72 Kilowatts Affiliate Marketing

Findings on Affiliate Status and the Amazon Tax

Excellent meeting this week with Mark Klein from Hodgson Russ as well as some New York affiliates, 4Checks, Growthspurt Media, and Andy Rodriguez Consulting.  Thanks to all who came.

I posted a full version, with discussion, of our findings at Abestweb.

Here’s my text from that thread:

To sum up briefly, with much more detail to follow:

1.) The June 30th TSB is the “law of the land” at the moment: NY Affiliates engaging in “safe practices: (including: email campaigns, PPC, et al NOT directly selling merchants, but rather their own sites)” are A-OK, and as such, allow merchants to SUCCESSFULLY REBUT the presumption of nexus providing the merchant takes the steps outlined in that memo, including getting the signed “promise” from affiliates, and terminating those that don’t sign it, or in good faith, follow it.

2.) We will be reaching out to Mark again to compose a companion piece for merchants, outlining their responsibilities should they decide to work with NY affiliates (which, as above, is above board.) We need to work with Hodgson Russ on the price for their time to do so.

3.) Second tier commissions are also OK, supposing that any NY affiliates in any NY Affiliates second tier also adhere to the package we are putting forth (moreso, the June 30th TSB)

4.) At greatest risk, per this reading of the law, are loyalty sites that employ (via commission, cash back, etc) NY residents to encourage other NY residents to shop through their sites. (i.e. A NY Church asking NY parishoners to buy through it’s affiliate links because of the commission that will be gained, etc)

5.) DTM PPC is not rebuttable… PPC to an affiliate site without mentioning the name of the merchant: rebuttable. Ditto for newsletters, email campaigns, etc.

6.) Incorporating in another state, or claiming dual residency, etc, is NOT rebuttable. Merchants pushing that as a solution are doing so at their own peril. Residency, as far as defining that in the case of affiliates, means that you have a place to hang a shingle here, or sleep here, or own any property here. Period. In other words, clever means of disguising your residency is a bad practice.

In the end, this is still an awful piece of legislation, that at it’s core, affects not for profits more than it affects traditional affiliates. Merchants dumping traditional affiliates failed to fully understand the spirit of the law (granted, that spirit was far better spelled out on June 30th… about 45 days too late).

Next steps for your tax fighting dollars is building that companion piece to be sent to merchants that properly defines the law and the TSB’s, as well as organizing an effort to have matching legislation to the June 24th Senate repeal drafted AND sponsored in the NY Assembly.

So I would hope the Affiliate Voice (who was directly involved), The Performance Marketing Association, and ALL interested parties would assist in getting this word out.

We’re developing a package to be hand delivered to every merchant we can find at Affiliate Summit.

Getting Ready for the New York Affiliate Meeting

Just a few hours now before sitting down to dinner with a handful of New York affiliates for dinner, preparing how to approach the new wrinkles in the Amazon tax.

I’m interested to hear everyone’s views in person.

On one hand, we have the news that the NY Senate has voted to repeal the Amazon tax.  On the other, we know that it will be a long and tough road to hoe in order to get the NY Assembly to even put forth a similar bill (in order to actually repeal the tax).

I think one thing is for sure.  We can’t make an argument against NY collecting these taxes.  We know where the State is financially, and we know the detrimental effect online shopping (meaning tax free shopping for New Yorkers) has on local business.

Affiliates have been put in a lose/lose/lose position.

Our role in the buying process is of little consequence to most citizens.  Yes, they like to read candid opinions of products before they make purchases.  But many affiliate sites don’t provide that kind of value.  Secondly, we can be viewed as the primary reason New Yorker’s might have to pay tax on out of state online purchases.  Third, no one really knows who we are, what we do, or why we matter.

So no one is on our side except for a few merchants, and of course, other affiliates who are concerned by this legislation which in essence leverages a state’s local businesses to force tax collection from out of state retailers.

