Overstock.com Terminates All NY Affiliates

In my Revenew’s post on April 18th, 2008 – Read here I spoke of a serious post concerning the possibility of an affiliate sales tax collection for affiliates based out of New York that went up (April 17th 2008) on the internetretailer.com website. Due to the downtrodden economy Gov. Eliot Spitzer of New York revived a plan to enhance New York’s tax revenue which would if allowed begin on June 1st of 2008. In short the claim is that any company who has an established nexus of affiliates in NY that are collectively or individually making more then $10,000 in sales per year requires the merchant to collect sales tax from those affiliates.

I am not an accountant but from what I am understanding and according to WebProNews writer Mike Sachoff who wrote on May 6th 2008, “Online retailers doing business in New York will be required to register with the state beginning June 1, 2008 to collect taxes, or face audits for prior quarters for failing to register.” Read article here

On Friday May 2, 2008 , as written in The New York Times Amazon filed a complaint in State Supreme Court in Manhattan objecting to the law, which was approved as part of the $122 billion state budget that Gov. David A. Paterson has already signed. To make matters worse – Texas is also considering implementing a similar tax on affiliate sales – the post can be viewed here.

The discussion concerning thoughts surrounding the NY affiliate or Amazon tax as it is being called via major news publications continued heartily at the most highly populated affiliate forum AbestWeb.com, the posts can be viewed here. Today in AbestWeb.com the most popular affiliate forum in the known world, NY affiliates are posting emails and alerts they are receiving from Overstock.com concerning the affiliates being dismissed from the Overstock.com affiliate program based on the fact that they reside in NY. Read the post here.

It is times like these when services such as www.EarthClassMail.com and out of state web hosting companies become very popular for New York affiliates. What will be interesting is watching the New York tax system attempt to identify and track affiliate sales from, uh, affiliates who reside in New York…. So whose responsibility will it be to determine and prove affiliate residency? The affiliate network? The merchant? New York State tax agency?

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.

25 Responses to Overstock.com Terminates All NY Affiliates

  1. Brook Schaaf says:

    Todd's point (not that it's his point) seems like tortured logic. It would be nice if the networks, including Google-DoubleClicks-Performics, weighed in on this.

  2. Todd Crawford says:

    I am very concerned that NY sees affiliate marketing differently than other forms of online advertising like CPM and CPC. I do not understand the logic they are using that affiliate marketers create nexus for advertisers allowing them to charge sales tax. If this is not overturned, I would expect NY to extend the nexus to any online advertising – including CPC and CPM. Idiots!

  3. Brook Schaaf says:

    Todd’s point is very good and has not been addressed. This is a great example of terrible governance. I hope that Amazon’s lawsuit reveals this law to be illegal in short order.

  4. Todd Crawford says:

    It appears that the justification is based on any party that benefits from the transaction or revenue the advertiser generates. This still doesn’t make complete sense but at least now I get where they are coming from.

  5. Hello Todd,

    Great points, it will be interesting to see which networks deal with this situation and how fast- if this goes state to state we could have an affiliate tracking issue that would need to be addressed at the geographic level – perhaps a seperate geo tracking parameter appended within the referring URL so networks and merchants could distinguish affiliate sales per state?

    Also a concern is sales and reporting per state in the networks based on affiliate performance, the industry might have to rethink tracking, reporting, as well as the dissemination of that information to merchants in order for the merchants to obtain the proper information for their affiliate accounts.

    Currently many of the networks “own” the affiliate relationship and do not disclose to merchants the affiliates address so merchants have no way of truly knowing or identifying affiliates by state.

    It will be interesting to see how the State of NY tax collection system attempts to weed through this technology and these hidden relationships..

  6. California apparently is also considering – So far Texas, New York, perhaps California…

    A link was just posted at ABW (click the tiny url)
    http://turl.stuff4world.com/?click_here555

  7. Andy Beard says:

    Slightly off-topic, but don't you think statements like this alienate a huge chunk of affiliate marketers

    "the most highly populated affiliate forum AbestWeb.com, the posts can be viewed here. Today in AbestWeb.com the most popular affiliate forum in the known world"

    The Warrior Forum for instance has 81,000 members, and most are affiliates.

  8. Andy, the topic is:

    Overstock.com Terminates All NY Affiliates

    Do you have a link to a thread talking about that subject over there? I looked, didn't see one unless I'm missing it. I just see a bunch of Clickbank, ezinearticles, bum marketing, craiglist, ezines kind of stuff.

  9. Andy Beard says:

    Jonathan no I don't. I came over here first of all prompted by Igor regarding the Yahoo privacy warnings.

    I had already written about Overstock a little before that linking through to Linda Shawn and a few others.

    It was up on Techmeme, and I wanted to try to "teach the algorithm" who the sources were

    I then noticed Heather had posted so I read the article to see if there was anything new to add and link to.

    I start reading down and come across something that makes it harder for me to link.

    I had also previously read the suggestion about having a unifying industry association, but that isn't going to happen if sectors of the industry accidentally forget that the others don't exist.

