The ABW solution for the Tax issues!
June 23rd, 2008, 11:12 AM
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The ABW solution for the Tax issues!
After much thought and piecing together of diff ideas I think I've come up with a solution for the tax issue, not just with New York, but with any state that may incorporate a similar taxation proposition.
Quote:
Networks add the home state of the affiliate into the cookie.
Merchants add a variable to the thank you page which is passed to the networks in the cookie to identify that the sale was made in XX state.
So then if a sale in XX state happens by XX affiliate the sale is recorded as a CPC; if a sale happens in YY state by XX affiliate sales is recorded as CPA.
The cpc rate would be based on the merchants then current epc.
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This way affiliates can be brought back in and continue to sell outside of their state's nexus and compliance ensued by an accurate method of moving to cpc model without reducing the affiliates' EPC to ridiculously low CPCs. This keeps all affiliates in all programs and makes the networks earning thier keep.
Long term goals of an industry association should include lobbying the various legislatures but this is an immediate and fair resolution in my opinion.
Thoughts?
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Continued Success,
Haiko
The secret of success is constancy of purpose ~ Disraeli
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June 23rd, 2008, 11:35 AM
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I like that idea!
What does Brian have to say about it?
Adam
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June 23rd, 2008, 11:37 AM
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Great idea! I think this is an extremely fair solution that benefits all. Merchants will still be able to have sales generated by NY afiliates without having the threat of a nexus being established, networks continue to get compensation, and affiliates continue to have the chance to earn a living.
I am not a programmer but it should be fairly easy to configure.
I eagerly await hearing feedback from merchants & networks.
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June 23rd, 2008, 11:39 AM
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I thought the law/tax covered all kinds of online marketing originating in NY, so wouldn't the PPC related sale be taxable?
(a simple shut up you dozy fool will do if I'm totally off base  )
Cheers
chris |
June 23rd, 2008, 11:58 AM
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This idea also addresses the problem that merchants and affiliates have of going to a straight cpc for NY affiliates. This format assures a fairer compensation to the affiliate for a sale (XX state by XX affiliate) and also protects a merchant from worthless junk traffic just to get a click.
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June 23rd, 2008, 12:03 PM
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MasterMike
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idea sounds good, but then doesn't this still require the nexus?
I mean the affiliates will still be pushing the product and they will still be compensated for the sale, and thats what the whole thing is about, affiliates from NY pushing the product and being compensated for the sale.
For this to work, NY affiliates can not push the product and can not be compensated for a sale.
From my understanding of the law, Generic CPC where you just slap an addon a page and are charging per click that does not have any reflection on what sales you do or do not make, or charge a CPM rate that doesn't have any reflection on what sales you do or do not make, doesn't create that nexus that would require you collect tax for NY Sales.
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June 23rd, 2008, 12:07 PM
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HG,
You a NY aff would get a CPC on a NY sale, however if it was a customer in CA you'd get a CPA. If CA incorporates the same rule then You'd get a CPA on that sale while a CA aff would get a CPC. It's a simple db query to do CPC or CPA based on the sales state and aff state - never any nexus. Problem solved.
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Haiko
The secret of success is constancy of purpose ~ Disraeli
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June 23rd, 2008, 12:08 PM
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MasterMike
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yeah but you said the CPC rate would be based on sales made or not made, unless I misunderstood.
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June 23rd, 2008, 12:10 PM
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Right the CPC rate could be linked to the EPC in a formula that ensures no nexus yet a fair and equitable CPC rate (not $0.01).
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Continued Success,
Haiko
The secret of success is constancy of purpose ~ Disraeli
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June 23rd, 2008, 12:17 PM
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bare with me on this : If I own two houses , one in NY and one in Texas. If I'm a resident of Texas, using a host in another state, incpororate my affiliate business in Delaware, but happen to reside in NY at one of my houses...
Would the tax law still apply to me ?
Cheers
Chris
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June 23rd, 2008, 12:21 PM
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Haiko, interesting idea. I'm trying to get my head around it.
So when a sale is made through a NY affiliate, the compensation would be paid as CPC just for that one click and any other clicks that generated the sale?
So, say I'm an affiliate in NY, or any affected state. I send 1000 clicks today. There were 3 sales. I get paid for 3 clicks at some variable rate? Or I get paid for 1000 clicks at some variable rate?
Getting paid for 3 out of 1000 clicks doesn't feel like CPC. That's CPA.
