On Taxes and the Internet

Well, the sages in the press are claiming that it's the end of internet shopping as we know it.  New York State has (quietly) passed a new law that went into effect on 4/23/08 which requires online merchants to collect New York State sales tax from anyone who purchases anything on the internet -- even if the merchant does not have a physical presence in New York but has affiliates in the state.

The new law, nicknamed by the press as the "Amazon Law", has had another effect on the small business owner:  Overstock.com has terminated all of their relationships with their New York affiliates so that they will not be required to collect the sales tax.  

As someone who is an affiliate with  Amazon and who was an Overstock affiliate, it bothers me to no end that this law (which was another  brilliant idea left-over from the disgraced Elliot Spitzer administration) was passed with little reporting from the New York press until Overstock decided to dump their affiliates and Amazon, to their credit, filed a lawsuit in State Supreme Court against the State, the Governor and also New York State Tax Department.

This new law has reaches beyond New York State.  The Associated Press has reported that 

 Chicago is now suing eBay and StubHub for taxes that were not collected on tickets sold for concerts and other events held in Chicago.  The same story also reports that Chicago is also suing companies like Hotels.com for not collecting the taxes on reservations for bookings in Chicago.  Also, Texas is contemplating suing Amazon in the wake of the New York legislation.

Now while I am in no way advocating that people should avoid paying taxes, what I am concerned (and annoyed) about is that the small business person, is once again, getting screwed and in some cases, will be put out of business.   Affiliate income from places like Amazon and Overstock, can play an important role in a small business person's bottom line.   Moreover, I am very concerned about how the State can completely ignore a US Supreme Court ruling from 1992 which prohibits the state to force the collection of a sales tax unless the business has a presence in the state  I am equally concerned about the "knee jerk" reaction from Overstock to dump their affiliates.

An online affiliate is an independent contractor, not an agent or employee the company it represents. They get no vacation time, benefits, or any form of salary from the company that is represented by the affiliate they get a 1099 form each year and pay taxes on the income that is generated by the affiliate's ads on their websites.

The problem that I have is that the affiliate's website is hosted somewhere in Cyberspace.   My websites are hosted not only in different states but perhaps in different countries as well on many different servers.   If one of my ads is seen by someone in Wisconsin, why should New York get any revenue in the form of a sales tax

 

So to all New York business people: contact your local Chamber of Commerce as well as your elected representatives and insist that they lobby for the rescinding of this law.  

I'm also waiting for a brilliant tax attorney to file a class action lawsuit against the state on behalf of those affiliates who the state has now either put out of business or have interfered with the revenue stream.

More on this story as it develops