Avalara and Shopgate Form Global Partnership

Avalara, Inc., a provider of cloud-based transactional tax compliance solutions, and Shopgate, a software-as-a-service mCommerce platform, have announced a new global partnership to help merchants remain tax-compliant when taking mobile payments.

The partnership integrates Avalara’s AvaTax™ sales tax compliance solution with the Shopgate mobile commerce platform. The collaboration will allow Shopgate to offer its merchants fully-automated sales tax compliance services as it expands into North America, while continuing to support its 5,500+ merchants across Europe.

Sales Tax DataLINK Gets Patent for Sales Tax Filing and Analytics Solution

Sales Tax DataLINK in Bentonville, AK, has received one of only 15 sales tax-related patents ever issued by the U.S. Patent and Trademark Office for sales tax software known as its “System and Method for Tax Filing, Data Processing, Data Verification and Reconciliation.”

“Sales tax compliance becomes more sophisticated and complex every day, so businesses need new technologies to stay ahead of these challenges,” said Noel Hamm, CEO of Sales Tax DataLINK. “The new era of filing software needs to safeguard businesses and accounting firms that want to be certain their sales taxes are being collected and remitted in the most accurate way.”

 “Sales Tax DataLINK is first and foremost a tax-filing software company, producing a suite of sales and use tax tools that engage sales tax analytics,” Hamm said. “Our software brings an unprecedented visibility and patterning to your tax data that eliminates the error gap from invoicing to tax filing.”

The patent was awarded on the basis of innovative technology that gives companies the ability to evaluate the health of their sales tax systems and to make educated corrections resulting in more accurate tax filing each month, Hamm said. Other sales tax software, according to Hamm, merely populates forms with no means of automatically validating the numbers.

More information is available at www.SalesTaxDataLINK.com

TaxJar Handles Sales Taxes for Square Sellers

According to Website Magazine, TaxJar, an online service that manages sales tax filing for eCommerce merchants, has announced that it has opened up its services to Square users.

The new integration lets merchants link their Square and TaxJar accounts so TaxJar can manage and report the merchant’s taxes to state and local authorities, saving sellers the time and effort of doing it themselves and helping to avoid missed deadlines and tabulation errors.

Colorado Puts Burden of Proof on Ecomm Merchants re Nexus

According to The Denver Business Journal, "Organizations like the Colorado Retail Council have supported HB 1269 because retailers are tired of being undercut by online sites like Amazon.com that don’t have to pay local taxes or fund the physical staffing and infrastructure costs needed to maintain a store.

"But state officials acknowledged during a committee hearing that the connections outlined in the bill would not require Amazon to pay taxes unless it undertook an action like opening a warehouse or distribution facility in Colorado.

"... so, House Republicans focused instead on another clause in the bill — one that creates a presumption that an online retailer has a nexus requiring it to remit taxes and to have to prove otherwise to Colorado. That provision, they said, would lead state officials to harass smaller companies that won’t have the resources to fight back rather than go after giant corporations whose legal departments can bat away such a presumption."

Supreme Court Declines Case Re Making Online Retailers Collect Sales Taxes

The Supreme Court today declined to interfere in state efforts to force online retailers to collect sales tax from customers even in places where the companies do not have a physical presence, or "nexus."

The case involved a decision by New York’s highest court to uphold that state’s 2008 law requiring sales tax collections. Amazon has no offices, distribution centers or workforce in New York, but the New York Court of Appeals said Amazon’s relationship with third-party affiliates in the state that receive commissions for sending it Web traffic satisfied the “substantial nexus” necessary to force the company to collect taxes.

The Quill Case
It has been 20 years since the Supreme Court ruled in Quill v. North Dakota that a state’s efforts to require tax collections from out-of-state companies violated the Commerce Clause of the Constitution. It said the necessary “substantial nexus” exists when the out-of-state retailer has a “physical presence” in the state.

But that decision came before the advent of eCommerce, and the New York court said the old test may now be outdated. “An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet,” the court ruled.

