72 Kilowatts Internet Marketing

Noise where we go, but quiet elsewhere

As affiliate marketers, we’ve been exposed to the NY tax information virtually non stop over the last few weeks.  In digging around, however, I’m surprised how few of the small business forums have touched on this topic.

I suppose there are a couple of reasons.

First being the fact that this was bandied about as the Amazon tax by the New York legislature.  That makes it sound like an internet only tax situation, which really couldn’t be further from the truth.  Overstock evidenced this when they dropped their relationship with Entertainment Book.  It doesn’t get much more “old school” than a book full of coupons.

Second, there aren’t a set of attorneys with the total skill set to understand what’s happening here.  As such, I’m not sure most merchants have even the FAINTEST clue that this is happening.  They aren’t being asked the right questions, and therefore aren’t turning around and asking the right questions publicly.

One thing I don’t know is how New York identifies and contacts all of these merchants to inform them of law changes.  Is the burden on the merchant to just know?  I’d be curious to know if any of you have insight on that.

So what I’m saying is that we can’t count on the silence we’re hearing from a lot of merchants (of the 10k plus programs I believe exist, I think I’ve heard comments from under 50) being a prelude to action.  It might still simply be ignorance.

Maybe Not So Simple?

Linda at 5 Star is reporting that her call with a respected internet attorney wasn’t so cut and dry today.

We knew this wasn’t going to be easy.  I can’t help but wonder:  Did the industry react in time to make sensible choices in the coming days?  If we had some form of organization, no matter how loose, could we have prevented this mayhem by acting back in April?

Hyperbole at this point, since it’s water under the bridge.  A better question is how to prevent the next fiasco.

My overall impressions of the DMA Tax Call

Just my interpretations of opinions given by attorney George Isaacson on the call….

1.) Traditional affiliate marketing does not constitute a nexus, based on the wording of the May 8th memo. The memo, PERHAPS, is a direct response to the Amazon lawsuit in an effort to keeping the law “constitutional”.

2.) NY affiliates cannot specifically target NY customers in any form out side of web links and remain “unaffected” in the eyes of the merchant.

3.) The merchants, not the networks, are specifically charged with knowing the revenues of all performance based activity done by NY residents to NY customers.

4.) NY affiliates MAY (and this is still a sticky one) email market to NY residents providing they do not SPECIFICALLY mention a merchant by name in the email. Mentioning a merchant name would potentially qualify as “additional activity”, and therefore make them a party to the nexus definition.

All in all, I think the call was what I expected, and a good one. Here’s the downside.

Merchants still have to apply as a tax entity, then rebut that they have a nexus in NY based on having only traditional affiliates. Second, the burden of proof falls on them to prove that their affiliates are NOT engaging in “other activity”.  (UPDATED Note:  I’m still not sure exactly who has to register, and who doesn’t…  What step is between “registering” and “rebutting”, etc.)

Might still be too much responsibility for some merchants to hold on to NY affiliates at least, and perhaps their programs, at worst.

Merchant Responsibility and the New York Tax Law

Having just listened in to the DMA call on New York’s tax law, and how it relates to all forms of affiliate marketing, I gleaned the following:

1.)  Merchants, not the networks, are responsible for determining how much revenue their New York affiliates are generating.  While it certainly would be helpful for networks to provide that info, such as Shareasale has, the ultimate responsibility will fall on the merchant, especially since a nexus could be in fact established via other means, outside of traditional affiliate marketing as we know it.

2.)  Merchants are NOT automatically exempt or amnestied simply because their affiliates provide no other promotional means outside of traditional web links, which is now commonly believed to not present a nexus scenario.  They must register, and then rebut the fact that their affiliates have established a nexus.  This is important, in that while I believe traditional affiliate marketing falls outside of this scope, it requires merchant action to prove.  As well as having the burden of proof fall on the merchant.

