72 Kilowatts Internet Marketing

Unhappy Friday Reading, and a Message to New York State

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.

First, the message to New York from John Dozier:

So, the final message is for the State of New York: If the momentum continues, New York affiliate marketers will be shut down entirely. You should have anticipated this consequence. No, you will not increase your tax base significantly. But you have added to your unemployment rates. We need to work together to save the many New York businesses going under.

I would encourage everyone to read Dozier’s post in it’s entirety, about 10 times.  I think it speaks a lot to what we can expect in the coming weeks, months, and years.  Industries our size do not go unnoticed forever.  They are not beyond the auspices of local, state and federal agencies, be they cruising for revenue, or trying to uphold the law of the land.

Further reading into the TSB from New York should also tell affiliates that think they can lie low that their marketing practices are NOT in fact a secret, and no-one else’s business.  In fact, New York has taken a deep interest in understanding EXACTLY how you promote your website.

Friends.  The time has come.  We need an organization.  Quickly.

To hide under your bed sheets and hope “they” will all leave you alone is now ineffective.

I’m not saying it has to be the Hall of Justice for affiliate marketing.  It doesn’t need to micro examine the business practices of every affiliate.  What it does need to do is lobby, educate, inform, and publicize.

And it needs to happen 2 months ago.

If the industry needs someone to step up and work on getting this thing going full time, it’s unfortunately looking like I’ll have lots of time on my hands.  While my affiliate work won’t be done, as I have word from a MINUTE HANDFUL of merchants that they aren’t dumping NY affiliates, I think I can also spend time doing more important things.

Just putting that out there.  Certainly not saying I am the most well educated affiliate marketer this side of the Missisip, I’m just saying I’m willing.

Big Shout Out to Eastern Mountain Sports

I’d like to personally thank everyone at Eastern Mountain Sports for recognizing an opportunity, and taking advantage of it:

We would like to welcome all NY affiliates to join the Eastern Mountain Sports affiliate program on Performics. 

Eastern Mountain Sports has always been a leader in the industry, especially in the Northeast. We currently have brick and mortar stores across NY and we also collect taxes on NY sales on our website, so the new law should have no effect on our affiliates and we encourage you to join.

Read the rest of the info at Abestweb here.

That’s forward thinking.  Since EMS already has a nexus in New York based on their retail presence, they are picking up where REI.com dumped outdoors affiliates late yesterday.  This is a strong move, and is to be commended.

Further, EMS actually let it’s intentions be known.  As a NY affiliate myself, I dread the Zero Hour emails I’m going to get next week, advising me I’m being dumped.  Regardless of each merchants understanding of the new New York Tax law, they should be communicating with their New York affiliates, and very few are.

Thank you Eastern Mountain Sports.  And to Downtown ECommerce Partners, who brilliantly run their affiliate program

Nexus and Lead Fees

Was reading Heather Paulson’s piece at Revenue again this morning, and I noted this:

Aside from these important resources, there were discussions on the call that can shed some light on the law’s interpretation of who is an advertiser, and who is a publisher.

An advertisement, which is a “passive, paid message,” and exempt from this law, is differentiated by the State from the very different and very much liable, ”commission- based or success -based fee.” For example, if payment is based on clicks, or views, and no sale have to be made for payment to be received, and then it is not considered a nexus point,” say the NY experts.

If there is a success fee, or commission, then web publishers are considered “sales reps” and the definition of “nexus” has been met; then there is liability for the merchant to register, collect, and pay tax to the State if they produce over $10,000 from an affiliate(s) in the State. (See example “G” in TSB-M-08(3)S)

There was some question on the DMA call about lead fees, and whether those constituted a reward that would perhaps generate a nexus.  

If I read “success fee” correctly, then I suppose it does.

The Tax Tag

Decided to change it to “new york state internet and pay for performance tax”.  I left the term internet in there even though it’s a bit extraneous based on search terms I found in my logs.  I think it’s important that people looking for this info (opinion in my case) can find it, and it would seem that the “internet stigma” has stuck to to it for now.

Good Info for New York Affiliates

Two threads at Abestweb of particular interest to affiliates in New York:

Tax Exempt Merchants with Affiliate programs

These merchants offer goods and/or services which New York residents do not have to pay sales tax on, ere-go it’s safe for New York affiliates to promote them currently.

Merchants That Already Collect NYS Sales Tax 

These merchants already have a tax nexus in New York based on the traditional definition, and therefor shouldn’t be dropping New York affiliates because of the ill advised new law.

Please urge all merchants with programs that fall into these two categories to participate there.

Looking In the Mirror

Considering I just pointed out that this isn’t only an internet tax, I guess I should change my tag for the topic, which is currently NYS Internet Tax.

In truth, based on all the discussion this week, I’m not sure what to change the tag to.  Think I’ll sleep on it.

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.