NY To Enact Law Taxing Affiliate-Driven Online Sales

According to news reports, New York State will shortly enact a revision to its tax laws that will require online retailers such as Amazon.com, even if they have no offices or warehouses in NY, to begin collecting and remitting sales tax for purchases shipped into the state. While the U.S. Supreme Court stated in 1992 (in the Quill case) that a physical presence in a state was necessary to establish a legal basis (or "nexus") for assessing sales tax, the new law apparently takes the position that the mere use by an out-of-state online retailer of affiliate programs (such as Amazon's Associates Program) with affiliates located in the state establishes nexus. (New York already charged use tax on purchases for which sales tax was not collected, but enforcement has been difficult.)

Should this law be signed and survive the likely legal challenges, it could pose a serious threat to New York-based Web sites' ability to generate revenue via affiliate links, since online merchants may reject NY affiliates in order to avoid the bookkeeping and competitive challenges associated with sales tax collection. We will be following this development very closely.

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