Interview with Members of the New York State Tax Department

As a follow up to my previous posts, Overstock.com Terminates All NY Affiliates and New York Collecting Sales Tax from Affiliates? I had an opportunity to be privy to information from a collective interview hosted by Cecily Lancit President of Affiliopolis.com an affiliate network. Ms. Lancit had a phone interview today with representatives of the New York State Tax Department about their new online sales tax legislation starting June 1st, 2008. Present on the conference call was Jim Connolly, Staff Attorney in the Office of Counsel to the Tax Department of the State of New York; Dan DeSilva, Sales Tax Publications and Memos Unit; Dan Wood, Office of Tax Policy; and Ken Brand, Publications Bureau.

One particular highlight is the fact that selling consumer contact information is considered taxable and collectible if sent by a NY web publisher, and received in New York by their client.
The takeaway here is that the group referred to 4 important reference documents from this phone interview that members of the affiliate community might want to read carefully:

1. A reference document prepared to explain the legislation.

http://www.nystax.gov/pubs_and_bulls/memos/sales_memos.htm

On the left hand side, Click on TSB-M-08(3)S, which is the explanatory document on this legislation.

2. A reference Guide to Sales Tax in New York State

www.tax.state.ny.us/pdf/publications/sales/pub750_208.pdf

This document outlines what goods and services are taxable. Take particular note of a short line on page 19, referring to “providing certain information services. According to follow up questions on this item in the conference call, selling consumer contact information is considered taxable and collectable if sent by a NY web publisher and received in New York by their client. The NY web publisher is considered a “merchant” and responsible for reporting and collecting the tax if they sell more than $10,000 worth of data delivered in New York to New York data purchasers. If the data is sold by a web publisher outside of New York, then the purchaser of the data in New York is responsible for reporting that purchase and the ensuing use tax. If the data is received in New Jersey, for example, then no tax is due to the State of New York.

See more interpretation on this topic in document 4, an advisory opinion on taxability of email lists.

3. Where to register for a Sales Tax Certificate of Authority:

http://www.nys-opal.com/ (click the “‘on-line applications” link on the left-hand margin and go from there.)

Take note of the fact that once a merchant or web publisher has registered, then they are responsible for collecting tax on any taxable sale shipped into the state of New York. The inference here is that once a merchant has registered to pay sales tax, then reporting from affiliates is moot – the merchant is then going to have to charge tax for every sale made in New York, whether it comes from a web publisher or their own website.

4. Advisory opinion on email lists and their taxability:

http://www.tax.state.ny.us/pdf/advisory_opinions/sales/a07_13s.pdf

This document is a reply to a Petition for Advisory Opinion from NetCreations, Inc. on whether its charges to clients for email addresses are taxable. VERY interesting reading.

5. Advertisers vs. Web Publishers:

Aside from these important resources, there were discussions on the call that can shed some light on the law’s interpretation of who is an advertiser, and who is a publisher.

An advertisement, which is a “passive, paid message,” and exempt from this law, is differentiated by the State from the very different and very much liable, ”commission- based or success -based fee.” For example, if payment is based on clicks, or views, and no sale have to be made for payment to be received, and then it is not considered a nexus point,” say the NY experts.

If there is a success fee, or commission, then web publishers are considered “sales reps” and the definition of “nexus” has been met; then there is liability for the merchant to register, collect, and pay tax to the State if they produce over $10,000 from an affiliate(s) in the State. (See example “G” in TSB-M-08(3)S)

6. To Register or Not to Register:

Also of interest is the group’s answer to the question, “If a merchant does not register, how can you know they are doing such business in New York?”

Apparently, there is a “general audit program” that specializes in discovery, and they have a variety of tools they use to check on these things. Merchants who produce in excess of $10,000 through NY “nexus” points and who do not register “are playing the audit lottery,” according to the Tax experts. “There is no statute of limitations for merchants who qualify and do not register or file sales tax returns in New York. In a tax audit, the State can go back “as far as there is nexus” and assess hefty tax, penalty, and interest on that merchant,” they say.

