When Taxes Have a Chilling Effect

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.


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

9 Reactions
  1. I think this is not the issue of winning or losing any legal battle. This is more related to the rise of a new business trend and death of an old business trend. I remember reading a research paper which talked about the adverse effect of the retail stores on local business. Retail store chains like WalMart rose at the cost of local businesses. The same thing is happening here. We are seeing the rise of a new business trend, e marketing,
    ecommerce, ebusiness whatever name you use to address it, rising at the cost of retail stores. The present situation also favored the trend. Rising cost of fuel has forced limited income people to consider shopping online and save the money they would spent on gas.

  2. I am sorry to hear about this. The Big Apple is becoming more and more anti-business. I will talk with a friend in NYC about this situation.

  3. Wow! I’d heard about this, but didn’t understand the full scope. Ugh…

  4. >>The Big Apple is becoming more and more anti-business. I will talk with a friend in NYC about this situation.<<

    It’s bigger than the NYC. It’s the entire state of NY. We need a federal law in place setting out the rules for states collecting sales tax on the internet. If more states goes this route, it will be just too difficult for smaller merchants who sell throughout the USA to keep track of all the rules and make remittances to multiple states.

  5. It does not surprise me that companies will start cutting ties with affiliates in New York. It’s a shame that the affiliates themselves have to be punished just for living in New York.

  6. Yikes! I too didn’t understand the magnitude of this Anita. I wonder if Amazon will win the case.

  7. Wow. . .this is quite a beast isn’t it? New York’s greed will be there downfall it seems.

  8. Martin Lindeskog


    Thanks for the information. I lived in the “Live Free, Or Die” state (NH) during my studies between 1997 – 2000. Could it be that states without or low VAT and income tax could end up taking plenty of the online business?

    By the way: Do you sell franchise, NDA, and other forms on your MedLawPlus site?

    All the Best,

    Martin Lindeskog – American in Spirit.
    Gothenburg, Sweden.

  9. Well that is quite something isn’t it. Hopefully New York will be the first and last state to do this. I sure hope Amazon wins this case for the little people like me.