regarding affiliate links. IT was expounded on in more detail during the call, but is spelled out in writing here: See last paragraph.
   http://www.linkshare.com/share/pdf/ny_isaacson_analysis.pdf

   Now I’m hearing from other sources that Merchants that meet the 10K rules and have NY affiliates with affiliate links ONLY and no other form of solicitation still qualify as nexus. They read the TBS distinction about web links to be traditional advertising links are exempt, pay for performance or pay per sale or CPA links are not. (this is one of the main issues I want clarification on in the questions I sent in.)

   I’m hearing from a variety of sources now that lead gen IS taxable and could create nexus just like product sales. (Supporting commentary at Revenews) The DMA call hinted lead gen would not be an issue. (Supporting commentary on this at Lisa’s Revenue Magazine blog.)

   It’s all so vague and subject to interpretation, that I think this Q & A or FAQ we get from the NY tax authorities themselves is going to be critical in helping merchants understand this law. I only hope we get answers in time!

   The second I get word our questions have been addressed I’ll be posting the info.

9. #9 Kevin wrote on Friday, May 23rd, 2008:

   I’d just add that New Yorker consumers should take the “affiliate piece” out of the equation. Affiliate marketers and other similar pay for performance situations are just the pawn in New York’s by-stepping of the Constitution here.

   What perhaps we should be saying to consumers is that “don’t worry about the affiliate bit, just recognize that New York will apparently stop at nothing to tax its citizens, including inventing their own definitions of business.”

   If this measure fails, New York will get more creative.

   I would urge New Yorkers to think about this beyond the scope of affiliate marketing, and think of it more on the scope pure, unadulterated “government out of control”.

10. #10 Linda Buquet wrote on Friday, May 23rd, 2008:

    More excellent points Kevin!

    I just hope the media doesn’t frame it the way Phillip is saying. Because the truth and reality can be easily skewed by the media saying this is all about merchants choosing affiliates over their customers.

11. #11 72 Kilowatts Affiliate Marketing » Blog Archive » A Framework for Discussing what the Nexus Tax Means wrote on Friday, May 23rd, 2008:

    […] I initially read Phillip Dampier’s comment on 5 Star Affiliate Program’s blog, I was concerned that he was going the way of so many by just dismissing affiliate marketing as a […]

12. #12 Linda Buquet wrote on Friday, May 23rd, 2008:

    I highly recommend reading Kevin’s latest blog above!!!

    72 Kilowatts Affiliate Marketing » A Framework for Discussing what the Nexus Tax Means

    It supports what I was saying about how NY affiliates and NY consumers need to unite on this issue.

13. #13 Phillip Dampier wrote on Friday, May 23rd, 2008:

    I am certainly well aware of what honorable affiliates can and do offer. Slickdeals, in and of itself, is an example of earning commissions from referral revenue based on links being promoted on that site. Everybody wins - good deals for consumers, good income for them. There are many websites that participate in Adsense that are completely honorable (note how the 800lb gorilla, Google, has managed to avoid this entire debacle BTW).

    But then there are the bottom feeders. In fact, they represent a very significant portion of the affiliate-industry concept. Most consumers who know anything about affiliate programs are already well aware virtually every affiliate program bans spamming, so I don’t see that as an issue here. I don’t bring these people up just to tar the affiliates as shady dealers, but frankly to push back against some of the nonsense I am reading on website monetizing forums and blogs from a significant number of these people.

    I have efforted myself to drum up efforts to turn this into a win-win for affiliates -and- consumers, but so far outside of this blog and a few other responsible entities, the majority of what I have encountered comes down to this:

    1) The only thing I care about is maintaining my affiliate agreement. I don’t care about the sales tax issue as long as I don’t have to compute the taxes myself and I continue to earn. Go away.

    2) Anything that threatens #1, and that includes consumers, is to be attacked at all costs. That’s where I get the replies about “you owe the taxes - stop interfering with my right to earn my money.”

    The response I get from retailers is decidedly mixed. Several are considering throwing their affiliate programs overboard because their competitors are going to avoid having to charge NY tax (Newegg vs. Chiefvalue is an excellent case example - Newegg will charge tax, Chiefvalue will not - the two entities are significant competitors and Newegg is now disadvantaged charging sales tax while Chiefvalue need not). Others like Overstock have treated this as great pro-consumer publicity. Amazon right now is standing by its affiliation program because, as I read in their court filings, to do otherwise undermines their lawsuit. The Amazon suit is actually quite readable and folks should read it. It uses the very definition of their affiliate program as a rationale for why NY has no case. It specifically defines the place “associates” have and what place they do not. To throw that program under the bus undermines their legal argument.

