Amazon vs New York – Affiliate Can of Worms

For years I have been paying sales tax (VAT) on purchases I make online through services such as Clickbank. It is inconvenient but it is much easier for Clickbank to work this way then to have to monitor the location of a seller and buyer.

The general rule in the US, as far as I can determine is that if you have a business presence in a state, you have to pay tax there. This applies if you own your own servers in the sate, or if you have employees.

Thus it might be beneficial for me, living in Europe to only rent servers, and to avoid hiring someone from the US as a full-time employee.

The New Law Amazon Is Fighting Affects All Affiliates

The chances are if you have an affiliate program, that at least one of your affiliates is based in the New York area.

If the logic Amazon is using is correct then anyone with an affiliate program is going to have to pay tax in NY, even if a sale is made though an affiliate link owned by a non-NY resident.

Impossible To Determine If Affiliate Has NY Presence

Whilst it is possible to limit an affiliate program to only affiliates from outside New York, it would be extremely hard to police.

An affiliate themselves could have employees in NY, or run servers there.

Can of Worms

Ultimately it seems to me the only fair way to handle things is an all or nothing approach. Tax all internet sales or none of them to New York residents.

If you run an affiliate program yourself, it might be time to consult your tax and legal advisors.

For more in depth coverage from a couple of weeks ago please refer to:-

Revenews
Internet Retailer
5 Star Affiliates Programs
Internet News

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Comments

  1. St Louis Missouri Real Estate says

    This is going to turn out to be a nightmare! Whenever there is money involved the greedy slobs will find a way to get thier hands in the supply chain.. makes me sick really

    great post

  2. says

    I’ve practically given up on the Amazon affiliate program. Affiliate commissions have plunged considerably over the past two years, with no hope of any recovery as far as I can tell.

  3. says

    Interesting post Andy,

    Looks like the government or at least some parts of it in US are once again trying to find a way to tax the internet proceeds. This is going to be a really screwed up situation and I think they have correctly calculated it would become one and simply hoped they can use the confusion.

    Alex

  4. says

    Hi Andy!

    Let me say upfront that sales tax is not value-added-tax (VAT) as we know it in Europe! It’s a different tax system. They both have in common that the consumer pays it, but collection is different.

    Sales tax has many loopholes for tax evasion, which have been closed by French economist Maurice Lauré, who invented the VAT system in 1954 at the cost of high administrative burden.

    NY will fail (hopefully), because it cannot fix a federal problem (sales tax principle) with local state law.
    Go for it Amazon, sue the hell out of them!

    By the way: Is 50 millions out of a 122 billion budget worth so much fuzz. I doubt it. It’s the declaration of bankruptcy by politicians, who don’t have a clue about economics. It’s greed. Not good!

    Andy, what you observe with Clickbank and Godaddy is those 2 giants rushed to comply with EU VAT laws quickly out of fear. Probably after watching what the EU did to Microsoft. For those who don’t know, European resident consumers are charged an extra 15-25% VAT by those vendors and they pay this back to the European governments. Crazy, isn’t it. There are no 97$ ebooks, they start at 111$. Now US companies have to deal with European tax authorities directly. What’s next??

    Do you see the similarity Clickbank :: EU == Amazon :: NY ??

    1984 – Big Brother – George Orwell was a Genius

    Yours
    John

  5. says

    I’m in an industry that has been hurt quite a bit by the entire tax issue on sales on the internet, jewelry/diamonds.. While most states that have a sales tax also have a use tax that people are expected to declare and pay on out of states sales, the sad fact is that most simply do not pay it.. Whether it is through lack of knowledge about the law, or intentional tax evasion doesn’t really matter.. What does matter is that a lot of industries have seen their businesses substantially damaged by the lack of a unified sales tax / tax code on internet sales..

