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  1. #1
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    perspective from a major merchant
    I'm someone who works for a major internet retailer whom you most of you already know and work with. Due to my position, I've been working on, studying and trying to resolve this dilemma since it arose in late April. Why the anonymity? I want to provide you some insight and advice from a merchant's perspective where being anonymous will afford me the freedom to do so in an open format.

    Now that I've told you the who and the why, I'll tell you the what.

    This NY tax issue simply just sucks. Everyone loses here and there is only one winner - NY State. Merchants, affiliates, OPM's, small business owners, consumers all lose. As a merchant faced with making a decision, there is no clear cut good decision. Terminate your NY affiliates and piss off your affiliates or collect NY tax and piss off your customers.

    But the situation isn't as simple as just choosing one or the other. There is several legal and tax implications involved. There are also other future ripple effects to consider as well.

    Terminating your NY affiliates, in my opinion, may be the right thing to do for some second tier merchants, whose affiliate programs may not generate a lot of traffic or revenue. However it does expose them to huge amounts of legal risk and liability should NY state decide to run an audit or collect back taxes for previous years. Keep in mind that this new law simply closes what NY state perceives as a loophole to their existing tax law, specifically where the "use tax" is concerned. So why are some merchants opting for this? At first glance, it may seem to be the easiest thing to do. If I terminate my NY affiliates, I won't have nexus so this doesn't apply to me anymore. Unfortunately, it's short sighted and if wrong, they're screwed.

    The other option is to collect NY tax and face the wrath of your NY customers. While you may minimize your legal risk, you're screwing yourself by pissing off your NY customers and with that, throwing revenue and profits out the window. Overnight, your prices just went up anywhere from 4% to 8% in NY. I wouldn't blame customers who will now shop from your competitors, who maintained their non-nexus status in NY by terminating their NY affiliates. Only time will tell how this may impact overall business, revenues and profits. I know one thing for sure though, it will definitely have an impact. And one last consideration; your customers will perceive that you prefer your affiliates over your customers.

    Either way the merchant is screwed.

    My advice.

    NY affiliates should all meet and formalize a strategy. Your state government needs to hear from ALL of you.

    Work with your providers and ask them what alternatives are they developing. Demand alternatives from CJ, Linkshare and Performics. They are other alternative non-commission based solutions. Get creative.

    Work with your merchants, even those that have terminated you. Work with them on alternatives.

    As other states are looking at NY, this will be back again and again. All affiliates, regardless if you're from NY or not, need to drive and demand solutions and alternatives before merchants start dropping their entire affiliate programs.

    I hope this helps.

  2. #2
    Analytics Dude Kevin's Avatar
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    Thank you very much for posting.
    Kevin Webster
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  3. #3
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    I've wondered about the merchants that drop NY affiliates now, as I understand the law is an amnesty thing. That is as long as you start collecting sales tax by 6/1 you're OK (assuming you meet the criteria $10,000 in sales, etc.). I'm not sure a state can just make a law granting amnesty, or maybe that's just part of it. If lawyers are having a hard time interperting this law - what chance do the rest of us have? Other points in your thread are being discussed elsewhere on this board. I agree we should all be concerned about the future of affiliate marketing, this may very well be the first nail in the coffin.

  4. #4
    ShareASale President/CEO and ABW Veteran Brian - ShareASale's Avatar
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    Work with your providers and ask them what alternatives are they developing. Demand alternatives from CJ, Linkshare and Performics. They are other alternative non-commission based solutions. Get creative.
    Regarding this point... I do agree it is time to get creative. I think there are a lot of options here.

    Merchants and Networks have the most opportunity here.

    Collecting sales tax on June 1 - if that choice is made - could be made into a positive thing. Promotions for NY residents, "we pay the tax" deals, etc...

    Yes they might be short lived and cost the merchant money in the short term but the termination of NY affiliates in order to avoid the perception of a nexus is a very very very very short term solution anyhow. At least with a short term promotion the merchant would be developing customer relationships that could be courted down the road.

    Both Merchants and Networks have the opportunity to create hybrid commission structures with affiliates. This is a little more complex but there are possibilities. The danger is that any metric that could remotely be tied to the sale of a product could likely be interepreted as a commission under this law. I've been going over this since this law was introduced and short of offering a straight PPC - I think any hybrid metric would be challenged by NY as relating to sales volume. In the end - we are a performance marketing industry... I don't want to see the industry dissolve into just another display metric when our model is better in the first place and works because it is based on performance.

    I do agree with you (Iceman1) that the closing of programs to NY affiliates at this point does not seem to solve any problem. The nexus that was there in the past year won't just disappear (in the eyes of NY State) because affiliates are removed. You can't have an office in a state and then close the office on the last day of the financial year and claim you never worked there.

    I disagree with one point and that is the overall long term effect of the sales tax in NY state. The tax exists, and NY residents owe this money to the state no matter what. The fact that most of them don't pay the tax is a different story. There are hundreds of retailers that DO have nexus in NY (legitimately) who have thousands and thousands of NY customers. Clearly in those cases the glue that holds together the loyalty from customer to merchant is stronger than a sales tax exemption.

    To me - the merchant has an opportunity to get creative here, and create glue with a NY consumer. Something more long term than helping them to avoid paying a tax that they already owe.

    Thanks for posting... One thing that is universal is that we are all affected. Nobody is winning anything here and we are all spending time doing something that nobody wants to do.
    Thanks,

    Brian Littleton
    President/CEO - ShareASale.com, Inc.

