As many of you know, I’ve been working with a small group of people on the NY tax issue and we are in direct contact with Jim Connolly, Staff Attorney in the Office of Counsel to the Tax Department of the State of New York trying to get clarification on the many gray areas of the May 8 TBS and trying to help them understand how this affects affiliates and merchants. Cecily Lancit President of Affiliopolis.com is our point person who is in direct contact with Jim.

NEW YORK MERCHANTS - IMPORTANT. Especially for the merchants that kept your NY affiliates and amended your TOS. Changing your TOS is NOT enough to avoid nexus. Read on!

We just got some clarification on one very important piece of this puzzle. As you know one of the stances some NY merchants took (as opposed to dropping affiliates or paying the tax) was to amend their TOS to restrict any type of solicitation by NY affiliates, to NY residents accept for web links. Most merchants did this as a direct result of the LinkShare DMA conference call I was on and reported about. The advice is spelled out in a legal memorandum here. I tried to warn merchants several times in various blog posts that simply changing your TOS may not be enough to avoid nexus. We just got important clarification and a formal document detailing this part of the law and what merchants need to do.

From New York State Tax Department - Additional Information on How Sellers May Rebut the New Presumption Applicable to the Definition of Sales Tax Vendor as Described in TSB-M-08(3)S

I want to be careful not to try to interpret this as only a merchant’s attorney should try to do that. However I want to point out a couple important parts that relate to merchants with NY affiliates.

“The inclusion of language in a contract or agreement between a seller and a resident representative that prohibits solicitation by the resident representative is not sufficient, by itself, to rebut the presumption that the seller is a vendor.”

“Contract condition - The contract or agreement between the seller and the resident representative provides that the resident representative is prohibited from engaging in any solicitation activities in New York State…” (read the rest, it’s spells out a little better the types of solicitation that are prohibited.)

PLUS (THIS IS THE NEW INFO)“Proof of compliance condition - Each resident representative must submit to the seller, on an annual basis, a signed certification stating that the resident representative has not engaged in any prohibited solicitation activities in New York State, as described above, at any time during the previous year.” (See the rest of the details under Proof of compliance condition)

The doc goes into detail about several other important related issues. I still have lots of questions we just sent them to Jim. Specifically, what is the timing for merchants to get these signed certification statements from affiliates???

I also asked another REALLY important question which has been a gray area of concern for many who are really in the know about this, including attorneys I have talked to.

This new doc states “the only activity of its resident representatives in New York State on behalf of the seller is placing a link on the resident representatives’ Web sites to the seller’s Web site.”

My question to Jim, which we have never been able to get a firm answer on is “Since there is nothing mentioned about type of link this time and performance-based links are not singled out. Can we assume affiliate links are OK as long as these other requirements are met?”

Plus I asked for clarification of this part: “In weighing the significance of a seller’s reliance on certifications from fewer than all its New York resident representatives, the Tax Department will apply the standards for constitutional nexus set forth in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) and Orvis Co. v. Tax Appeals Tribunal, 86 N.Y. 2d 165, 178 (1995).”

So bottom line, at the very least, merchants who have kept NY affiliate (THANKS TO ALL OF YOU THAT HAVE) you need to take some other steps to be able to prove nexus.

STAY TUNED - I’ll add to this with any answers I’m able to get from Jim. I think Heather Paulson and Cecily will probably be blogging this too, so will add links to them so you can read their viewpoints.