We're keeping a close eye on legislation related to Sales Tax and how it affects online merchants. Not long ago, Wray covered briefly what is popularly called the "Amazon Tax," for the impact sales and state tax legislation will have on Amazon's behemoth online business and the affiliates who earn some money because of their success. Simply, being considered throughout state governments, is the fact that sales made online, across state borders, are not subject or at least scrutinized over taxes due by way of "Nexus." Nexus, a confusing concept, could be summarized as the location in which a retailer has a physical presence; if you set up shop in Florida, your Nexus is Florida, and you are subject to state taxes therein.
The question, and opportunity for governments to increase tax revenue, is how that affect online retailers without borders, who perhaps drop-shipped product, or whom have no physical location of which to speak?
Okay, I can see why I'd want to chime in but what does that have to do with Advertising?
So you have a location in Florida, it is reasonable that you pay taxes because of it. You set up another location in Michigan, you have to start paying Michigan taxes. Makes sense and everyone is as happy as can be giving money to the government.
Believe it or not, many State governments are considering the existence and use of an Affiliate Advertising Program as a defining criteria for a retailer having “Nexus” in their State. With Nexus established in a state, because you merely have an affiliate publisher promoting your store there, the State can force you to collect, at the very least, sales tax.
A little disturbing to say the least and at the same time, just more confusing when we're already trying to wrap our heads around the basic concept of Nexus. So consider it this way: You have your shop in Florida and happily pay the appropriate Florida taxes for your business. You sell across State lines to California and are blissfully ignorant (in a good way) of California taxes because, after all, your business isn't in California. You set up an affiliate program, perhaps with Share A Sale (where we host our own referral program by the way), Commission Junction, or LinkShare, and a blogger who lives in California writes about your business and their favorite products. Before us, is a debate that could result in California recognizing your business as having a presence in California because of the blogger, and allotting the respective taxes to your hard earned dollars.
Someone is going to take a hit and it isn't inconceivable that entire industries will collapse. How? What would you do? Raise your prices to accommodate some sales across borders? Consider it a cost of doing business and take the hit on the chin? What about the nightmare trying to account for all this? (rest assured we'll be there for you) Are you more likely to put up with the costs OR would you consider abandoning potential advertising partners in States you can ill afford? Maybe you'd just drop everyone in California from your affiliate program to avoid Nexus, thereby passing the cost and impact on to California entrepreneurs and the Affiliate Provider facilitating your now disabled advertising.
How to speak up about this Affiliate Tax
Join the Performance Marketing Alliance (PMA) where you can share your experience and concerns while adding your voice to many taking a stand on this legislation. The PMA is also keeping tabs on laws that might affect you so at the very least, it is an easy resource from which to stay on top of everything.
Tuesday, December 8 is a webinar and conference call with Affiliate Advocacy, to discuss how to prepare for the upcoming legislation session. If you want to learn more about what's going on and how you can contribute your perspective, this sounds like a good place to start. Register for the 12:30 EST call here.
Outright is secure.