Patchwork
As noted in The Washington Post, online retailers complained that a patchwork of state laws and conflicting lower court decisions needed the Supreme Court’s attention.  The Supreme Court’s Quill decision said Congress was in a better position than the court to provide uniformity in state tax collection requirements, but there has been little progress.

The Senate in the spring passed the Marketplace Fairness Act of 2013, which requires companies that surpass $1 million in Internet sales outside the states where they are located to collect every state’s sales tax, but the future of the bill is uncertain in the House.

GoECart’s Integration with Avalara Sales Tax Solution Officially Certified

GoECart, a leading provider of multi-channel eCommerce order management solutions, has announced its official certification with Avalara, a leading provider of cloud-based sales tax automation services.

Avalara's AvaTax service helps GoECart merchants reduce audit risk and achieve compliance with a suite of automated sales tax services that make it easy to calculate tax rates, file forms, remit payments and simply reporting.

“We’re always focused on helping our clients consolidate systems and manage their businesses more efficiently,” said Manish Chowdhary, CEO of GoECart.  “Avalara’s official certification of the GoECart eCommerce and order management solution means that our clients can remain confident that they are fully up-to-date on handling today’s highly complicated and rapidly changing tax regulations.”

The integration gives GoECart merchants several benefits that include:

• A complete set of automated end to end compliance services including sales and use tax calculation, exemption certificate management, filing and remittance, and a broad array of related services
• Complete automation of sales tax compliance areas that include situs, nexus, tax tiers, tax holidays, exemptions, certificate management and product taxability rules
• Rapid application of sales tax calculations to eCommerce and call center transactions via a secure, encrypted Internet connections
• Reduction of time spent on sales tax return and RMA processing
• On-demand reports containing information necessary to prepare and submit accurate sales tax returns
• Seamless remittance payments by Avalara for each jurisdiction where the merchant has a nexus
• The ability to manage all aspects of tax compliance via familiar, web-based administration panel

Avalara’s SaaS solution provides a complete set of transactional tax compliance services developed specifically to serve the needs of small- to medium-sized businesses. Avalara CEO and Founder Scott McFarlane said, “Avalara’s cloud solutions help thousands of customers stay focused on their core businesses by eliminating the angst of a statutory requirement that has no strategic value, and we do so in a fast, easy, accurate, and affordable manner. We’re pleased to welcome GoECart into our ever expanding community."

National Sales & Use Tax Could Be a Mess

Multichannel Merchant magazine published a good overview of the "mess" that “The Main Street Fairness Act”or other nationwide sales and use tax would create because so much of what any of the several Federal bills under consideration would impose is at odds with state-level sales and use tax methods and procedures. Much food for thought in this very good short piece.

PA To Tax Cloud Computing

In a private letter ruling issued May 31, 2012 (Letter Ruling SUT-12-001), the Pennsylvania Department of Revenue stated that accessing pre-written software via the Internet is taxable if the purchaser and the user are both located in Pennsylvania.

The ruling represents a departure from the Department's earlier treatment of cloud computing whereby access to software solely through the Internet was not a taxable transaction, as long as the server did not reside in Pennsylvania.

"User" is defined as either an employee or a customer of the software purchaser/owner (according to the Letter Ruling, "In order to access the software, Taxpayer's customers either pay a subscription fee to Taxpayer or pay Taxpayer on a per-use basis. Both Taxpayer's employees and customers may collectively be referred to as 'end users' of the licenses to use the software.")

The reasoning for the new ruling is that computer software is "tangible personal property," and therefore, the charge for electronically accessing such software is taxable if the user is accessing the software from within Pennsylvania. However, if the end user is located outside the Commonwealth, the transaction is not subject to tax, even if the server is located in Pennsylvania.

If the billing address for pre-written software accessed remotely is a Pennsylvania address, all users associated with that billing address are presumed to be located within the state. To show that some users are actually out of state, the purchaser must submit an exemption certificate to the seller stating the percentage of users who are located outside the Commonwealth (this presumably applies only to employees, not customers).

