The Affiliate Nexus Tax: Pivot or Die.
Pennsylvania passed an Affiliate Nexus Tax (aka “Amazon Tax,” “Main Street Fairness,” etc.) quickly and surprisingly back in December 2011. Thanks, I now know, to the efforts of the Performance Marketing Association- most of the CPS programs I had been a part of retained PA affiliates over the last nine months anyway.
That changed last week.
Bad Day at the Office
Last Friday, I got a tweet from @dugboldt alerting me to it being a particularly ‘bad day in the office’ for internet marketers in PA.
He is a Pennsylvania-based affiliate marketer, too – and it appears CPS marketing represents a large share of his business.
Check out his inbox:
My business was hit no where near as badly, but I did lose a few programs that were essential to monetizing some old, well-indexed sites I had been generating passive income from. (Far more maddening was the loss of potential revenue partners from a site I was actively developing a boatload of content around.)
No State is Impervious to the Affiliate Tax
As of this writing there are five states with no sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon. If you live in one of these states, don’t you dare move.
The rest of you- for reasons better outlined in a July WSJ article “Tax Break Nears End For Online Shoppers,” our champions of limited government and increasing interstate commerce are no longer going to take a stand against the Amazon Tax. Why?
“Republican Governors, in Need of Revenue, Drop Opposition.”
(Aka, it’s easier to tax corporations big and small than increase taxes on entities that can actually vote).
“The handwriting is on the wall that states will collect sales taxes on online purchases,” Mr. Alexander said. “This is going to happen—if not this year, then definitely by next year.”
Republicans’ general opposition to new taxes, particularly broad-based ones, led GOP governors to avoid considering the sales tax, even as its potential value to state coffers grew. In most cases, the no-new-taxes sentiment trumped pleas from in-state retailers that they would have to lay off employees or close their doors if their online competitors kept undercutting their pricing.
“But the current economic environment made states start looking harder at this for new revenue that costs them nothing,” said Sandy Kennedy, president of the Retail Industry Leaders Association.
There are still some allies in our corner; notably the lawmakers in states that don’t collect sales taxes. In “Online sales tax? ‘I think it would be a huge mistake‘” U.S. Sen. Ron Wyden sums it up nicely:
Wyden, D-Oregon, called the Internet the shipping lane of the 21st century, infrastructure that fuels commerce and grows jobs…
He said sales taxes on e-commerce would be unfair to Oregon businesses, especially in a state that has no sales tax.
“I think it would be a huge mistake to turn Oregon entrepreneurs into green eye-shade bookkeepers for the government,” Wyden said.
But opposition from the five states without income taxes and the PMA may be too little, too late.
Forbes forecast back in June “Widespread Amazon And Internet Taxes Coming Soon…” predicted that one of the several impending Federal Internet tax bills will eventually pass.
The Main Street Fairness Act would impose national tax standards but allow states abiding by the Streamlined Sales and Use Tax Agreement to force Internet sellers to collect tax. Other bills include the Marketplace Fairness Act and the Marketplace Equity Act. You may ask: is this Constitutional? Probably.
Start Making Plans for your Business. Now.
Unless (until?) there is a Federal “Sales Tax” passed that requires collecting taxes across all states, you can be sure affiliate networks that can skirt having to pay taxes to a state they aren’t physically located in, will, by cutting out affected affiliate publishers.
As I see it, you have three choices and one must-do:
1- Lawyer Up
Work with a small business or tax attorney to restructure your business. If it is possible with a little incorporation handiwork including other, non-affected states, you may be able to continue living in your “Affiliate Nexus-ed” home state but your business can exist independent of you elsewhere. The only way to determine this is by consulting with an attorney, however. (IANAL)
You can always move. That’s what FatWallet.com did.
3- Pivot Your Business
There are endless iterations of generating income online and if you’ve found my blog you are no doubt aware of them. If your business was seriously affected by the myriad affiliate terminations you’ve received, it’s time to get serious about finding a new model of generating revenue- one that is as independent of the massively indecisive variable called the government as possible.
If you are an affiliate publisher in a state affected by the Affiliate Nexus tax (check with the Performance Marketing Association – it changes constantly) reach out to your affiliate manager BEFORE investing another minute or dollar into promoting their products.
And don’t just ask the network affiliate manager, ask the merchant affiliate manager.
Have You Had to Change Your Business?
Moved? Shifted revenue models? Or can you think of any possible scenarios to dealing with the affiliate nexus tax I haven’t thought of?
If so- please drop a comment.