7. What’s Next?

In an effort to be as helpful to the industry as possible during a time of clarification, the group agreed to Cecily Lancit President of Affiliopolis.com’s request to meet with a small group of industry leaders next week to develop an FAQ that could be accessible via the web. If you are interested in posing questions that could be considered as part of the FAQ please submit them here in this thread.

I appreciate Cecily Lancit President of Affiliopolis.com using her resources in New York to gain clarification on the New York tax issue by reaching out to representatives at the New York Tax Department office. As well, I appreciate her disseminating this information to me so that I can share it with all of you. This issue in my mind becomes more serious with the advent of knowing that they plan on taxing data as well.

About Heather Paulson

Heather Paulson is the President of PaulsonManagementGroup.com which provides Affiliate Management, Paid Search Management, Search Engine Optimization, Social Media Management and affiliate video production and affiliate recruiting services.

Heather was appointed to the Affiliate Summit advisory board in 2006. In 2007 Ms. Paulson was appointed to the advisory board for Affiliate Classroom. In 2007 Ms. Paulson was elected as PPCClassroom.com’s education manager. in 2008 Ms Paulson was nominated as a FAB member of the Performance Marketing Association and is an honorary recipient of the ACC Certified Affiliate Managers Course. in 2008 Heather Paulson was invited to become a member of The Internet Oldtimers Foundation. She has passed the Google professionals certification twice. Heather also blogs at Paulson Management Group Blog. You can follow Heather on Twitter: @Heatherpaulsons.

16 Responses to Interview with Members of the New York State Tax Department

  1. Brad Waller says:

    "Apparently, there is a “general audit program” that specializes in discovery, and they have a variety of tools they use to check on these things."

    I'm not sure how they can audit to see if an affiliate is in New York and has been compensated without delving into the merchant or network records. Are they going to actually purchase goods from affiliates that they can identify are in NY and then look to see if the merchant reports the tax from that purchase? What if the tracking breaks down and the purchase is not actually recorded?

    I'd advise ANY affiliate in NY to change the registration address for their domain to one in another state. Or even better, just use the registrar's privacy features to hide the data.

    Sounds like a great time to set up a location in Delaware or another state without a sales tax.

  2. Hello Brad –

    I just pushed a note to Cecily to see if she can persuade the gentleman from NY to possibly come here to ReveNews and respond or potentially answer some questions. The attempt is to open communication with their office so we have some dialog for clarification for the Affiliate Community. I am not sure if they will show up..?

    “Apparently, there is a “general audit program” that specializes in discovery, and they have a variety of tools they use to check on these things.”

    I wonder what those tools are? Syntryx.com is the only tool I know of that can pull affiliate addresses as well as which networks affiliates are in and which programs they are running with, Syntryx.com also gives you the affiliate(s) phone number, email address and all domains owned and all inbound and outbound link information from the affiliate and the merchant site. I do not know of any other tool that can do this? Are they talking about a tool that also shows affiliate revenue for auditing? How is that possible..

  3. Important New Info for Merchants re New York Affiliate Tax Law…

    Carefully read examples 5 and 6 in the law… there is a possibility that simple placing a link on a website (with no further solicitation which includes email) is an activity that would not qualify.
    This law is horribly written and confusing from my p…

  4. Linda thanks for the post – excellent article as usual from http://www.5staraffiliateprograms.com!!

    Cheers,

    Heather

  5. Linda Buquet says:

    Thanks Heather for letting us know about Cecily's efforts. I just read her original blog about it and added a link to her blog in my latest post.

    To date I've written 6 long blog posts on this issue, but many of them a blogs within a blog covering numerous related issues.

    I'd like to point to the comments in one post. Overstock Your PR Sucks – Plus Affiliates Fight NY Tax Law

    Peter Bordes from Media Trust, Brian from Shareasale and others weighed in with important comments.