3.)  Merchants should in fact specifically word their contracts to preclude New York affiliates from making overtures to New York residents in any way that falls outside of web linking.  I will have a deeper most on that in a few minutes.

Kudos to Hips and Curves

NY Affiliates are OK

As a taxable merchant, based on their goods, Hips and Curves has chosen to read the Taxation Memo the same way I have, and indicate that virtual affiliates are not inclusive in the Nexus Syndrome.

Hats off to Hips and Curves for being progressive.

It’s not just Trademark Poaching

I’ve talked about this quite a bit over at Abestweb, but I wanted to note quickly here that we tend to use the term Trademark, especially in relation to poaching (i.e. bidding on the term when forbidden by the merchant) pretty loosely.

The real issue is bidding on merchant restricted keywords.

Since some merchants allow trademark bidding, and some don’t (in fact some allow it to select affiliates and not others), using the term Trademark Poaching is a misnomer in many cases.  I think if we’re going to discuss this topic openly, such as we have at ABW, it’s important to use the correct terms, so that everyone is on the same page.

So as we often use it, I’d suggest Trademark Poaching really means:  bidding on restricted key terms.

Ethics in Affiliate Marketing

I’m writing a series of posts here on ethics in affiliate marketing.  Whenever you endeavor to write about such a haughty topic, I think it’s important to begin by saying that my opinion is really no more valid than anyone else’s.  By no means should any of these posts be considered anything but opinion.

 At the same time, I think there’s common ground that all affiliates, merchants, networks, and other interested third parties can to a degree come to, and accept as the premise for promoting the health and longevity of this industry.

 Central to all parties involved are some shared principles, which I believe are as follows:

Value to the Consumer

 The driving force of affiliate marketing is customer acquisition.  As such, all activities surrounding affiliate marketing should in some way represent a TRUE or UNQUESTIONABLY PERCEIVED value to the end user:  the customer.

Transactional Transparency

 While it’s not critical for each and every detail of all the partners involved in any one given transaction, it’s critical for the health of this industry that the specifics of each transaction be transparent, including, but not necessarily limited to:

•             The source of the sale (the click page)
•             The amount of the sale
•             The date of the sale
•             The date the commission will be locked
•             The date the commission will be paid

 Open Operational Communication

 All parties involved in an affiliate relationship should communicate with each other in regards to important matters.  That’s not to say that every email from a merchant regarding sales, specials or offers must go answered.  Nor is it to say that every communication from an affiliate to a merchant needs to be answered if it’s irrelevant, or simply beyond the scope of a merchant to answer.

 What it does mean is that the channels must be there, and they must be respected.  Without these channels of communication being available, and further, used properly in regards to properly and honestly driving affiliate sales, a real and effective affiliate channel can’t function properly.

 Truth in Advertising

 All marketing materials provided by merchants for use, as well as copy that resides on their sites, should be truthful.  At the same time, presentation of these materials by affiliates, as well as the addition of their own text or images in support of marketing efforts, should be done in a fashion that in no way misleads a consumer to click through to the merchant website.

I believe that almost every discussion of what is right or wrong with this industry, or any dissection of any action taken by a merchant, affiliate, network or third party tool, can be successfully plugged into any of the above guiding principles.

In the coming days, weeks, and perhaps years, I’d like to discuss this further here, and give my opinion on what each of the participants in any affiliate transaction should be doing to promote these guidelines.

Twitter Down

Sorry if anyone was trying to read anything here in the last few hours. Twitter was down for me, and the Javascript I had on the page to pull my updates was causing page loads to hang. Something everyone should bear in mind when adding someone else’s javascript to your sites. Sometimes it’s not you, it’s them.

New York State Internet Nexus Tax: A New Understanding

Based on a tip from a dear friend, I revisited this memo from the New York State Department of Taxation and Finance.

In re-reading this, I think some important distinctions need to be made.  The memo linked to above provides 2 very specific examples of what it means by affiliate, and 99% of the affiliates I know fall into what I would consider the “tax free” group.