  10. They exist, I just think ABW is more traditional affiliate marketing, it's why you have reps from the main affiliate networks posting there, Performics, Linkshare, SAS, etc. and with Overstock, they're on the Linkshare network.

    I checked ewealth, warrior forums, didn't see anything. WickedFire, one thread, 3 replies on the subject. Take WickedFire, that's geared a little more towards the CPA networks, why you'll see more participation from CPA networks there, whereas ABW is geared more towards the traditional affiliate networks.

    And that is another problem with a unifying industry association. This business is so huge and some parts of this industry have their own cultures. You have/had? pharm, adult, some more into the Clickbank type stuff, some more into the traditional etc. and some affiliates can do a little bit of everything.

    But these type of topics with a merchant like Overstock.com, is just going to get covered more at ABW since it fits more with the usual discussion over there.

  11. James Dorans says:

    Other merchants have done the same thing, 2 of my biggest merchants did it two weeks ago.

  12. Mike Allen says:

    I'm not a big proponent of lawsuits to settle things, but it's beginning to look like the time is ripe for a class action lawsuit against NY — or at least to seek an injunction pending further litigation. This behavior by NY is simply wrong. For the state to damage legitimate businesses by randomly creating a questionable provision that the United States Supreme Court declared was outside their jurisdiction and under the federal interstate commerce clause is ludicrous.

    Furthermore, and contrary to the stated intent, like many government actions involving businesses, its impact will likely lead to less revenue for the state as people, jobs, and resources migrate to more favorable environments. (It also strikes me as funny that NY chose to go after one of the most flexible and easily outsourced industries on the planet. Go figure.)

  13. Angel Djambazov says:

    To me it looks like one of those silly lawsuits meant to be more political than practical in nature. I can see Spitzer's assistants sitting around thinking to themselves, "Who can we take a bite out of? Amazon!"

    Amazon is the type of company, big enough and with enough clout to inflict some legal damage back. I hope they do.

  14. Adam Viener says:

    Wouldn't all merchants of linkshare be at risk here since linkshare is based in NY and get's a cut of all the transactions through their network?

  15. Hey Adam,

    Yes nice point – LinkShare as well as other networks who take a commission of the sale could be seen as affiliates themselves. So perhaps any merchant with linkshare could automatically have a nexus in NY as Linkshare is based in New York.

    Interesting thought

  16. Jeff Molander says:

    All good points (including Todd's) 🙂 but isn't it interesting how quickly Overstock made this decision.

  17. Brook Schaaf says:

    Well said, Mike.

    This could end up being one of those taxes that actually lose money for the state after decreased revenue, litigation and policing are taken into account.

    This is going to hurt the affiliates most of all.

  18. Jeff –

    This issue has been simmering since November 2007 – do you know that they made the decision quickly?

  19. Brook – You make a very valid point which I am hoping New York discovers quickly after acknowledging the costs associated with investigating the channels monetization methods..

    Dismissing NY affiliates from a program is a hard decision for any merchant to make, this is unfortunate.

  20. A couple points:

    1) The situation in Texas is different. It's not related to affiliate sales at all. A subsidiary of Amazon.com has a distribution center in Texas. Depending on how that relationship is structured, that would constitute a physical presence under EXISTING law. Likely, it doesn't. But in either case, it's not based on affiliates in Texas.

    2) If it's based just on people who get a percent of sales, the AFFILIATE NETWORK (LinkShare) in New York is probably enough of a presence to constitute a nexus by New York's flawed reasoning. They clearly distinguish between commission-based compensation and CPC/CPM, indicating that those who earn a commission are sales reps. Well, guess what? LinkShare earns a percentage, too. Guess Overstock.com better just shut their entire program down.

  21. It's surprising to me that we haven't heard anything out of LinkShare about this situation. Either publicly or directly to their network. Wonder what they will have to say at the upcoming LinkShare Symposium?

  22. Hi Angel,

    Well ShareaSale's President/CEO Brian Littleton made an announcement today on AbestWeb.com – http://tinyurl.com/5o82u3

    I am sure the other networks will be disclosing their policies on this matter soon as well.

    Cheers,

    Heather Paulson

  23. ShareaSale ANNOUNCES NY Affiliate sales Tracking in their network******

    "As a Merchant on ShareASale – there is now a report under the heading of "New York Affiliate Revenue" which will provide you with the data that you need to make decisions." Brian Littleton as posted on Abestweb.com

    http://tinyurl.com/5o82u3

    bravo, bravo, flexibility is key to maneuvering in any business, great move Brian!

  24. Angel Djambazov says:

    As usual Brian is brilliant in his handling of a tricky situation. I hope that all the networks also come forth with their stance on the issue.

  25. Danny says:

    Overstock had a lot to say about this in their most recent earnings report. If what they say is true, NYS will be back tracking on this new law. Shame I just placed an order at Amazon and got stuck paying a lot in sales tax.

    You can see the entire transcript of their earnings report. Just use the search function to get directly to the part about the NY state sales tax. You can see the link below:

    http://seekingalpha.com/article/85766-overstock-c