Hot off the press from the Performance Marketing Association blog. New York State is at the center of the affiliate tax issue with all other States looking to see where this ends up. Please make sure to push this important information out thru your industry channels.

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The New York Supreme Court, Appellate Division, issued a decision on the Amazon appeal. The outcome is slightly positive – but not the best case scenario.

In 2008, New York passed the Affiliate Nexus Tax, causing hundreds of merchants to terminate their New York affiliates, to avoid having to collect New York sales tax. Amazon decided to collect sales tax (and retain their affiliates, aka Amazon Associates) but immediately filed a suit. They lost that first case and in May of 2009 they filed an appeal.

The court found Amazon to have potential merit in two of the 3 claims: that the affiliate nexus tax may violate the Commerce Clause and the Due Process Clause of the US Constitution. It did not find the law to violate the Equal Protection Clause (Amazon claimed discrimination).

… the statute is constitutional on its face, and does not violate the Equal Protection Clause either on its face or as applied, and to reinstate the complaint for further proceedings with regard to the claims that, as applied, the statute violates the Commerce and Due Process Clauses, and otherwise affirmed, with costs.

However, Amazon and Overstock must now prove that New York affiliates do not directly solicit sales to other New Yorkers, they do not engage in personal selling, a practice which would establish nexus and obligate the merchant to collect sales tax.  As we all know, that is not an easy thing to prove.

What Does This Mean?

It means this doesn’t go away.  Truthfully, we never expected it to end here (as much as I secretly hoped). However, this ambiguous decision could lead to any manner of outcomes. It could discourage states and encourage others. We will have to see what happens in January when various state legislative sessions begin.

The reality of the past 2 years is that we’ve been able to beat back the Affiliate Nexus Tax because affiliate marketers have convinced legislators this will devastate small businesses in their states. The fact still remains that merchants have the power to terminate their affiliates if they establish nexus, and we’ve made a great case that this hurts states’ income, it doesn’t help them.

What’s Next?

This appeal was filed with a mid-level court in New York, and this decision paves the way for it to move up to a higher level in the New York Supreme Court. No doubt Amazon will pursue a further appeal process. They’ve been quoted as saying they’ll take this all the way to the US Supreme Court if need be. This will take a long time.

And we can expect states to foolishly propose the Affiliate Nexus Tax – so we’ll need continued involvement of affiliate marketers – to put faces behind this cause. Please stay tuned!