    What is needed is a program like the Streamlined Sales Tax Project ( http://www.streamlinedsalestax.org/ ) that is trying to find a fair way to collect sales tax on purchases that require it by law.. There is a lot of money that should be going to local government for basic needs like schools, police, fire, etc that is not being collected.. While some people may think that it’s not all that much money, when a small municipality is already having trouble maintaining basic service every little bit makes a difference..

    Then you have those that are loosing sales for the sole reason of sales tax.. For a real world example take a $10,000 diamond.. 7% sales tax means a “savings” of $700 when you buy from a Blue Nile and choose to not pay use tax.. The entire issue has become a huge level playing field problem that needs to be addressed and resolved in a fair manner for all involved.. And I expect we will see more and more of these types of things that happened in New York until it happens.. There is simply too much money at stake to just let it go uncollected.. And yes, I know way more about this subject than I ever thought I would :)

  6. says

    Regulating and overtaxing internet commerce is a great way for our government to stifle creativity and ruin a very beautiful environment.

  7. K. Huseby says

    Ah. Isn’t there somewhere in the history of law where it’s considered double jeopardy taxes when two states tax the same sale? Isn’t that what’s going to happen if New York taxes Amazon’s non New York resident affiliates? Because I imagine that what is what’s going to happen in many cases.

  8. says

    I really think that tax has to be tied up with someone physical residence because thats where he is using the most of resources that was funded by tax such as infrastructure etc. Even if he makes money somewhere else, his physical residence is still the one resources that “being used” the most.

  9. Marsha says

    I am a New Yorker and I am rooting for Amazon. The horrible politicians here don’t know what to tax next. We are so heavily taxed here that my family and I are thinking of leaving. If I still live here when Patterson tries to run for Governor I will definitely not vote for him and will campaign against him. He has allowed so much pork barrel spending in his budget and is trying to hurt the consumers with this unscrupulous internet tax. I say GO AMAZON!

  10. says

    Obviously a controversial subject. ‘NY’ says it’s not a new tax, just the attempt to collect an existing one. Whoever expected consumers to do bookkeeping on out-of-state in the first place , e.g. 3.77, 10.59, 45.23, 1.23, … $ and alike purchases was a fool. It’s certainly in a whole different dimension in the X0,000.00 $ jewelry business, but people are people and will always look for some ‘savings’ unless they are stopped systematically. Even before the Internet people bought in 47th Street in Manhatten and had their diamonds shipped to an out-of-state address, hadn’t they. As mentioned earlier, I think this calls for a federal solution applicable in each and every state in the same fashion otherwise it just is not fair to some residents and unfair to businesses, who will be forced to comply with a myriad of different standard.

    The second issue I ‘hear’ is obviously that more and more folks disagree with government misspending. For sure that’s true everywhere all over the globe. I join your outcry, too.

  11. says

    It’s unfortunate, but inevitable as well. Anything new that becomes as successful as internet selling will show up on a government radar somewhere. This would be a nightmare / expensive to police and administer. Hopefully Amazon wins, otherwise the floodgates will be open for every state to do the same.

  12. says

    Ah. Isn’t there somewhere in the history of law where it’s considered double jeopardy taxes when two states tax the same sale? Isn’t that what’s going to happen if New York taxes Amazon’s non New York resident affiliates? Because I imagine that what is what’s going to happen in many cases.

  13. says

    I am not a lawyer and not an expert in the constitution, but I recall looking into this issue before when my wife first started an online business. I am fairly sure that what NY is considering is unconstitutional and will be shot down by the court system. It may need to reach the Supreme court first, but I can’t imagine that this will hold up in court.

    It would be VERY bad for online business in this country if this does manage to stand up through the court system. I really hope NY fails. I also imagine that other big companies in the US with an Internet presence will get involved in the near future.

  14. says

    I’m going to give them the benefit of the doubt and assume that this is a temporary technical problem rather than a concerted effort to censor public feedback and appease real estate advertisers.

  15. says

    Are you not ‘supposed’ to report the items you purchased online, or other non taxable areas on your tax return? wouldnt that solve everything? …not that anyone does it