The retailer says web sales grew about 30% during the period, while total sales were lower than projected.
New York has released a document clarifying a law that requires some web merchants with New York affilates to collect state sales taxes. The document hints that the state may be less aggressive in interpreting the law than some feared, an expert says.
The New York State Department of Taxation and Finance has issued an interpretation of a controversial law enacted this year requiring some online merchants with New York-based affilates to collect state sales taxes. The document hints that New York will be less aggressive than some originally feared, George Isaacson, tax counsel for the Direct Marketing Association, said in a recent conference call.
The opinion, called a Technical Services Bulletin, says online retailers engaged in “pure vanilla” affilate marketing programs with New York-based web sites-that is, the affilate is only hosting a link on its site and not marketing the link in e-mails, flyers, or phone calls to New York residents-can overcome the presumption of nexus in the state, Isaacson says. Nexus-or physical presence in a state-triggers a requirement that a retailer collect sales taxes from consumers from that state. “It can be rebutted if it can be proven that there is no additional activity-that the relationship is limited to link referral and includes no other solicitation activity,” Isaacson says.
The document makes it clear, Isaacson says, the burden is on the direct marketer, the retailer, to prove that it does not have nexus in the state. Isaacson suggests merchants that decide to continue their New York-based ad partnerships and do not charge state sales tax include in their contracts instructions that prohibit affiliates from mentioning links in promotional materials to New York residents.
The tax department’s legal opinion is more focused than the orginal law, which “has a number of vague and broad terms,” Isaacson says. “This is much more helpful of what this is going to mean for direct marketers,” he says.
The law, slated to take effect take effect June 1, states that merchants who do $10,000 or more in sales annually-through New York-based affiliate web sites-have physical presence, or nexus, in the state and must collect and remit sales taxes to the state. The state sales tax us about 9.5%, but can vary by county.
The legislation already has some online merchants crying foul. Web-only retail giant Amazon.com filed suit against the state declaring the law “invalid, illegal and unconstitutional,” and earlier this month Overstock.com severed ties with its New York-based affiliates.
Isaacson says that while the state’s legal opinion doesn’t ensure merchants with New York affiliate relationships will not be audited or questioned, it does provide some guidance on how they may successfully defend themselves in court.