If your business depends on affiliate sales, watch out. Three more states have passed the so-called affiliate nexus tax which affiliate business advocates say are hurting thousands of small companies. They say an estimated 90,000 affiliate marketers have already been affected nationwide either having to shut down their businesses as a result or move across state lines.
Affiliate marketing advocates insist there is a better solution for the problem, but not all small business owners agree.
Affiliate sales happen when a visitor clicks through a special link on your site to reach another site with which you have an affiliate relationship. If, after passing through your link, visitors purchase a product or service on the other site, you receive a commission on that sale for the referral.
The Affiliate Nexus or Amazon Tax
The new affiliate nexus laws are an attempt to get around the 1992 Supreme Court Quill vs. North Dakota ruling. The decision essentially says states can only compel out of state retailers to collect sales tax from local buyers if they have a physical presence in the state.
But that decision doesn’t sit well with cash starved state governments in need of more revenue. And some brick and mortar businesses that must collect sales tax in the state in which they are located have also complained the current rules are unfair.
The response from state governments is the affiliate nexus laws. In most instances, the laws require out of state retailers to collect sales tax if a significant number of local sales are generated by affiliate marketers in the state. Lawmakers contend the affiliates give remote retailers a local presence.
As of the beginning of last month, a total of ten states had passed affiliate nexus laws, affiliate marketing advocate Geno Prussakov reported recently. Those states include Arkansas, California, Connecticut, Georgia, Illinois, Kansas, New York, North Carolina, Pennsylvania and Rhode Island, Pussakov said.
But in June, those states were joined by Maine, Missouri and Minnesota, all of which have added affiliate nexus laws of their own.
The Results
Advocates of affiliate marketing including Prussakov and the Performance Marketing Association say the results of the new laws have been devastating to the industry.
Online retailers like Amazon have decided to sever relations with affiliates in some states rather than collect sales tax under the new laws.
For example, Amazon recently terminated its agreements with affiliate marketers in Missouri.
Affiliates in these cases are faced with the choice of loosing their businesses or moving over state lines in an effort to maintain their affiliate relationships.
The Performance Marketoing Association estimates that with three states adding affiliate nexus laws approximately 90,000 affiliates have had their businesses in some way affected by the new laws. This could include anything from forcing them to close down their operations to causing them to cross state lines to stay in business.
One Possible Solution
One possible solution, and the one supported by both affiliate marketing advocates and Amazon, is the so-called “Internet Sales Tax†or Marketplace Fairness Act. The proposed bill, which has already passed the U.S. Senate, would level the playing field, supporters say.
If passed, it could require online retailers no matter where they are located to comply with local sales tax whether they have a presence in the state or other taxing jurisdiction or not.
Not Everyone Agrees
Not everyone likes the bill, however, and opponents have made efforts to kill it. With 9,600 taxing authorities in the U.S., complying with all those local sales tax regulations could be extremely complicated for some small business owners.
Ebay has voiced opposition to the plan on behalf of its members. Ebay sellers would be required to collect the tax if their sales rise above a certain threshold. Individual ecommerce sites could also be required to collect sales tax in states or other taxing districts where they have sufficient sales.
Tax Photo via Shutterstock