So, in a nutshell, it doesn't matter where the server is located. If the user is in Pennsylvania, the user pays a tax on a subscription or per-usage charge. What the letter does not really address directly is software used only in-house, and not by customers. Presumably, there would be a one-time tax levied at the time of purchase (or on installment payments made by the purchaser).

While this seems like an effort to "rationalize" the taxation process, it may have the effect of discouraging companies from locating facilities with a large head count inside Pennsylvania, or encouraging those (few, these days) who are expanding to look elsewhere (if they use cloud-based solutions on a pay-as-you-go basis to run their business, which businesses increasingly do). And it will certainly discourage companies who offer access to software to their customers on a subscription or per-use basis from locating in the Commonwealth (although only PA residents will be so taxed, but PA is the sixth most populous state). Yes, this can be said of any tax, but unless and until nationwide treatment of situations like this are resolved at the Federal level, states will have to decide between trying to collect additional revenue or encouraging large employers to love Pennsylvania.

AZ Revives State Sales Tax Bill

AZCentral.com reports that "A House committee Wednesday revived a bill to charge sales tax on Amazon.com purchases, despite the fact that the measure has already failed twice in the Senate this session.

"...Members of the House Commerce Committee said their support of the bill should help intensify efforts at the federal level to change the laws on taxing online sales."

Under the current arrangement, Amazon enjoys tax-free sales in Arizona until 2013.

NJ Bill To Offer Amazon Sales Tax Exemption Til 2013

New Jersey Assembly Majority Leader Lou Greenwald has introduced a bill to grant Amazon.com a sales tax exemption until September 2013 if it invests $65 million to construct two warehouses that could bring 1,500 full-time jobs to the state.

As reported by The Street, "The legislation specifies that the jobs go to New Jersey residents."

Amazon already has similar agreements with Indiana, California, Tennessee and South Carolina.

While Congress Dithers, MN Lawmakers Struggle With Online Sales Taxes

The Minn. StarTribune reports that "An increasingly tense fissure is opening among Republican legislators over a proposal to require Internet retailers to collect state taxes. The issue pits behemoth Internet companies like Amazon squarely against bedrock Minnesota retailers like Target and Best Buy, forcing some Republicans who control the Legislature to choose between helping Minnesota companies and honoring their longstanding refusal to raise taxes."

As the paper points out, "Until now, most legislators were swayed by arguments from Internet retail giants like Amazon that the issue was one best left to Congress. But attempts at a federal fix have stalled."

Click HERE to read the full article.

PA Postpones Online Sales Tax Collection

Pennsylvania has postponed imposition of eCommerce sales taxes for companies with no nexus in the state until Sept. 1.

According to the Pittsburgh Tribune-Review, "Pennsylvania's definition of nexus is broad enough to include not only brick-and-mortar stores, but things like distribution and fulfillment centers, delivery trucks and sales forces."

The newspaper also reports that "In addition to setting the Sept. 1 compliance deadline, Pennsylvania has included a 'use tax' line for the first time in 2011 state tax return forms, to urge consumers who bought items online or out of state, and didn't pay tax, to declare and pay the 6 percent levy when they file their returns."

Read more: Start of online sales tax collection by Pennsylvania delayed - Pittsburgh Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/news/s_779939.html#ixzz1mVf6llgS

Online Sales Tax Collection Forecast: Murky With A Chance of Fudgeballs

The state of California has agreed to a compromise deal with Amazon.com that postpones collection of sales taxes on sales to Amazon customers in California until late next year. In the interim, Amazon and a coalition of other etailers have until July 31, 2012, to lobby Congress to pass legislation authorizing states to collect sales taxes for online sales, regardless of nexus (and thus overturning the 1992 Quill Corp. vs. N. Dakota ruling of The Supreme Court that precluded taxation for sales made to a Ship-To address in a state where the merchant has no presence or "nexus."). If Congress does pass that legislation, the deal with Amazon is that it won't have to collect sales taxes for California shipments until January 2013. Otherwise, they will have to start paying the sales tax in September 2012.

