PA Affiliate Nexus Tax is Ridiculous; Counterproductive.
…and right before a big election year, what politician would say ‘no’ to helping mom-and-pops?
But I’m going to make a prediction: This law will produce no additional tax revenue and will result in net business losses in Pennsylvania.
3 Reasons Why The PA Affiliate Nexus Tax is Ridiculous
- New York
- North Carolina
- Rhode Island
…when the affiliate nexus tax was passed in New York, North Carolina and Rhode Island… Hundreds of out-of-state retailers terminated their NY, NC and RI affiliate marketers, causing those small businesses to collapse overnight. And, as expected, the states saw no new sales tax revenue.
North Carolina has also not seen additional revenue from the law. Illinois has seen an outflow of Internet-related businesses after its law’s passage. While New York is collecting some revenue, it is because Amazon.com is collecting taxes under protest while the issue is litigated. If New York loses the case, it will have to refund those collections to taxpayers.
The Counterproductive Design Flaw
When politicians get tax-tough businesses take their money elsewhere. In this case, it means affiliate marketers are being unceremoniously and abruptly dropped from programs and hurting their businesses.
Or, as that Capitol Weekly article above put it:
If advertising on California-owned affiliate websites creates nexus for out-of-state retailers, then out-of-state retailers will simply terminate their California affiliates… It’s a simple business decision when you consider that people visit websites based on their interests, not geographic location of the site owners.
Proof-in-the-pudding, just two business weeks after passing the law, I received this email today:
Due to Pennsylvania implementing Affiliate Nexus Tax Law, we are compelled to unfortunately terminate this program for Pennsylvania-based Publishers.
As a result, we will terminate contracts with all Pennsylvania Publishers that are participants in the XXXXXXXXXXXX Affiliate program as of January 1, 2012. As of the termination date, Pennsylvania residents will no longer receive commissions for sales referred to XXXXXXXXXXXX .com or XXXXXXXXXXXX .com. Please be assured that all qualifying commissions earned on or before January 1, 2012 will be processed and paid in full in accordance with the regular payment schedule.
You are receiving this email because our records indicate that you are a resident of Pennsylvania. If you are not currently a resident of Pennsylvania, or if you are relocating to another state in the near future, please contact us for reinstatement into the XXXXXXXXXXXX Affiliate Program.
XXXXXXXXXXXX Affiliate Team
When I inquired further with the Affiliate Manager of this particular program, he forwarded along this nice stat:
The PMA estimates there are 9,000 affiliate marketers in Pennsylvania, who earned over $700 million in 2010, and paid an estimated $22 million in state income tax. When similar laws passed in other states, affiliate marketers lost 25-35% of their income when 800-900 out-of-state retailers terminated their advertising agreements to avoid sales tax collection nexus.
Sounds like a losing proposal for Pennyslvania affiliate marketers and the Department of Revenue.
But don’t take my word for it.
While running for Governor in December of 2009, Rhode Island General Treasurer Frank T. Caprio admitted the Affiliate Nexus Tax ”has hurt Rhode Island businesses and stifled their growth, as they’ve been shut out of some of the world’s largest marketplaces. It should be repealed immediately.”
So, the state tries to help small businesses by increasing the internet tax which hurts or eliminates other small businesses. And Amazon still doesn’t pay taxes. Gotcha.
Oh, and It May Be Unconstitutional
I am not a lawyer (or a District Court judge) so it is not for me to decide, but people smarter than myself have raised some interesting points regarding the constitutionality of the so-called “Amazon Tax”.
The “Amazon Tax” and “Streamlined Sales Tax Project” mentioned above reflect direct attempts to circumvent the Quill and Bellas Hess Supreme Court rulings and the U.S. Constitution. The Amazon Tax in particular is undergoing legal challenge in New York and was rejected in numerous other states in 2008 and 2009 due to likely constitutional hurdles. (Source: Stop eTaxes)
Meanwhile… in Delaware
At best, this law will temporarily require Pennsylvania’s really successful affiliate marketers to find new and ever more creative ways to recoup their lost business by paying corporate taxes to ANOTHER STATE. Not because they are circumventing anything, mind you, but because they literally cannot operate their businesses as a corporate or physical resident of Pennsylvania after being dropped from productive programs.
At worst, this law will further perpetuate the long history of declining business in a state mostly known for crumbling industry and urban decay. Successful affiliate marketers are business savvy, tech savvy, likely to start subsequent businesses and flush with cash. Unfortunately for Pennsylvania, they are also mobile, and there is no reason to stay in a state that is hostile to economic growth and job creation.
Call me crazy, but doesn’t a state hungry for economic recovery want to include that population?
I love Philadelphia, but if this law is an indicator of things to come, don’t be surprised if this time next year I’m writing from Dewey Beach.