Affiliate Tax

Affiliate tax (often also called the Amazon Tax) is a term for statutes in several states they try to create grounds for collecting sales tax on out of state retailers, especially online retailers like Amazon.  The first affiliate tax law was passed in New York in 2008.  Today eight states have affiliate tax laws and several more states have affiliate tax bills introduced in their legislatures.

The Basics

The 1992 Supreme Court case Quill v. North Dakota sets the precedent for sales and use tax cases in interstate commerce.  The Court held in Quill that a company needed a physical presence within a state to be subject to that state’s sales tax.  Although Quill was a case about mail order, it has set the rules for online retailers as well.

Affiliate tax laws essentially say that having affiliates within a state is the same as having a brick and mortar presence within that state.  Thus if a company deals with affiliates within Illinois, for example, whose affiliate tax law went into effect July 1 of this year, that company must charge sales tax on all its transactions with Illinois residents.

The Effect

Thus far in most states that pass affiliate taxes, the reaction from big online retailers is to cancel their affiliate programs in those states, thus avoiding new tax liabilities.  Legal challenges have also been raised to the laws in New York and in California.

What’s less clear is how this will affect smaller businesses.  Those who had affiliate agreements with large online retailers are likely to see those agreements end, but for businesses with interstate sales, questions remains.

How will this affect wholesale and resellers?  Will a business that both has affiliates in a state and sells to resellers need to secure a reseller’s certificate to avoid sales tax on its sales to the reseller?

The current landscape is uncertain.  If a federal law on the issue of internet sales tax were to be passed, it might clarify or complicate the matter.

For more information on internet sales tax, the affiliate tax, or for other tax legal concerns, contact the Chicago tax lawyers at Horowitz Law Offices.

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