  5. #5
    Life is Supposed to be Fun! Rexanne's Avatar
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    Quote Originally Posted by iceman1

    As other states are looking at NY, this will be back again and again. All affiliates, regardless if you're from NY or not, need to drive and demand solutions and alternatives before merchants start dropping their entire affiliate programs.
    Exactly! This is EVERYONE'S concern.

    Quote Originally Posted by iceman1
    I hope this helps.
    It helps a lot Iceman1 - thank you for the merchant perspective.
    Peace,

    Rexanne

    Rexanne.com
    Loving Everyone's Child Creates Magic


  6. #6
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    I think merchants are missing an opportunity to inform their customers and shift the blame.

    If I had a merchant site, I'd add a large banner near the top of my site - maybe on every page for a while, saying something like:

    "To Our Valued Customers in the State of New York: Effective June 1, 2008, the State of New York now requires that we collect sales tax on all sales to NY customers. Though we feel strongly that this is an unfair burden imposed by the State of NY on their residents, we will of course comply with the law. If you have any thoughts on this matter, please contct your state representative (link to State Legislature email).

    Even as an affiliate, I'm considering placing something similar on my sites.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
    "If you don't have time to do it right, when will you have time to do it over?" -John Wooden;
    "Raj, there’s no place for truth on the internet." -Howard Wolowitz[/SIZE]

  7. #7
    ABW Veteran Mr. Sal's Avatar
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    Quote Originally Posted by AffiliateHound
    I think merchants are missing an opportunity to inform their customers and shift the blame.

    If I had a merchant site, I'd add a large banner near the top of my site - maybe on every page for a while, saying something like:

    "To Our Valued Customers in the State of New York: Effective June 1, 2008, the State of New York now requires that we collect sales tax on all sales to NY customers. Though we feel strongly that this is an unfair burden imposed by the State of NY on their residents, we will of course comply with the law. If you have any thoughts on this matter, please contct your state representative (link to State Legislature email).

    Even as an affiliate, I'm considering placing something similar on my sites.
    The State of New York now requires that we collect sales tax on all sales to NY customers?

    Wait a minute, I think something is wrong here!

    You say have to collect sales tax on all sales to NY customers, but I think it would only be if the NY customer shops thru an affiliate website in NY, or the merchant is located in NY.

    I believe that as long as the merchant is not located in NY, and that as long any of the other affiliates websites are not in NY, that any purchase made by a resident of NY over the internet will not carry any tax, if the merchant is located on any other state.

  8. #8
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    Mr Sal needs to play catch up. Start reading the NYAffiliates forum....
    Deborah Carney
    TeamLoxly.com BookGoodies.com ABCsPlus.com

  9. #9
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Mr. Sal - if a merchant has no other connection with NY but has even 1 NY-based affiliate and met the $10,000 threshold over the preceeding 4 quarters, they then have to collect NY sales tax on all sales shipped to NY addresses.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
    "If you don't have time to do it right, when will you have time to do it over?" -John Wooden;
    "Raj, there’s no place for truth on the internet." -Howard Wolowitz[/SIZE]

  10. #10
    ABW Veteran Mr. Sal's Avatar
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    Quote Originally Posted by AffiliateHound
    Mr. Sal - if a merchant has no other connection with NY but has even 1 NY-based affiliate and met the $10,000 threshold over the preceeding 4 quarters, they then have to collect NY sales tax on all sales shipped to NY addresses.
    If that means that just because a merchant have just one NY-based affiliate that sells over 10K, that now that merchant must collect NY sales tax on all sales shipped to NY addresses from any other state, then that new NY new tax law sucks more than what I thought it sucks.

    Quote Originally Posted by loxly
    Mr Sal needs to play catch up. Start reading the NYAffiliates forum....
    I have been reading all of the NY issue posts all over ABW, but I thought that the merchants would not have to collect NY sales tax on sales made from any other state affiliates, that have NY sales.

    I guess this is more complicated than what I thought, so I can't really blame those merchants that have jumped the gun.

  11. #11
    Analytics Dude Kevin's Avatar
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    To simplify it, Mr. Sal, once the presumption of Nexus is met, meaning $10k in NY affiliate sales to NY customers over the last 4 tax quarters, then sales tax MUST be collected on all NY resident purchases, regardless of the origin of the sale (affiliate, in house ppc, etc.)
    Kevin Webster
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  12. #12
    Moderator MichaelColey's Avatar
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    Unless the presumption is rebutted.
    Michael Coley
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  13. #13
    Analytics Dude Kevin's Avatar
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    True, Michael. Very true.
    Kevin Webster
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  14. #14
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    Quote Originally Posted by MichaelColey
    Unless the presumption is rebutted.
    We looked at this option as well. We determined that it is impossible to enforce, still exposes us to significant risks and liabilities and doesn't provide amnesty protection.

  15. #15
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    Quote Originally Posted by Brian - ShareASale
    I disagree with one point and that is the overall long term effect of the sales tax in NY state. The tax exists, and NY residents owe this money to the state no matter what. The fact that most of them don't pay the tax is a different story. There are hundreds of retailers that DO have nexus in NY (legitimately) who have thousands and thousands of NY customers. Clearly in those cases the glue that holds together the loyalty from customer to merchant is stronger than a sales tax exemption.
    Sales tax will have little effect to current, loyal customers. However for those price shopping us versus the competition, it will have some impact. How much of an impact, no one knows.

    I will say that many studies have found that sales tax rank low among different factors influencing the purchase decision.

    I guess we'll find out in the coming days and weeks what the impact will be.

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