The language describing the process by which an “affiliate” is defined as a “nexus” in New York’s controversial new law redefining out-of-state merchants as in-state has proved complicated enough to require the New York Department of Taxation to issue a bulletin attempting to sort out the rules.
According to the bulletin, any New York-based Web site affiliate that takes a commission on sales resulting from clickthroughs from its site to an out-of-state merchant is, according to the statute, a New York state-based “nexus” for that retailer.
However, if the out-of-state merchant simply pays the affiliate Web site a flat fee that is not tied to sales generation, the affiliate is not considered a nexus.
Then things get really confusing. According to the bulletin, even if a commission is paid, if the affiliate Web site in New York does nothing to promote its relationship with the out-of-state online merchant, then it is not a nexus for the out-of-state merchant.
The bulletin uses an example of a ski club whose Web site links to a retailer of skiing equipment. If the ski club–through flyers, brochures, and emails–actively urges its members to reach the retailer through the ski club Web site, and collects a commission on sales it generates, then it is a nexus, and the online retailer must collect sales taxes.
If, however, the ski club does nothing that could be construed as “referring” members to the retailer (that is, provides no flyers, brochures, or emails), and simply sets up a Web link so its members can click through, as if serendipitously, to the retailer, the ski club is not a nexus, and the retailer is not liable for sales tax.
— Steven Titch
Steven Titch is a policy analyst focusing on telecommunications, Internet and information technology. He is also a policy advisor to The Heartland Institute.
