Affiliate Nexus Tax Bills in CaliforniaPresentation Transcript
If you care about your affiliate business you MUST get involved in defeating these bills!!! Affiliate Nexus Tax Bills in California
What Is Affiliate Nexus Tax? It is also called the “Amazon-Tax” or the “Advertising Tax.” Companies that have a physical presence in a state are required to collect sales or “use tax” on purchases. Many out-of-state merchants do not have a physical presence in a state and do not charge sales tax for online purchases from customers in those states.
What Is Affiliate Nexus Tax? These proposed bills seek to use affiliates as a way to establish nexus for out-of-state merchants and force them to collect sales tax from customers in California. Currently, California residents are obligated to calculate sales tax for online purchases and remit that on their state tax forms. But only 4 percent do so. California legislators are desperate to collect additional revenue for the state and see these bills as a way to gain revenue. They are expecting $125 million from this.
Why These Laws Are Misguided Affiliates do not establish nexus. Affiliates do not sell products. Affiliates do not handle transactions. Affiliates simply advertise offers for merchants and receive a commission when someone buys from the merchant.
Why This Won’t Generate Revenue Affiliates are just a small portion of merchant’s revenue. Merchants don’t want the burden of calculating and collecting sales tax for more than 7,500 state codes in the US. Merchants will terminate affiliates in states with these laws. Affiliates will lose that business. Affiliates will pay less income tax in their respective state.
What The Current Law Says In a Supreme Court decision (Quill v. North Dakota, 1992) the court ruled it is unconstitutional for one state to attempt to regulate a business that does not have a physical presence in that state. A lawsuit has been brought forth in New York by Amazon suing the state and challenging these laws as unconstitutional. On June 1, 2011, the Performance Marketing Association filed suit against the state of Illinois.
Motivations Behind the Bills State lawmakers are desperate to close budget deficits. Legislators are bowing to pressure from Main Street merchants to “level the playing field.”. Big Box retailers, such as Wal-Mart, Target, Sears , etc. are putting big bucks behind lobbying efforts to get online-only retailers like Amazon. Lawmakers want to be seen as doing “something.”
Proposed Bills in California The California State Legislative Session closes in September. There are three bills proposed in California. AB 155 AB 153 SB 234
CA Assembly Bill 153 On January 19, 2011, Assembly member Nancy Skinner (D, 14th District - Berkeley), for the 3rd year in a row, introduced an affiliate nexus tax bill, AB 153, which seeks to use affiliates as a way to establish nexus for out-of-state merchants. AB 153, passed the Assembly Revenue and Tax Committee on March 18, 2011, and now moves on to the Assembly Appropriations Committee.
CA Assembly Bill 155 Assembly member Charles Calderon (House Majority Leader, D, 58th District – Montebell0) on January 19, 2011, introduced AB 155, revising the definition of “retailer engaged in business in this state” to mean any retailer that has a substantial nexus with this state for purposes of the commerce clause of the United States Constitution and any retailer upon which federal law permits the state to impose a use tax collection duty. This could be interpreted to mean affiliates as well, resulting in merchants terminating affiliates.
CA Senate Bill 234 SB234, sponsored by Senator Loni Hancock, (D, Oakland) is a “garbage can” bill that includes several elements, including the Affiliate Nexus Tax scheme. This bill give the Board of Equalization (BOE) the power to determine what constitutes nexus. This bill was passed by the Senate Governance and Finance Committee on March 23, 2011. It now moves on to the Senate Appropriations Committee.
Affiliate Marketing in CA 25,000 affiliates in California. California affiliates earned $ 1.9 billion in advertising revenue in 2010. California affiliates paid $152 million in state income tax in 2010. Source: Performance Marketing Association
Other States Impacted
What’s Happened In Other States Merchants terminate affiliates. Affiliates lose a significant portion of their income. Affiliates move to other states. States lose income tax paid by affiliates. Projected revenue never realized by the state. Some states are looking to repeal the bills (Colorado, Rhode Island).
Alternatives? Right now there are no viable alternative solutions for collecting online sales tax. However, ideas are being discussed for the future. A Federal Solution: Many support the idea that the Federal Government come in and levy a standardized tax for online purchases. But no formal bills are being considered to do so at this time. Streamlined Sales Tax: This idea to simplify the overall US sales tax structure is supported by many states, but observers say it is years from being widely adopted and implemented.
What Affiliates Can Do Get Educated!!! Call a tax lawyer. Set Google alerts for the bills. Learn more via the www.PerformanceMarketingAssociation.com Check out Melanie Seery’s blog: http://affiliateadvocacy.com Read Shawn Collins’s blog : www.blog.affiliatetip.com. Check out the Affiliate Summit Forum: http://forum.affiliatesummit.com Check out the ABestWeb forum: http://www.abestweb.com Contact your networks to get information. .
What Affiliates Can Do Get Active!!! Go to http://25000businessesatrisk.com and sign the petition. Send an email or contact your legislator. Participate in the grassroots movement by joining the PMA’s California Google Group: http://groups.google.com/group/pma-ca
What Merchants Can Do Call a tax lawyer. Consult your corporate attorney. Get educated on the proposed bills. Communicate with your affiliates about these bills.
The Bottom Line You MUST get involved. You MUST get educated on the issues. Your business is at risk!!! For more information contact: firstname.lastname@example.org