By Cade Metz for The
Register. This story has been reproduced with
permission.
Late last month, New York Governor David Patterson rubber
stamped a $122bn state budget that attempts to collect an
additional $50m in sales taxes from various online retailers.
People call it the
Amazon Tax, but it affects more than just Amazon.
Under the new law - which takes effect on June 1 - any e-tailer
with New York-based affiliate marketers is considered to have a
"physical presence" in the state, and that means they're required
to collect sales tax on all goods shipped to a New York
address.
Thanks to a pre-Internet-revolution Supreme Court case involving
a mail order catalog business, physical presence is the litmus test
for sales tax collection. If an e-tailer doesn't have physical
operations in a state, then customers must declare purchases on
their own - which few end up doing.
Amazon has since sued
New York over the Amazon Tax, calling it unconstitutional. But
while the case is pending, the company intends to obey the New York
government. "Nothing is changing with regard to Amazon's
relationships with Affiliates in New York state," Amazon
spokeswoman Patty Smith told us. "And we expect to begin collecting
sales tax (as the new legislation requires) no later than June 1,
2008."
Overstock has taken a different tack. As first reported by Shawn
Collins and his
Affiliate Marketing Blog, the Utah-based e-tailer will cut its
New York affiliates loose on Tuesday, May 20.
"Unfortunately, due to the State of New York's new legislation,
we now believe it's prudent to discontinue, temporarily, our
current relationships with our New York affiliates while the battle
over the constitutionality of the New York legislation is contested
in the courts," reads a letter
(PDF) sent to one New York affiliate, BusinessKnowHow.
Like Amazon, Overstock believes the new law is unconstitutional,
but it can't afford to collect NY sales tax while the case plays
out. "Amazon is challenging the law, and good for them," Patrick
Byrne told us. "But we had two choices: Either raise our prices to
New York residents or give up our New York affiliate business. And
since our affiliates make up such a small fraction of our business,
cutting affiliates made the most sense.
"Suddenly having to pay [roughly] 8 per cent tax on 10 per cent
of our sales would be a really bad trade off."
You'll notice that Byrne sees no difference between collecting
sales tax and raising prices. "When you collect sales tax, goods
get more expensive, and people buy less," he continued. "A tax is
just a government's price on a service. When you raise your price
on something, people consume less of it. And New York is raising
the price on the service it provides as a state, and we're
exercising our right to buy less of that service."
Spoken like a man with a long history of battling The
Sith Lord - both on Wikipedia
and off.
Byrne estimates that Overstock's New York affiliates account for
less than 1 per cent of the company's total sales - and maybe as
little as a half of one per cent. So that's what the company's
giving up while Amazon goes to court. Jonathan Johnson, Overstock’s
senior vice president for corporate affairs, confirms that if New
York's new law is reversed, Overstock will reinstate its New York
affiliates.
Johnson also believes that Overstock's stance on affiliates will
put added pressure on New York to change its ways. "We're sending a
message to lawmakers that they've made a silly decision. They're
hurting businesses in New York, causing people like us to turn
those businesses off."
Of course, Overstock acknowledges it has only two large
affiliates in the Empire State. The real pressure is coming from
the Amazon suit. And you have to wonder if Overstock's stand has in
fact weakened Amazon's case. Among other things, Amazon contends
that New York's law was directed "at a class of one" - i.e. Amazon.
But obviously, there's at least one other in Amazon's class.
© The
Register 2008
