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Internet Tax Battle Continues

Posted on 9.08.2009

The Performance Marketing Alliance today announced the filing of a motion seeking leave to submit an amicus brief in support of Amazon's appeal, which argues that the law requiring Amazon and other Internet retailers to collect use taxes on sales in New York (N.Y. Tax Law § 1101) based on their relationship with affiliate marketers is unconstitutional under the Commerce Clause of the U.S. Constitution (U.S. Constit., Art. I, § 8).

Editorial Note: Last month, Website Magazine professional-level monthly edition featured an article from Geno Prussakov on the affiliate/Amazon tax. Upgrade your account today to view the digital version of that article.

The PMA is taking issue with the New York law’s classification of affiliates as creating a “physical presence” in the state for online retailers like Amazon, requiring retailers to collect use taxes on sales made through the advertising displayed on affiliate Web sites.  Affiliates are individuals and businesses who agree to display advertisements on their Web sites for a given online merchant. They are paid when users click on those advertisements and take an agreed-upon action, such as a registration or a purchase

The brief explains that affiliates provide a form of Internet-based advertising that is closely analogous to traditional print advertisements distributed by a catalog retailer, and do not constitute a physical presence for an ecommerce merchant in any state. Affiliates sell no products, collect no payments from buyers and make no deliveries. They have no further involvement in the sales and marketing process beyond posting the advertisement.

“Since its creation, the PMA has spearheaded efforts to persuade state legislatures not to adopt statutes like this discriminatory New York law, which threatens the livelihood of thousands of individuals and small business owners and has the potential to strangle ecommerce with invalid regulation,” said PMA director Rebecca Madigan.

The brief maintains that the statute harms the public interest by punishing performance marketing, a highly efficient approach to advertising which has allowed thousands to make a living through electronic advertising on the Internet.  Further, the revenue stream generated from performance marketing has allowed many small businesses and individuals to accelerate the development of their Web sites, facilitating the more rapid diffusion of free information to the public that is the hallmark of the Internet.

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