So I hope to come to the conclusion with the group here that our recourse is to state that the tax is poorly written, in that it hurts New York small business (the affiliates).

We’ll find out tomorrow which direction everyone wants to head.

A Meaningless Repeal of the Amazon Tax?

This news sort of bled out as opposed to being screamed out, but the NY Senate did in fact appeal a goodly portion of the Amazon Tax in a bill introduced June 19th, 2008 (my birthday) and subsequently passed in a conservative controlled State Senate, 44-18.

Why wasn’t this sung from the roof tops by NY affiliates?

A few reasons.

It was snuck through the last day of the NY session, and was introduced by the rules committee, without a sponsor.  So no one except a committee was championing the idea, therefore noone was mugging for the cameras about it.

Second, there is no coupling legislation in the NY assembly, so it’s unlikely that we’ll see any movement on this thing until 2009.

I have additional info coming from Assemblywoman Susan John’s office this week, and I’ll pass it along.

New York Internet tax takes a step back?

… or a smart step ahead?

As reported initially at 5 Star, with discussion following at Abestweb, New York seemingly took a step back, and confirmed that they look at traditional affiliate marketing as possibly being the seed to rebut having a tax nexus in New York.

However, it might be just the step back they needed in order to ensure Amazon and Overstock won’t have the entire law sued into unconstitutional oblivion. Let’s look at some statements on the new Technical Services Bulletin.

TSB-M-08(3)S, New Presumption Applicable to Definition of Sales Tax Vendor, states
that the Tax Department will deem the presumption rebutted where the seller is able to establish that 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. In addition, none of the resident representatives may engage in any solicitation activity in the state targeted at potential New York State customers on behalf of the seller.

Seemingly, this backs up the statements made in the Direct Marketing Association conference call back in late May stating that traditional affiliates, in the most sparse of circumstances, did nothing to further the presumption of nexus in New York.

Now, what exceptions are listed?

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 that refer potential customers to the seller including, but not limited to: distributing flyers, coupons, newsletters and other printed promotional materials, or electronic equivalents; verbal solicitation (e.g., in-person referrals); initiating telephone calls; and sending e-mails. In addition, if the resident representative is an organization such as a club or a non-profit group, the contract or agreement must provide that the organization will maintain on its Web site information alerting its members to the prohibition against each of the solicitation activities described above

This part gets a bit tricky again. It appears to state that a merchant must contractually bind its New York affiliates to do NOTHING aside from simple web linking. No phone calls to New Yorkers, handing out flyers and coupons, etc. Specifically as well, no email marketing.

But then they throw that “or electronic equivalent” in there. I see now we should figure out what constitutes the electronic distribution of a coupon. My hopes would be that they mean by email, but that would then be double stated in the document. Can we not have RSS feeds of our deals available? In some cases, can we even control whether an RSS feed could be made available, through the methods used by scrapers?

Further, New York goes on to request:

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. In addition, if the resident representative is an organization, the annual
certification must also include a statement from the resident organization certifying that its Web site includes information directed at its members alerting them to the prohibition against the solicitation activities described above. Furthermore, the certification must contain a statement alerting the representative that the certification and any information submitted with it is subject to verification and audit by the Tax Department.

This may be done electronically, it goes on to say, so it might even be able to be done at the network level, if your concern is privacy.

Another hoop for merchants to jump through to hang on to their valuable New York affiliates, if in fact, we can remain as viable with the restrictions being placed on us. And, if in fact, some of the merchants that dropped us go on to re-instate NY affiliates.

Thoughts?

NY Affiliate Legal Fund

Between myself and Mel at NYAffiliateVoice.com, a joint meeting and legal fund is being set up in order to fund a team of experts to create a strategy for NY Affiliates to deal with merchants, and approach New York State, in light of the Amazon Tax.

My post from Abestweb:

There is no immediate plan of a lawsuit filed by the group, at this point. Amazon and Overstock’s cases have been requested to be merged by the State of New York, and while I suppose we could approach it from a different angle, I PERSONALLY don’t see an immediate point.