    (Unfortunately, Amazon’s argument that they are being targeted unfairly will never fly now that other merchants are also forced to comply.)

    The argument that if New York doesn’t get their tax one way they will try another is frankly speculation so it’s not worth debating at this point. Short term is exactly the priority for everyone at this moment in time.

    As it is, this charming mess got snuck through in the budget in the height of the nightmare over Spitzer’s departure. I don’t think most legislators were even aware of it (things in the state legislature are decided by three people, the leader of the Senate, the leader of the Assembly and the governor. All others are along for the ride.)

    I continue to suggest that the route to successfully challenging this is that everyone do their part. Consumers are already screaming at our state legislators about it - that is what made Spitzer back down the first time. Affiliates need to take the issue more seriously than many have to date, where they honestly don’t care unless or until it costs them something. For someone to argue that if not this time, next time New York will succeed, one must also accept that New York is also a germinating seed of new taxation that will spread like kudzu with other states, until a dozen or more all demand their cut. I realize I am preaching to the converted - you folks already are doing something tangible and I applaud and agree with it.

    Since Amazon mysteriously has not yet demanded a TRO, that needs to be the immediate goal for everyone because it will happen much faster than our state government ever will. In reading the suit, Amazon’s arguments are incredibly strong and I can easily see them prevailing. Frankly, the arguments NY State makes border on the silly, and I suspect the legislation was probably suspected to fail a court challenge when it was written in the first place (this isn’t the first time lawmakers pass legislation they know will never pass the court challenges.) But NY doesn’t have to return anything they collect either, as it would constitute legitimate proceeds from “use tax” provisions.

    What also surprises me is how many people on ALL sides, affiliates, retailers, and consumers still have their heads buried in the sand on this, hoping someone will make it go away before June 1st. It will be interesting to see the chaos ensue next week.

14. #14 Kevin wrote on Friday, May 23rd, 2008:

    Phillip:

    It’s long been maintained by myself and many other affiliates that I know personally that the “bottom feeders” will eventually cause more trouble for us than simply being competition.

    Your assertion that the real issue is the tax is spot on. Obviously, here and at other reputable affiliate websites you’ll find that the tax isn’t really the focus, but rather the agent of our demise. And from an angle of fairness, I suppose that’s ok.

    You’re also correct though that these writings are public, and can be misconstrued in many ways, either by the media, a non-affiliate citizen that happens into our world, or a myriad of other scenarios.

    We need to be cautious, as although our intent is to discuss this with each other, we speak loudly, and the internet is a big room.

15. #15 Consumer Backlash Over New York Affiliate Tax Could Hurt Us - 5 Star Affiliate Marketing Blogs wrote on Friday, May 23rd, 2008:

    […] latest really detailed conversation that’s developed in my last post about the tax issues. Dozier Internet Law: 10 Tips for New York Affiliate Tax Problems… BE SURE TO READ […]

16. #16 Linda Buquet wrote on Friday, May 23rd, 2008:

    Meant to blog this yesterday…

    Performics has an update on the NY tax issue and a way for merchants to pull reports on sales volume from NY affiliates.

    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.
    
    I blogged about this issue on the 22nd after I was on the call with the DMA tax counsel.

    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.

17. #17 Kevin wrote on Friday, May 23rd, 2008:

    Spot on. I don’t see where the merchants are going to want to get involved with tracking consumer personal data, so these reports will always be a guideline, and by no means an absolute. Imagine the privacy policy changes merchants would have to make if they started exporting that info.

    The downside is, we’ve already seen merchants make statements in their termination notices to affiliates that aren’t even close to showing they have an understanding of the changes.

    So this kind of reporting could actually hurt the cause rather than help it. I’ve seen the SAS report, and the description that goes with it, but we all know that merchants don’t read everything the networks give them to read. Merchants have been making that mistake for ages ahead of this issue.

18. #18 Phillip Dampier wrote on Friday, May 23rd, 2008:

    Just noticed some news that Deep Discount CD/DVD is terminating their affiliate program for NY state. “We have decided to ensure our customers in New York can continue to get great deals without incurring any sales tax charges by terminating our affiliate program for New York websites. Our first priority must always be to our customers, which is why we are taking these measures. Only Illinois state residents are charged sales tax at Deep Discount.”

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