This may also moot a series of political and court battles on this issue that have been pursued over the last few years in New York, Illinois, Connecticut, Rhode Island, North Carolina, Arkansas and Colorado.

Complicated enough? Well, it gets worse. Illinois recently passed an online sales tax law that sets the rate for the sales tax as the location in Illinois where the order is processed, not the delivery location. If the merchant has no nexus in Illinois at all, then the standard state tax rate of 6.25% is due, but within Illinois, there are different tax rates for each county and municipality. In fact, the rate is 0% in some locations: so obviously some large "processing center" is going to locate there and offer to do third-party processing for any out-of-state direct merchants who want to avoid Illinois sales tax. But more to the point, since it is difficult to determine where the processing location might be -- and impossible for the consumer, in most cases -- this seems like the most bizarre piece of tax legislation out there. Just for starters, the "processing center" could be the location of the server on which the order processing system is running, or the credit card processor handling the transaction, or the credit card issuer authorizing the transaction, and so on, with other possible links in the processing chain. And this doesn't even account for mirrored servers in multiple locations that are often necessary to guarantee up-time for the processing service.

This is sheer madness, whether it's California playing a calendar game, the merchants courting Congress for legislative favors, or Illinois pretending that there is a physical cash register somewhere ringing up online sales. And it seems like there is no obvious way to stop this insanity. So fasten your seat belts. We're all in for a very bumpy ride!

States, Alliance Target Amazon on Sales Tax Law

Big box stores like Walmart and Target are backing a group called Alliance for Main Street Fairness, which is spearheading efforts to change sales-tax laws in over a dozen states, including Texas and California. Originally organized by mom-and-pop stores, the Alliance now has the backing of Wal-Mart, Target, Best Buy Co., Home Depot Inc. and Sears Holdings Corp.

Their biggest strawman enemy is Amazon, which they characterize as one of the biggest beneficiaries of the 1992 Supreme Court decision, Quill v. North Dakota, which ruled that retailers are exempt from collecting sales taxes in states where they have no physical presence, or "nexus," such as a store, office, or warehouse. This has been the law of the land for nearly two decades now, so it is really the Alliance that is causing the fuss, not Amazon. And of course states, heavily in the red, are desperate for any new source of revenue they can conjure. (We should note that consumers are technically required to file a "use tax" payment in lieu of sales taxes when they make purchases from eCommerce companies without a nexus in the state; don't hold your breath waiting for states to try to enforce that "flip side" of the Supreme Court decision...).

Last October, Texas sent a $269 million bill to Amazon for four years’ worth of taxes, citing Amazon’s Texas warehouse, which is owned by a subsidiary (presumably one that is independent of the parent company). In South Carolina, Gov. Nikki Haley is reconsidering an arrangement by her predecessor to allow Amazon to set up a warehouse in the state but exempt it from collecting sales taxes. After all, the wage taxes paid by employees is a major incentive to the state to forego the sales tax revenue.

Last week, Illinois passed a law forcing online retailers to collect sales tax if they have local affiliates in the state. New York, Rhode Island and North Carolina have adopted similar laws, and New Mexico, Minnesota and Vermont are considering such legislation. After Amazon threatened to terminate its affiliate programs in California and Hawaii, governors in both states vetoed similar bills. The California Legislature is trying again.

Amazon is standing firm, saying it will terminate relationships with affiliates in states that pass laws that contradict Quill V. North Dakota. 

Internet Sales Tax Debate Flairs Up on Capital Hill

Internet Retailer reported on July 29: As some members of Congress gathered today to promote the recently introduced Delahunt bill to mandate sales tax collection by Internet retailers, others pushed a new House resolution by Rep. Paul Hodes (D, NH) that opposes it.

