Are New Internet Sales Tax Laws Affecting You?

Several new Internet sales tax laws are affecting large merchants and affiliates.

You may have already received a blow to the wallet from your affiliate programs if you live in certain states. Large merchants are dropping local affiliates in response to new laws that require the merchants to pay sales taxes in those states.

Historically, merchants only pay sales taxes in states where they have a physical presence and on physical products. So, if a merchant is in Oklahoma and so is the buyer, the merchant pays Oklahoma sales tax. However, if the buyer is in Texas, no sales tax is charged because interstate commerce is protected from state sales taxes by federal law. So most online sales escape taxes, because the buyer is located in another state.

Now, the new laws require online merchants to collect state sales taxes in any state where their independant affiliates operate. Basically, these state legislatures are claiming that if I’m an affiliate of Amazon, for example, then my home office is a physical location for Amazon. So if I sell a product in my state, to someone else in my state, through my affiliate link, then that product should be taxed in my state.

States currently affected include:

• California
• Hawaii
• North Carolina
• Rhode Island
• New York

Overstock and Amazon have dropped thousands of affiliates in those states, an action that could seriously impact the income of many of those affiliates.

How do these laws affect small merchants?

If you’re a small merchant with affiliates in those states, you may have a reprieve in some cases.

So far, in New York, you must have cumulative gross receipts of $10,000 to New York residents during the previous four quarterly sales tax periods in order to be required to pay the sales tax. This is good news for small merchants who don’t do that much business. However, if you’re a larger merchant, or an affiliate of a large merchant, this could hit you hard.

Check with your local representatives if you live in the other states and want to know if you’re exempt or not. If you do, let us know here.

Pros and cons?

All this said, I’m personally not against large corporations having to pay sales taxes in the areas where they have a physical presence, whether the presence is an affiliate marketer or an actual office. Tax-free online sales have in many cases hurt local economies and these taxes would level the playing field.

That said, I see how these taxes can prohibit new online businesses from even starting out, and this could damage to local economies as well.

What do you think?

You can read the following links for more information:

Internet Sales Tax War

Possible Tennessee Legislation

NY Affiliate Voice

The Amazon Tax and Affiliate Marketing