I hoped this New York Affiliate Sales Tax problem that Elliot Spitzer started right before the hooker episode would die out, but looks like it could go through. I’ll link to places with more info for those that haven’t followed this but in a brief nutshell… Up until now eTailers only needed to collect sales tax on purchases in states where the merchant has a physical presence, such as a storefront or sales office. The proposed tax law, “would require online retailers based outside of the state to collect and remit sales tax on customer orders received through affiliate web sites based within New York.”

The bill which is expected to be passed June 1 is an effort to raise $50 million in tax revenue from online retailers with no brick and mortar presence in New York that would normally not have to charge customers any sales tax at all.

Internet Retailer - New York says web site affiliates are basis for sales tax collection “The proposed provisions to the law expand on the definition of nexus to cover New York-based web site affiliates that forward customers to an out-of-state online or catalog retailer. ?The provisions cover certain Internet retailers that we believe have a physical presence in New York, and the provisions have determined that New York-based affiliates of remote online sellers qualify as a brick-and-mortar presence,? a spokesman for the state?s Department of Taxation says.

The spokesman mentioned Amazon.com Inc. as a particular target of the provisions because it?s a large retailer that doesn?t collect sales in the state like other large retailers with physical stores as well as retail e-commerce sites.”

I wasn’t too worried because I thought once Spitzer was out this would all go away and because it affected one state. However if this is passed there could be a ripple effect where other states try it. Plus you have to wonder… if charging tax significantly reduces a merchant’s revenue due to lost sales, would Amazon or other merchants just prohibit New York affiliates from joining to try to avoid having to charge the tax?

Shawn has talked about this too. Here are some of his thoughts.

Will Amazon Stop Working with NY Affiliates? “If it passes legal challenges, I would imagine many other states would follow with similar plans, which could be bad for online merchants and affiliates.

Anyhow, if the whole tax is based on affiliates living in New York, I would imagine (note - I am not a lawyer, and I am simplifying things as a layman) that if Amazon were to cease working with affiliates in New York, such a tax would be invalidated.”