New York’s new nexus-expanding affiliate marketing law has generated considerable confusion and anxiety in the direct marketing industry. The legislation was signed into law on April 15, and now the second shoe has dropped in the form of a technical services bulletin (TSB) issued by the New York Department of Taxation and Finance on May 8 — TSB-M-08(3)S. The TSB purports to explain the new law and resolve some of the uncertainties arising from its vague statutory language.
The good news is the TSB actually narrows the scope of the new law in certain important respects. It may provide comfort to catalog companies and Internet merchants that maintain relationships with New York affiliates, so long as the remote seller carefully restricts and monitors those relationships.
The New York legislation creates the “presumption” that a remote seller is obligated to collect New York sales/use taxes if it enters into agreements with New York residents for the referral of potential customers through Web site links. The TSB didn’t adopt the most expansive interpretation of this broad statutory language. Instead, it limits the application of the law and makes clear how an out-of-state retailer can rebut the “presumption” and thereby be relieved of use tax collection obligations. The department’s relatively modest approach to enforcement may be part of its effort to defend the constitutionality of this new statute in the face of court challenges filed by Amazon.com and Overstock.com.
Key TSB Provisions
1. Mere advertising on an affiliate’s Web site, including pay-per-click arrangements, won’t give rise to a presumption of tax collection obligations.
The TSB provides that, “A business is not considered a vendor ... merely because the business stores advertising on a server or other computer equipment located in New York State, or has advertising disseminated or displayed on the Internet.”