Getting paid for the 1000 clicks is closer to CPC, but how the variable rate is computed. Is that based directly on the daily sales? Or based on some longer average EPC?
Just trying to understand the accounting.
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June 23rd, 2008, 12:34 PM
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I don't think it would be viable just because the law has yet to be tested. Once the court cases go through the law will either be struck down or least defined clearly (or more clearly). Currently, doing something like could just come back and bite you in the ass when they decide this still creates a nexus. The law is just too gray right now to be pushing its boundaries.
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June 23rd, 2008, 12:48 PM
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I think it's a very simple solution to a very complex problem, and it should have its tires kicked to see if it's feasible. It sounds great, to me - but like Chet said, the law has yet to be tested, so it may or may not solve the problem.
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June 23rd, 2008, 12:50 PM
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MasterMike
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Quote:
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Originally Posted by Chris - AMWSO
bare with me on this : If I own two houses , one in NY and one in Texas. If I'm a resident of Texas, using a host in another state, incpororate my affiliate business in Delaware, but happen to reside in NY at one of my houses...
Would the tax law still apply to me ?
Cheers
Chris
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Yes, if you do any a certain amount of business from your home in NY. not sure what the percentage of your business has to be done in NY
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June 23rd, 2008, 01:13 PM
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Chris,
IANAL, but I believe it's based on law of domicile, so NY in your scenario and the tax law would apply.
Quote:
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Originally Posted by sjangro
So when a sale is made through a NY affiliate, the compensation would be paid as CPC just for that one click and any other clicks that generated the sale?
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Just that one click - if I understand your Q correctly.
Quote:
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Originally Posted by sjangro
So, say I'm an affiliate in NY, or any affected state. I send 1000 clicks today. There were 3 sales. I get paid for 3 clicks at some variable rate? Or I get paid for 1000 clicks at some variable rate?
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1000 clicks on a variable rate.
Quote:
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Originally Posted by sjangro
Getting paid for the 1000 clicks is closer to CPC, but how the variable rate is computed. Is that based directly on the daily sales? Or based on some longer average EPC?
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I'd say some longer average EPC, the thrust was to remunerate the affiliate better than a penny a click, there are better people to do the numbers - I'd rather leave it to them to figure out the algorithm.
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Originally Posted by chetf
I don't think it would be viable just because the law has yet to be tested. Once the court cases go through the law will either be struck down or least defined clearly (or more clearly).
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Right but in the interim this is an immediate solution that is easy enough to implement and easy enough to amend as needed, how soon do you think the law or definition of a nexus will take? Could be years ... so in the meantime we should just let the merchants drop all the affiliates in the states that incorporate such a taxation proposal? Shoot, that's the end of the industry because there are 18 states right behind NY looking to do this.
Quote:
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Originally Posted by chetf
The law is just too gray right now to be pushing its boundaries.
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Isn't that what operating legally is ... working within the grey?
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Haiko
The secret of success is constancy of purpose ~ Disraeli
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June 23rd, 2008, 01:35 PM
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I say it won't be a long term solution if the states are serious about raising more taxes. They'll close the loophole and extend the definition to include cpc besides cpa. They'll probably rewrite the laws as cpw (cp whatever) if this catches on.
The letter of the law may be cpa right now, but I think the spirit of the law is clear - they want to tax any company that has any affiliate with two feet on the ground in new york state. Over time loopholes are always closed to ensure that the spirit catches up with the letter of the law.
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June 23rd, 2008, 01:39 PM
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I think once you tie it into EPC, it is again compensation based on volume of sales. The sale itself triggers your CPC event to be recorded and the amount paid is tied to the rate that other volume sales people are paid - so I think you wouldn't escape the definition with your idea. But, here's to hoping I'm very wrong!
I think you'd have better luck creating a cooperative located in a tax friendly state and having independent NY affs join the co-op, where the co-op acts as the affiliate and those in the co-op are paid as subaffiliates by the cooperative.
And IANAL either.
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June 23rd, 2008, 01:43 PM
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don't wake the sleeping dog
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Quote:
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Originally Posted by Haiko de Poel, Jr.
because there are 18 states right behind NY looking to do this.
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Which ones?
I know others are following suit and probably looking at NY to see how things pan out.
Where is the dreaded list?  |
June 23rd, 2008, 01:56 PM
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MasterMike
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Quote:
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Originally Posted by Donuts
I think once you tie it into EPC, it is again compensation based on volume of sales. The sale itself triggers your CPC event to be recorded and the amount paid is tied to the rate that other volume sales people are paid - so I think you wouldn't escape the definition with your idea. But, here's to hoping I'm very wrong!