Now, that said, any outcome is possible. Things may even change by the 28th of July.

The purpose of this fund, in my eyes, is to facilitate legal research into an amicable solution for this potentially spreading crisis. In a way, to create a good legal framework for NY affiliates to approach merchants who have, or are considering, removing them. And in the end, to be able to share that knowledge with the industry, so we won’t fail next time, and we’ll be able to, as a consolidated group, address any State that might move this way, and engage our merchant partners with a dialog that makes sense, and helps them to understand the decions they will have to make.

Hope that makes sense to you, and to everyone that might help us.

Look to your right, and you will see a donate button.  Any and all help is appreciated, and 100% of this money will be used DIRECTLY to find a solution to this problem.

A Possible Solution, Courtesy Haiko de Poel

In a post at Abestweb, Haiko de Poel, Jr. did what most of us have failed to do in the last 3 months… Put forth a viable solution to keeping NY Affiliates in merchant programs, and circumventing the Amazon Tax, so to speak.

I think it needs some tweaking, but it creates an excellent framework for building a better affiliate network, as it were, in least in regards to the NY tax issue.

Please head over and read the post.

Cafepress Late to Drop NY Affiliates

In a confounding move, Cafepress terminated NY affiliates effective July 1st, 2008.

I say confounding, because I find it unlikely that CP would not have met the nexus criteria previously, and therefore didn’t really save themselves by this move.  However, it’s possible that they didn’t meet it in the last 4 tax quarters, in which case, well, it’s just another bad break for NY affiliates.

The email didn’t specifically state their interpretation of the law, just indicating that

“Due to mounting uncertainly over these new laws we will no longer be able to support affiliates residing in the State of New York, effective July 1, 2008.”

I’d like to know what the “mounting uncertainty” is.

Overstock Sues New York over Tax Law

I have no idea how I missed this yesterday.

Thanks to Linda for being first to press.

Overstock Sues New York

A Framework for Discussing what the Nexus Tax Means

When I initially read Phillip Dampier’s comment on 5 Star Affiliate Program’s blog, I was concerned that he was going the way of so many by just dismissing affiliate marketing as a haven for crappy websites built to make a buck.  In some ways, I suppose that’s exactly what he was doing, but I have to admit he has a valid point.

It’s self serving for New York affiliates to simply concern themselves with loss of commissions.  It’s a VERY valid concern, but it’s true that the reputation of our industry is sullied with people who have a vague understanding of what we do, and in fact, non existent to most.

So what are we to do?  Have you been able to explain to your neighbors and friends what you do for a living as an affiliate?  Alright, maybe the really smart guy 4 doors down that works in IT, but the rest just have their eyes glaze over.

So I think New York affiliates would be better served approaching this issue just like our affiliate oblivious friends:  as consumers.

So here’s the framework (and I think it’s a good one, not simply a set of phrases and pulpit bangers):

New York has, unconstitutionally in this case, extended it’s tax reach by creating their own set of definitions of business.  They’ve done it in a nefarious fashion:  by inventing a physical connection to a virtual relationship.

Traditionally, a tax nexus has been defined by an address where commerce is done:  a sales office, a retail store, or a distribution center (although not all distribution centers, as you can see here).

Now, New York is defining “at will” referral contracts as the basis for a nexus.

Many consumers agree with merchants decisions to terminate these contracts in order to keep from paying these taxes when they buy online.  My caution to those consumers is a simple one:  If this tax effort fails to reap rewards, it will be re-worded, and extended out through another means.

In other words, don’t hurt the pawns when your issue is with the King and Queen.  Calling for merchants to dump New York affiliates is short sighted.  It will cause New York to make up another non-sensical definition of what business is so that they can beat the Constitution.

As New Yorkers, none of us will win unless the notion of unfair taxation is defeated at its core.

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.