“Congress should not impose any new burdensome or unfair tax collecting requirements on small online businesses, which would ultimately hurt the economy and consumers in the U.S.,” the Hodes resolution says.

The Hodes resolution, which has bipartisan support from four representatives, runs counter to House Rule 5660, The Main Street Fairness Act, which was introduced on July 1 by Rep. William Delahunt (D, MA) and calls for Congress to support the Streamlined Sales and Use Tax Agreement and authorize states that abide by that agreement to force Internet and catalog retailers to collect and remit sales from customers in those states. In effect, the Delahunt bill seeks to overturn the status quo that says retailers don’t have to collect sales tax in states where they don’t have a physical presence, such as stores, offices or distribution centers.

The Hodes resolution doesn’t mention the Delahunt bill or the Streamlined Sales Tax Agreement  by name, but it contends that  “any federal legislation that would upset [the Internet’s] open and fair environment and impose new onerous and burdensome tax collecting schemes on hundreds of thousands of small online retailers would not only adversely impact thousands of jobs and reduce consumer choice, but would also effectively put an end to the robust e-commerce marketplace that consumers in the U.S. currently enjoy.”

The Hodes resolution was supported today by NetChoice, a coalition of online retailers and related organizations opposed to sales tax collection by Internet and catalog retailers. Its executive director, Steve DelBianco, said in a conference call today that collecting and remitting sales tax would cost small retailers an amount equal to 15% of the tax they collected.

... Retailers have differing views on whether conversion drops in states where they have to collect sales tax. Mike Hackley, CEO of web-only retailer ShoppersChoice.com, says the sales tax he collects in his home state of Louisiana does not appear to have hurt sales to Louisiana residents. But Neil Kugelman, CEO of web-only jewelry retailer Goldspeed.com Inc., says his sales in his home state of New York are lower because he has to charge tax to New York consumers. “Jewelry customers in New York prefer buying from companies not in New York to avoid paying sales tax,” he says. “And my conversion rate in New York is lower than in other states.” He could not provide details.

GSI Commerce Inc., a provider of e-commerce technology and services to hundreds of retailers, does have detailed data, at least for one client. This online retailer, which GSI did not name, established a physical presence in certain states and thus had to collect sales tax there. Sales in those states dropped 12% over the nine-month period GSI studied in 2008 and 2009, says Fiona Dias, executive vice president of strategy and marketing. “When we think of how retailers have to fight for every bit of sales and every point in their conversion rates, this is a very big deal,” Dias says.

Dias adds that the client retailer sells a wide assortment of merchandise. The decline in sales was steepest among the retailer’s most expensive items, she adds.

The governing board of the Streamlined Sales and Use Tax Agreement, meanwhile, says that a mandatory system of sales tax collection, if imposed in states that have a sales tax, would collect $18.6 billion in tax revenue this year that would otherwise go uncollected. The NetChoice group disputes that figure and contends it’s far lower.

DMA Lawsuit Re CO Dir. Comm. Tax Law; News On "Mainstreet Fairness Act"

DM News reports that The Direct Marketing Association  filed a lawsuit in federal court June 30 claiming a Colorado law requiring out-of-state marketers and multichannel merchants to charge state tax and deliver customer information to state officials (which we have reported on several times here) is unconstitutional.

“The law forces out-of-state marketers to keep records and contact every Colorado consumer at the end of the year with what they've purchased, and then send a report to state of Colorado listing names, addresses and how much each state residents spent in the previous year with that retailer,” said Jerry Cerasale, SVP of government affairs at the DMA. “From a consumer standpoint it violates privacy, because in some cases just the name of company will tell what was purchased. We see that as violation of consumers' privacy.”

The case was filed by Lewiston, ME-based law firm Brann & Isaacson, which Cerasale said has long handled the DMA's taxes,

“There are eight different counts in this complaint, and one of the counts is based upon the Quill vs. North Dakota standard that established limitations on the scope of the state's regulatory rights over out-of-state companies, specifically finding that in connection with sales and use taxes, the company must have a physical presence in a state before it can be subject to that regulation,” explained George S. Isaacson, tax counsel for the DMA and senior partner at Brann & Isaacson.