    But I want to specifically point to long comment #8, from Phillip a New York CONSUMER and his viewpoints about how affiliates figure into the whole NY tax issue. Then read my reply to him.

    My point is, we as an industry are highly misunderstood, don't have a positive image with consumers and have little to no leverage with politicians. We don't have a chance of fighting this law from our own narrow perspective. (see his comments)

    HOWEVER, if we can get some NY affiliates, merchant and networks to join with the NY CONSUMERS who are also fighting against this law, maybe we'll get somewhere. There is power in numbers and it's the voters of New York that count! Not a bunch of "rogue Internet marketers" and bloggers from other parts of the country.

    See the comments in #8 and I think you'll see this makes sense.

  6. Not sure if it's the right place to post but Linkshare has a conference call scheduled with the DMA Tax Counsel that you can join in on, info –

  7. GREAT LINDA! Thanks So much for posting this!!

  8. New York Affiliate-Based Sales Tax Law – IMPORTANT!…

    Several more important issues came up yesterday.

    Important New Info for Merch……

  9. Linda Buquet says:

    Important UPdate:

    Linkshare and the DMA will be having a conference call Thursday. Get on the call if you can. Here is the DMAs legal analysis of the law so far.

    Linkshare/DMA – Join the New York Tax Conference Call PLUS DMA’s Analysis of the Law[/B]

    If you are active in this fight you need to get on the conference call Thursday if possible.

  10. Jonathan,

    Thanks so much could you post the rest of the info?

  11. Brook Schaaf says:

    Heather, great post.

    Linda – totally agree with you. This is an important PR battle that we are – maybe not losing – but not winning either.

  12. Hi Brook,

    Thanks I appreciate your comments – I will be on a conference call with these representatives of the New York State Tax Department this coming Tuesday with Sam Harrelson and Cecily and possibly a few others and will be posing questions to the delegation whose answers and response I will post here after the call.

    If anyone wishes to have their question(s) posed to the New York Tax Department group feel free to send me your questions to: Heather@PaulsonManagementGroup.com

  13. "My point is, we as an industry are highly misunderstood, don’t have a positive image with consumers and have little to no leverage with politicians."

    Add point three to the list why we need an association that represents the industry. Even Jonathan should agree to that.

    Point 1 and 2 were mentioned as reasons already plenty of times. 3 is obvious, but we didn't had a case yet to show why it is important. Now we have one.

  14. peter bordes says:

    Heather and Linda

    Thank you for this very critical and insightful post and string of comments. This law is not only confusing but has had very little long term thought put into it regarding regulating interactive marketing, and the new long tail economy in relation to our current economy.How this tax works if it goes state to state. What entirely new infrastructure would need to be put in place .This law needs HELP in every aspect if it is going to remain a law.

    This is a typical knee jerk law created by old school government that does not understand web 1.0 , 2.0 or web anything.It is trying to apply traditional mentality, boarders and boundaries to the interactive world which is the exact opposite. This has so many holes and lack of definition in it i don't even know where to begin.I posted our thoughts on http://relevantlyspeaking.com so i don't go on to long of a rant here.

    This is why we all need to get closer as a community across the board and work together and if necessary with the state. I agree with everyone that we need to create a collective voice.

    We spoke on the IAB public policy call this week along with ValueClick. We are working to get this pushed up on the agenda and ask any other IAB members to please get involved and vocal. This is what membership dues is all about! We will have more info this coming week on that front.There is the beginning of movement on that front with the IAB.

    It seems to me that we need to create a central point for all to converge. How would everyone feel if we set up a community on Facebook or Ning so we have a place to focus all our efforts. May i suggest we call it the "affiliate Council"

    I will set this up if everyone feels that this is a good idea. Please let me know. We are do fragmented right now.

  15. Excellent post in Forbes about the unconstitutionality of this law: http://tinyurl.com/5qkgkd