Venable’s John F. Cooney on Amazon.com vs. New York State Department of Taxation and Finance
For the past three years, Amazon.com and the state of New York have been sparring over whether marketing affiliates based in New York constitute nexus for the online retailer, thus requiring the collection, tracking and reporting of sales and usage tax for affiliate-driven online purchases.
New York enacted the statute in 2008, upon which Amazon.com filed suit. In January 2009, New York's trial court found in favor of the state, moving the case to the appellate level; the Appellate Court has been reviewing the case since September 2009.
With the likelihood of a decision coming back from New York's Appellate Court in the near future, Target Marketing talked to John F. Cooney, a partner in the Washington, D.C., office of law firm Venable LLC. Cooney wrote an amicus brief on behalf of the Performance Marketing Alliance, supporting the trade group's assertion that the New York law is unconstitutional. Here, he explains the legislation's impact on the practice of affiliate marketing, the larger movement in the states to enact similar laws and the anticipated path this battle will take.
Target Marketing: What are the main ramifications of the New York statute on marketers that use affiliates for advertising?
John Cooney: The New York statute would require entities that are using affiliates to collect New York state use tax for every sale they generate that is generated through a New York website, which would basically be defined as a website operated by a company that is organized under New York law or an entity that happens to have its website physically located in New York.
For the largest enterprises, such as Amazon.com, there may be tens of thousands or even in excess of a 100,000 people who are affiliates who operate websites that bear banner advertisements or clickthrough advertisements [for their products and services]. ... So it's an obligation to collect information about what may be a large number of entities and then determine how many sales were made through them and then set aside the money for the use tax and send it in to the state.