If ever a cause was near & dear to me, this is definitely one of them. As an affiliate manager, affiliate marketing is my livelihood. Over the last year, several states have introduced legislation defining affiliates as tax nexus for businesses. This means that if a merchant has affiliates in a state with this kind of law, they are required to charge sales tax for all online orders made to customers in that state.
This started in May 2008 with New York, and quickly spread to California, Minnesota, Rhode Island, North Carolina, Hawaii, and other states. Affiliate marketing advocates were successful in stopping the laws from passing in most states, however Rhode Island and North Carolina have passed similar laws to New York.
Amazon and other opponents to the law argue that a 1992 U.S. Supreme Court decision prohibits state governments from requiring retailers to collect sales tax unless they have a physical presence in the state, like a brick-and-mortar store. The challengers say that online affiliate marketers — including other Web publishers that garner referral fees because they have placed links to Amazon on their sites — don’t constitute a sufficient presence in New York to justify the tax.
Repercussions of the actions taken in New York have been felt around the country, in case you haven’t taken notice. Some New York state affiliate marketers lost upwards of 80% of their income. Amazon has been forced to sever ties with affiliates in North Carolina and Rhode Island in order to avoid charging sales tax to consumers in those states. This is because many online merchants running affiliate programs do not already have tax nexus in these states, and do not have the resources to alter the back end of their systems and take on the legal and financial responsibilities of charging tax in additional states.
A streamlined nation-wide online sales tax is years from reality, so in the meantime many of us have been working on the issue grassroots style: writing letters, going to our state capitol to make our voices heard. A more generalized moniker, the Advertising Tax, has been adopted by many to help legislators realize that this is bigger than just Amazon. Many affiliate marketing organizations have sprung from this issue to try to help the industry convince legislators that affiliate marketing is advertising, not a sales force, and should not be subject to nexus laws as such.
I, for one, hope that New York takes this brief under serious advisement and considers reversing last year’s laws. States should realize that, while the tax income this may generate is tempting, in the end they will lose money from all the affiliates previously paying income tax that are decimated by these laws. You can also do your part—if you hear of legislation being introduced in your state, take the time to organize fellow affiliate marketers to make visits to assembly members or state senators who have influence on the bill. Send letters to your district representatives requesting that they oppose the bills. Many resources can be found online to assist you at PerformanceMarketingAlliance.com, AffiliateVoiceLLC.com, and NYAffiliateVoice.com
Trisha Lyn Fawver manages affiliate programs, blogs, and explores the world of social media, all at TrishaLyn.com.