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Friday, May. 2, 2008 at 8:42 am

Affiliates May Be a Tax Liability! Amazon Sues New York…

By Bryan Eisenberg
May 2nd, 2008

The New York Times is reporting on Amazon’s lawsuit contesting the recently enacted New York state law which requires online retail outlets to collect sales tax on items sold to the state’s residents.

Slashdot sums up the new tax law:

“…based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates–from big publishers to tiny blogs–that feature links to its products.”

We should all support Amazon in their fight. This could affect all of us who buy online in the future — at least in the United States. Let’s all buy something from Amazon today to show our support of their fight.

P.S. – If you need a suggestion on what to buy, you can always pre-order our next book, Always Be Testing.

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Comments (13)

  1. Well, I don’t know much about tax. But I thought that a golden rule is ‘interfere with how things work as little as possible.’ If a tax system makes money go where it wouldn’t have, people live where they wouldn’t have or Etailers pull the plug on affiliate programs there is something wrong with the system.

    Sales tax was bound to collide with online retailing. Just as paralel pricing was.

    Speaking of…,as a ‘foreign’ consumer, we can see that the difference between a macbook pro (US) and a macbook pro (Australia) is unreasonable ($670 USD). If we’re buying online anyway,

    What’s the connection? As online consumers move from the fringe to the center of gravity, the global ‘market’ begins to look like the only market. Taxes/tariffs/freight/slight product variations and such are fine so long as they reflect a world that exists outside of these rules.

    When you start regulating a ‘market’ that exists only within or because of the framework you set for it, it’s probably time to start rethinking the whole thing.

    Bottom line: Physical location is irrelevant. The location of an affiliate (or amazon HQ for that matter) is irrelevant.

  2. If this is true, we will charge NY state a processing fee 10% higher then their sales tax to cover our cost to handle this.

  3. This tax rule in New York has been there a long time, this isn’t new, they are just trying to make it more specific because companies have been dodging it for so long because the language is so unclear.

  4. FYI: For the last couple of years Barnes & has been collecting sales tax in every state that has a sales tax. And despite this putative disadvantage its sales have grown since the tax change — though, admittedly, not as dramatically as they have at its much larger competitor. Bottom line, though, is that it’s hard to feel sorry for the burden New York State is trying to place on Amazon. Somehow I think they’ll survive even if they lose in court.

  5. Lets hope wins. They may be able to handle the extra inconvenience, but the small-mid-sized businesses would be litterally put out of business by this if adopted all over; and lets face it the Streamlined Sales Tax proposal is a joke. I mean who has the resources to keep track of 150+ county and city taxes in each state, some of the biggest players in the industry would even have trouble doing that.

    I know they say there will be a limit on merchants doing under 5 million dollars would not have to report but with how small margins are today and how time intensive collecting the taxes and reporting all of them would be I cannot see how it would be feasible for even a 20 million dollar a year business.

    The only fair thing that I can see is continue the tax free internet or adopt a low flat tax system, say 3%-5% of order total less shipping for each tax. That way you only have to keep track of 50 states and the total to each state, then let the state disperse the money as they see fit.

    For you that will argue an internet tax is only fair for brick and mortar to compete and the government needs the money, I would disagree because web merchants are already at a disadvantage. They have to compete with 10,000s of businesses vs maybe 100 similar businesses in a very large city, and they have two pay shipping twice, once to them and again to the customer which is either passed to the customer in a higher cost or absorbed by the web retailer. Finally, as far as the state being cheated of income, really they are already benefiting from the internet business in the way of property taxes, jobs, and supplies the business purchases….

  6. So… if they renamed the ‘affiliate program’ an ‘advertising partnership’ or ‘PPA’ (to take Google’s name for it)? Would they still have to collect NY tax?

  7. People, vote Ron Paul! The government is deceiving and abusing the people, of the US and the world. Do your research, buy Ron Paul’s new bestselling book “The revolution – a manifesto” if you care for the freedom of yourself, your children and everyone else.

    Secondly, of course Amazon would not receive lesser profit if it loses the court case. The Amazon books still are cheaper then in NY bookstores, and the Amazon website still has the same advantages as it has now of the NY bookstores. The ones who are losing if Amazon loses, are the people. Not only of New York, but everywhere. If New York wins, the rest will follow very quickly. Because of the big government there is almost no competition between states anymore.


  8. For the guy who commented that Barnes and Noble has sales tax on all states. The reason for that is because Barnes and Nobles has a “Barnes and Noble” store on all states!!Amazon has NO stores in NY state. This in effect is taxation without representation. This tax basically breaks a lot of rules!! Therefore we should definitely fight it! This is illegal and takes a lot of our rights away. They are charging tax for the sake of charging it!

  9. Marc,

    You nailed it. Great point!

  10. [...] Added 1:25 – The Grok says: “Affiliates May Be a Tax Liability! Amazon Sues New York…“ [...]

  11. Charging tax on a referral fee sounds ludicrous. Taxes should only be applied in the case of the purchaser and the seller.

  12. Wow, I swear the government tries to squeeze as much money out of us as possible. Amazon I hope you won, is there any up to date news :) ?

  13. This seems to be similar to general sales tax or GST as we call it where I live. I heard through certain internet circles that Amazon said good-by to those affiliates who are liable to collect sales tax, in certain states. They basically said if you move to an area where this rule doesn’t apply, we will be glad to have you back. (not an exact quote, but you get the idea).

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Bryan Eisenberg, founder of FutureNow, is a professional marketing speaker and the co-author of New York Times and Wall Street Journal bestselling books Call to Action and Waiting For Your Cat to Bark and Always Be Testing. You can friend him on Facebook or Twitter.

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