2Checkout.com Limits Affiliate Activity

E-commerce solution 2Checkout.com is limiting what affiliates (suppliers in their lexicon) can do to promote them to no more than placing a link on their site, based on language in their agreement.

According to the 2Checkout.com Supplier Agreement (bold added by me)…

3 F. Limitations on Solicitations.
Supplier may refer customers to the 2CO website for the purchase of Products of Supplier only through the link provided by 2CO. Supplier may not use any other method of referral of customers for purchases of its Products from 2CO and shall not solicit customers on behalf of 2CO. Supplier will provide a certificate of compliance with this obligation to 2CO within 30 days of the request by 2CO. 2CO shall not request this certificate more often than annually. Such certificate shall be substantially in the form attached hereto as Appendix I and be signed by the Supplier. Failure to provide the aforesaid certificate in a timely manner shall result in the loss of Supplier’s ability to offer Products for resale through 2CO.

Also, 2Checkout.com has sent a compulsory agreement to account holders where it appears they are also making their merchants responsible for any taxes that might be due (see below from the 2Checkout.com agreement sellers have to sign), even though the Knowledge Base on their site says there’s no tax liability:

What about tax liability?
December 30th, 2006, by: knowledgebase
You are not required to charge sales tax at all. Legally we are a reseller and every time a purchase is made we are buying from you for the purposes of reselling to the end customer. Since you are selling to us for the purpose of reselling, there is no tax liability on your end.

Here is the new passage from the Supplier Agreement that contradicts the Knowledge Base information:

11. TAXES.
B. Supplier’s Obligation to Pay Taxes Resulting from 2CO Services.
The parties agree that if additional taxes in the nature of an excise, sales, or use tax are imposed in connection with 2CO’s Services and paid by 2CO on behalf of the Supplier, Supplier shall be liable to 2CO in an amount equal to the amount of such tax payment made by 2CO. Supplier authorizes 2CO to collect and pay over taxes in the nature of an excise, sales, or use tax on behalf of Supplier or on account of 2CO’s sale of Products if reasonably required to do so by any jurisdiction’s taxing authority. 2CO shall have the right to recover from Supplier the amount of any such taxes, related penalties, and interest paid by 2CO with its own funds. Supplier shall also pay 2CO for any related expenses incurred by 2CO, including reasonable attorney’s fees, in its collection of any amounts due from Supplier.

But wait… there’s more.

Last month, 2Checkout.com informed New York affiliates that their services were no longer needed.

2Checkout.com has always valued the business relationship that we hold with you. We appreciate the fact that you may have helped to create affiliate opportunities for other 2CO Suppliers. However, due to changes in New York state law, we must discontinue the Affiliate program with supplier’s in the state of New York.

I am not promoting 2Checkout.com, but if I were, I’d be having second thoughts now with their contradictory communications and limitations on affiliate promotions.

UPDATED (12/01/09):

I received the following from Vic Cleary, E-Commerce Strategy Manager for 2Checkout.com, Inc.

Shawn,

Based upon yesterday’s post, I wanted to clarify a couple items that were incorrect and misunderstood about 2Checkout’s business to share with your readers.

2Checkout is different than the typical affiliate network you normally work with, as we are a “reseller” by definition, meaning we are the merchant of record on every order and therefore have a tax liability on each order. Definition wise, 2Checkout “Suppliers” and “Affiliates” are entirely two separate entities. Suppliers are our clients (making, promoting and having interest in selling their tangible or intangible goods through the web), and “affiliates” market the products of suppliers.

In regard to the New York tax – just like you – we believe the law is misguided and think it unfairly targets New York based affiliates, however, like Amazon and Overstock, the tax liability would cost us much more than makes business sense.

With that in mind, thank you for identifying the confusion between our Knowledge Base and Supplier Agreement tax language. You were right, we needed to better clarify this and are in the process of updating the Knowledge Base now. Again, to better clarify, because 2Checkout is the merchant of record, our existing suppliers do not have a liability for sales tax. However, that may not exempt individuals from the liability associated with additional and unique taxes per state, such as wholesale tax, income taxes, etc., therefore we will better clarify this in our documentation.

Thanks for addressing these concerns. We are dedicating substantial resources to our affiliate system and want to see affiliates succeed as much as you do. We are definitely an advocate and look to increase our involvement in the near future with an exciting announcement coming soon!

Thank you, Vic, for clearing things up.