In addition to the 1992 Quill case, there is ample precedent for the other seven counts in Supreme Court case history, Isaacson said.

The current law, which became effective March 1 after it passed the Colorado General Assembly as part of the state's budget plan, also requires out-of-state marketers to send a list of purchases to Colorado residents detailing what each consumer bought, as well as a report to the state of Colorado with names, addresses and amount spent.

The suit is being funded in part by money raised by the DMA and the American Catalog Mailers Association.

Isaacson said the state has notified the firm that the case will be accepted tomorrow. At that time, the state of Colorado has 21 days to file a response to the complaint.

The bill's sponsor, state Sen. Rollie Heath, a Democrat, told the Associated Press in February that lawmakers are protecting in-state stores that contribute property taxes.

“There's no new tax,” Heath told the AP. “We're just collecting what's already on the books.”

 * * * * * *
betanews reports that: On July 1 Rep. William Delahunt (D-MA) introduced the "Main Street Fairness Act" in Congress that would allow states to collect sales tax for online purchases. The bill, H.R 5660 is described as an attempt to "promote simplification and fairness in the administration and collection of sales and use taxes, and for other purposes."
The bill was praised by the National Conference of State Legislatures (NCSL) yesterday as an equalizer that creates a level playing field for all sellers, regardless of their status as a brick-and-mortar retailer or as a purely online seller.

"Congressman Delahunt's willingness to work with everyone involved in the sales tax simplification effort is to be commended," said Iowa Representative Christopher Rants, co-chair of the NCSL Task Force on State & Local Taxation of Communications and Electronic Commerce. "With the adoption of the Delahunt legislation, at a time when states are facing historic budget gaps, Congress can provide fiscal relief, $23 billion, for the states without a single penny of cost to the federal government."

Online retailer eBay today, however, aired its opposition to the legislation.

"Year after year supporters of increased Internet sales taxes recommend legislation that would impose significant new costs on hundreds of thousands of online small businesses and ecommerce entrepreneurs, which is sure to harm the economy and kill small business jobs," a statement from the online auction company said today. "At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small internet retailers and the consumers they serve from another Internet tax scheme."

To date, 24 states have enacted similar legislation that requires collection of sales tax records from all remote sellers not qualifying for the small business exception. Some of these are being challenged on the state level as well.
+ + + + + + +
CNet News has some good additional insights on this developing story.

Amazon Faces Sales Tax Threat

According to TechFlash, Amazon.com is facing new pressure by states to collect sales tax on web purchases. Lawmakers in Colorado, Virginia and Illinois are advancing online sales tax legislation, looking to plug budget holes. The stakes are high for Amazon, which currently collects sales tax in a only handful of states, giving it a key advantage over brick-and-mortar retailers.

Amazon engaged in skirmishes with various states over sales tax bills last year. Those bills sought to classify Amazon as having a physical presence — and thus the responsibility to collect sales tax — based on its ties to locally based affiliate marketers, who link to Amazon products for a cut of sales. Amazon threatened to end affiliate programs in states that enacted such laws, and did just that in North Carolina, Rhode Island, and Hawaii (though it later reinstated Hawaii affiliates after the governor there vetoed the bill in question).

Click HERE for more details.

CA, HI Nix Web Sales Tax Plans

According to Internet Retailer, "threats by [Web] retailers to cut off affiliate marketing relationships in states that are trying to tax sales generated by affiliates have had an effect. The governors of California and Hawaii have vetoed legislation that would have imposed such taxes in those states.

"The governors acted after such major online retailers as Amazon.com Inc., Blue Nile Inc. and Overstock.com Inc. began this week cutting off affiliates in states that adopted laws requiring collection of sales taxes by e-retailers with affiliates in those states."

