This past summer, unbeknownst to many Amazon.com users outside the state of New York, Amazon.com began taxing items shipped within the state the New York. In tandem with this new action is the mandate that out-of-state, affiliate sellers collect and remit sales tax on behalf of the state of New York. The new legislation has sparked a hotly contested debate stemming from the argument that other states may follow New York’s lead and impose their own tax on e-tailers.
But worse than the potentiality of the other 49 states including online sales taxes is the fact that the state of New York passed this bill on the grounds that New York affiliates of Amazon.com or Overstock.com count as a “physical presence” of the e-tailer within the state, and therefore, can be made to collect taxes under Supreme Court ruling in Quill v. North Dakota.
Overstock has responded by terminating relationships with over 3,000 New York affiliates, which, intentionally or not, sent the message that imposing the tax would hurt a sizeable number of small businesses within the state. And the move has seemed to work. Soon after, frustrated affiliates started a grassroots movement to try to get New York to repeal the law, which is currently under review in the New York Senate.
All I have to say is Congratulations, state of New York, for making it even harder for the small business affiliate to weather the current economic storm. Not only are the dropped affiliates losing revenue, but also e-commerce giants like Amazon and Overstock are taking a huge hit from those who are dissuaded by the imposed sales tax from purchasing online. Clearly a win-win situation. And good job for completely misinterpreting what affiliate marketing is all about. It is a relationship based on advertising, rather than an extension of a parent company—which is exactly what Amazon and Overstock were arguing in order to challenge the constitutionality of the law.
Lobbyists who supported the bill’s inception have argued that tax exemption had given out-of-state retailers a competitive advantage over in-state “brick and mortar” companies. But under the new law, e-commerce would find it quite hard to compete with traditional retailers at all. In short, what the bill does ultimately, and most insidiously, is narrow the free market. As pundits have explained, the bill is probably going to be repealed in the near future, much to the satisfaction of the entire e-commerce world. For now, consumers in New York and other states won’t have to worry about that extra $100 in taxes that buying a laptop off Amazon might incur.