I think you'd have better luck creating a cooperative located in a tax friendly state and having independent NY affs join the co-op, where the co-op acts as the affiliate and those in the co-op are paid as subaffiliates by the cooperative.
And IANAL either.
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Thats what I was thinking, once you have a tie in to a compensation of a sale it's not pure cpc.
Affiliates can't push the product and can not be compensated for a sale, that's my understanding.
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June 23rd, 2008, 02:03 PM
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Ok so drop the EPC aspect, keep it as a penny a click. Still works.
I'll post the list of states later.
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Continued Success,
Haiko
The secret of success is constancy of purpose ~ Disraeli
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June 23rd, 2008, 02:05 PM
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Quote:
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Originally Posted by HardwareGeek
Affiliates can't push the product and can not be compensated for a sale, that's my understanding.
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They can't push the product directly to NYS consumers... to further muddy things up. |
June 23rd, 2008, 02:51 PM
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Chet's observation is sound on this one IMO. However, as a possibility, Donuts idea of the co-op may end up being the go round on this one. Once the law is tested in the courts, we may find that we go back to pre-NY pocket picking days! Time will tell...
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June 23rd, 2008, 06:19 PM
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Haiko,
I believe that any tie to the sale event would probably be seen as the same as a per-sale commission. I looked at the idea of having NY affiliates paid by quasi-EPC metric (without the state by state codes passed along) a little while ago and from everything we could tell, it would still fall under the category that is creating nexus in NY.
However, adjusting it to pure CPC could be an option. Quoting from example 4 of the memo.....
Quote:
G Inc. (G) is an Internet-based retailer of gardening tools and supplies. G’s home office
is in North Carolina, where its warehouse and administrative offices are located. G makes sales
of its products nationwide, including New York State, and its products are delivered to its
customers by common carrier. Other than having customers in New York State and the
agreements described below, G has no other connection with New York State.
As part of its business plan to market its products in New York State, G enters into
agreements with several garden clubs and other local organizations to place online
advertisements on their Web sites, which, when clicked, lead the Web site user to G’s retail Web
site. In exchange for placing G’s advertisements on its Web site, G will pay the organizations a
set fee based only on the number of clicks on the link to G’s Web site, whether or not sales are
made.
G’s agreement with the organizations is merely to place advertising on the organizations’
Web sites. Therefore, G is not presumed to be a vendor making taxable sales in New York State
by soliciting business in New York State through the use of independent contractors or other
representatives. Therefore, G is not required to register for sales tax purposes.
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The use of the letter G in this example by the State of NY is presumed to be a coincidence.
Anyhow - from my interpretation the negotiation for a PPC fee would have to be upfront and not tied in any way to a sale action.
While this might serve as a solution to the problem - I am also concerned that it may not sway merchants to take those affiliates back into programs. The promise of affiliate marketing is based on the pay-per-performance model. A merchant would need to trust an affiliate to a certain degree in order to operate under a PPC model - and it would be very (even more) important to monitor for bad behavious such as popups, spam, adware, etc... The PPC model doesn't provide the same protections as a CPA model.
I am with you on finding a solution, and I think you could be on to something.
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Thanks,
Brian Littleton
President/CEO - ShareASale.com, Inc.
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June 23rd, 2008, 08:19 PM
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Quote:
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Originally Posted by Brian - ShareASale
While this might serve as a solution to the problem - I am also concerned that it may not sway merchants to take those affiliates back into programs. The promise of affiliate marketing is based on the pay-per-performance model.
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Fine, no payment for any sales for the originating XX state if by XX affiliate -- they have 49 other states to sell to and international ... that's 1000% better than being dropped entirely.
I think this solution should get a chance, its a real and immediate solution, not just for NY but all the rest as well!
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Continued Success,
Haiko
The secret of success is constancy of purpose ~ Disraeli
Last edited by Haiko de Poel, Jr. : June 23rd, 2008 at 08:41 PM.
Reason: duh I said 50 other states ... it's 49 - darn foreigners LOL
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June 23rd, 2008, 09:13 PM
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I think I like the idea of offering a compensation plan for NY affiliates that includes a commission for non-NY sales and a fixed ($0.01 or some other negotiated amount) CPC for NY sales. I really think it would work.
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