Thursday, June 05, 2008

New York State Internet Sales Tax & Effect on Affiliates

If you have been keeping up with the news recently, you probably have heard about New York State forcing online retailers to collect sales tax on residents. Did you know they are also requiring the same online retailers to collect sales tax on purchases made to residents that do not reside in NY State, but who were referred by an affiliate who is located in NY State! (If this is news to you, you can catch by reading this NY Times Article.)

This is problematic in many different ways! According to this scenario, if an affiliate lives in New York and refers a customer to a website based in Kansas that sells product(s) to a customer in California, then the customer pays sales tax on the online order to NY state. The same customer is also required to pay sales taxes again on the same purchase to the state of CA when they file their CA tax return! Double sales taxation for the customer is not logical (doesn't seem legal either) and does NOT happen in the Brick and Mortar or Mail Order world.

Even more confusing, is this based on the residence of the affiliate, the mailing address of the affiliate, the location where the affiliate's site is hosted or what? What a confusing mess!

Here is my perception: an affiliate receives a referral fee as does an independent contractor. Affiliates will receive an 1099 form for referral income like an independent contractor. The affiliate will pay income taxes based on where they live for that revenue received. This has nothing to do with sales tax. The affiliate is providing a service, they are not buying anything - the customer is doing the purchasing.

If NY is going to force Internet businesses to collect sales tax for NY residents, then they should only do that. This has NOTHING to do with the location of the affiliate, only the location of the customer. Anything else is absurd!

Please add to this discussion by commenting to this post.