Overstock CEO/Chairman Patrick Byrne points out that in New York, where Overstock has stopped working with affiliates because of a similar law in that state, affiliates represent about 1% of Overstock’s business and about 0.05% of its net profit there. But because New York represents about 10% of Overstock’s overall sales, it doesn’t make economic sense to maintain its affiliate relationships there, he says. “It comes down to, do we start charging sales tax on 10% of our business or give up 0.05% of our profit?” he says. “Even setting aside the additional costs of collecting and remitting sales tax, the economic effect is so horrible, it’s better to give up affiliate sales.”

Click HERE for more details.

NY Sales Tax Law Hits Amazon, Overstock

As reported in Multichannel Merchant, Amazon.com and Overstock.com have lost the first round of their lawsuits challenging the new tax law allowing the state of New York to collect sales taxes from Web retailers with no physical presence in the state.

Overstock.com has already announced it will appeal the decision handed down last Tuesday by New York state supreme court Justice Eileen Bransten, who dismissed the suit in its entirety "for failure to state a cause of action."

The law, signed into effect by New York Gov. David Paterson last April, requires out-of-state online retailers to collect state and local sales taxes when they makes sales to New York state residents. New York is the first state to impose such a law. It is expected that some or all of the 44 other states with sales tax will eventually pass similar laws.

We've covered this a few times before, most recently last May.

NY eCommerce Sales Tax Not So Bad?

After the New York State Department of Taxation and Finance issued a Technical Services Bulletin (TSB-M-08(3)S) on May 8 regarding a new law requiring online merchants to collect state sales taxes, the tax counsel for the Direct Marketing Association, George Isaacson, said the legislation is now viewed as “less aggressive than what have been our greeatest fears....The TSB is more focused and, therefore, more helpful for direct marketers," according to Multichannel Merchant magazine.

After the new legislation was signed by Gov. David Paterson on April 15, DMA officials deemed the law unconstitutional because it contradicted a 1992 Supreme Court Decision, Quill v. North Dakota, that said states are not allowed to require out-of-state companies to collect sales taxes unless that company has a physical presence, such as a store or warehouse in the state.

New York’s new law will require out-of-state online retailers to collect state and local sales taxes, though merchants collecting less than $10,000 per year from New York residents will be exempt. Amazon.com filed a lawsuit on May 2 against the state of New York, challenging the legislation.

Isaacson said the law isn’t as “broad-based” as initially thought, due to the Tax Services Bulletin (TSB). “The burden switches to the direct marketer to demonstrate that it doesn’t have nexus in the state,” he said. He said a direct marketer could defeat the presumption of nexus in New York, “even if in fact a Web link with New York residents exists. A pure vanilla affiliate marketing Web link arrangement can be defeated by showing that that Web link party is not engaged in any additional solicitation. That’s the good news in this TSB.”

What’s more, Isaacson said: “Where there are not any individuals within the state mailing referrals, issuing e-mails, encouraging people to come to the Website to place orders, then the rebuttal will be successful. That’s really key.”

But it raises the question: How do you demonstrate there is no additional activity? “You can include in your contract with the affiliate marketing network that you do not want any New York Websites engaged in any activity other than providing a Web link to your Website,” Isaacson said. “A contract can prove rebuttal success. That goes a long way in carrying your burden of proof.”

At its extremes, the new law is “clearly unconstitutional,” Isaacson said. But the TSB narrowed the definition. “There has to be a physical presence in the state that brings this back within the orbit of existing Supreme Court precedent,” he said.

In a May 15 letter to Mark Micali, the DMA’s vice president of government affairs, Isaacson said: "This more conservative position taken by the Department of Taxation and Finance is of critical importance to direct marketers. It means that if retailers are vigilant in monitoring their affiliate marketing relatonships to be certain that, other than the New York Website link, no additional in-state solicitation activity occurs on the part of the New York affiliate, then the mere Website link relationship should not create nexus."