Here’s a quick update on the New York affiliate tax issue (see Sliding down the Internet Tax Slippery Slope for background).
If you recall, the state of New York is reaching its long arm out and is requiring out-of-state merchants to collect and remit sales tax, effective June 1, 2008. If the merchant sells $10,000+ to New York residents over the Internet and sells through Internet affiliates, the merchant now has to collect and remit sales tax.
Amazon.com, which sells through many smaller Internet sites (affiliates) reacted by filing a lawsuit against the State of New York.
Other merchants are reacting too — by ditching their New York affiliate sellers. Overstock.com is one company that has fired its New York affiliates, and so have other companies. In a comment over at the Affiliate Tip blog, Overstock’s CEO does the math explaining why they eliminated their New York affiliates. It’s a perfect example of the chilling effect that taxes have on business.
Small businesses that either sell through affiliates or are affiliates to companies such as Overstock get caught in the cross-fire.