Thoughts on New York Affiliates Situation: Industry Org Needed?

Michael Vorel posted an interesting tweet this morning:

I am concerned many NY affiliates will loose interest in affiliate marketing, solutions?

which was followed up with a tweet from Shawn Collins:

@vastplanet I think it could help to publicize Amazon’s battle and try to bring grassroots blog pressure on NY to get more mainstream media

The back and forth refers to the developing situation surrounding recent legislation in New York state that seeks to collect taxes on online revenue generation and immediately effects large merchants as well as the NY state affiliates.

There was a question as to whether Amazon would drop NY state affiliates, but it looks like the first large merchant to take that step is Overstock.

Shawn Collins covered it first and best at AffiliateTip Blog:

Today the Small Business Blog reports that Overstock.com has issued a notice to all New York state affiliates that they are being dropped from the Overstock Affiliate Program, effective May 20, 2008.

As the day went on, more bloggers and discussions started appearing about Overstock’s actions. Even Saul Hansell of the NY Times is following the developments with an in-depth piece and link back to Shawn’s piece:

There were two predictable fallouts from New York State’s move to force online companies to collect state sales tax: There would be a lawsuit. And some online merchants would cut off their affiliates in the state.

Then, over on ReveNews Heather Paulson covered the situation and got a very precise comment from Todd Crawford:

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!

As Todd and others have pointed out, this is a very short term play from NY state and will eventually cost them revenue in terms of sales tax and income tax generation from merchants and affiliates. However, states are cash strapped (I won’t get too political, but let’s just say the current administration’s fiscal practices haven’t exactly helped states deal with rising health care and education costs) and looking for ways to get into the black during an important election year when the turnout is going to be exceptionally high.

Will more states follow NY? Yes. It’s almost a certainty if NY is successful at collecting taxes from large companies such as Amazon (which it looks like will be the case judging from the NY Times piece). Does this mean affiliate marketers or merchants will suffer and eliminate affiliates working in those states? Perhaps, but I don’t think that’s a necessary certainty.

Instead of making the case that affiliates are being treated unfairly, I think our best bet as an industry is to make the case to state governments that this is an economically short minded tactic. Robbing Peter to pay Paul never works and the states will loose more long term revenue in the form of sales and income taxes than they will gain by a tax system that will surely have more holes than a sieve.

I fear it will be the affiliate marketers themselves and not the merchants who have to make this case. The merchants seem willing to either pay the tax or to stop working with NY state (and eventually others) affiliates instead of making the case against such a tax scheme.

Industry organization anyone?

Published by Sam Harrelson

I'm the head of Harrelson, where we work with churches, nonprofits, and businesses on marketing strategy and consulting. This has been my personal blog about marketing, tech, religion, art, history, scifi, family, and life in general since 2006.

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