Here’ an example, from the document, of an affiliate that would qualify as a nexus:

XYZ Company (XYZ) is an Internet-based retailer of sporting goods specializing in
downhill skiing equipment. XYZ is located in Vermont, where it has its administrative offices
and its warehouse, which holds its inventory for sale. XYZ makes sales of its merchandise
throughout the United States and has customers in New York State. The merchandise sold by

XYZ is delivered by the U.S. Postal Service or by common carrier.

As part of its marketing plan, XYZ has entered into agreements with several ski clubs
located in New York State whereby the ski clubs will maintain links to XYZ’s retail Web site on
the clubs’ own Web sites. XYZ will pay a commission to the ski clubs based on the sales that
XYZ makes that originate from these links.

From March 1, 2007, to February 29, 2008 (i.e., the preceding four quarterly sales tax
periods), XYZ has gross receipts from sales of its merchandise based on these agreements with
the New York State ski clubs totaling $78,390.

Based on the foregoing, XYZ is presumed to be making taxable sales in New York State
by soliciting business in New York State through the use of independent contractors or other
representatives and required to be registered as a sales tax vendor, collect New York State and
local sales taxes, and file the required sales tax returns.

The important thing to note here is the PHYSICAL PRESENCE of a ski club in New York.  This affiliate is not entirely a “virtual affiliate”, such as most of us are.  By having a physical location here, it’s presumed that these ski clubs are in fact specifically targeting New Yorker’s with their advertising efforts, based on an organizational sphere of influence.

Further, the memo appears to touch on “virtual affiliates”:

Example 6:

This example also assumes the same facts as in Example 2 on page 3 of this
memorandum. However, none of the ski clubs refer potential customers to XYZ through the use
of flyers, newsletters, telephone calls or e-mails to club members or any other means of
solicitation in the state targeted at potential New York State customers on behalf of XYZ.

Therefore, XYZ may successfully rebut the presumption that it is making taxable sales in New
York State through New York State resident representatives and XYZ is not required to register
for sales tax purposes.

In this case, since only a website is used to promote the traffic, the ski club does NOT fall under the definition of Nexus.  The interesting question is the use of the term e-mail, but I’m presuming that to mean essentially e-mails specifically, and not incidentally, sent to New Yorker’s.

So what is the deepest underlying factor in determining which affiliates fall into my first example or my second example? It would seem to be this:

An affiliate deemed to have a specific sphere of influence within New York, based on marketing tactics or physical location, that intentionally, not incidentally, provides a referral service based in large part on that sphere of influence.

Does that make things crystal clear? Of course not. At the same time, I think it shows that Overstock may have jumped the gun in removing New York based web affiliates. However, per the above, I think they were dead on in breaking their partnership with the Entertainment book.

Over Convergence - The New Time Sink

A quick glance over to my sidebar there and you’ll find that I’ve incorporated Twitter into my blog.  So if Isay anything brainy over there, you’ll see it here, where I say ALL SORTS of brainy things.  It’s going to be a one way path, however.

I don’t think I’m going to try Twitter Feed.  Here’s why

I remember hearing about Twitter for the first time just before Affiliate Summit West 2007 in Las Vegas. Shareasale was going to use it to run some contests, we were all going to use it to plan dinners, drinks, etc.  And for the most part, it went pretty well.  But it was new, and people started using it like instantmessaging, which we already had available to us in may forms.  Since then, it seems to have calmed down.

But now, I can integrate anything I say at Twitter into my blog, into my Facebook, onto my phone, and thanks to TwitterFeed, vice versa.

I think RSS has caused an over convergence of technologies.  Making it easy to port information doesn’t make it desirable to do so in every situation.  I’m sure humanity saw the same issue when paper was invented, then radio, then television, etc.  And I suppose we’ll learn to come down with the RSS rush too, after a while.

But more to the point on Twittergration…  How much do we really want to know about each other?