Why Bloggers Should Care About Affiliate Tax Nexus Legislation And What They Can Do About It

Are you a blogger who relies primarily on the Amazon.com associates program for your affiliate links or perhaps even most of your income?  Did you know that Amazon.com will likely terminate its contract with you if affiliate tax nexus legislation passes  in your state? I don’t want you to  find out about this issue by receiving your termination notice from Amazon and other affiliate programs. This is an issue that you should care about and become involved in now, before it is too late.

It seems like far too many affiliate marketers are unaware of the impact that affiliate tax nexus legislation, also known as the “Amazon Tax,” can have on them until it happens, and bloggers who use affiliate links but don’t necessarily hang with the affiliate marketing crowd are even more uneducated. So, let’s change that! Below is what you need to know about the tax issue and how you can help prevent it from happening in your state.

What is Affiliate Tax Nexus Legislation?

Many  online retailers without brick and mortar stores do not collect sales tax. As the result of a US Supreme Court case, it is unconstitutional  for a state to require them to do so unless the retailer has a “nexus” with the state, and that nexus has to be something more than mere advertising. This bothers brick and mortar retails, such as WalMart, who see the lack of tax collection as an impediment to their business models. It also bothers cash strapped state legislatures, who want to bring in all income possible. The result is a powerful lobby from brick and mortar retailers to various income desperate states, seeking enactment of affiliate tax nexus legislation. These laws provide that the presence of  affiliates in the state who put links on their website constitute a nexus that requires retailers like Amazon to collect sales tax.

The Problem With Using An Affiliate Nexus To Attempt to Collect Sales Tax

When a state passes affiliate tax nexus legislation, the big players in the game, such as Amazon.com, Zappos.com, and Overstock,com, along with a large number of smaller online retailers,  respond by cancelling their contracts with their affiliates in the state so that they will not have to collect the tax. The result is that no tax is collected, but affiliate businesses are harmed, and lawsuits generally often follow because there are strong arguments that the legislation is unconstitutional. So, the state ends up losing in the end, because they lose income tax revenue, face legal costs, and don’t ever get the sales tax that they originally sought. Indeed, several states that previously passed tax legislation are now exploring the possibility of repealing their tax nexus legislation.

States Affected by Affiliate Tax Nexus Legislation

To learn about the states that have passed affiliate tax nexus laws, are considering such laws, or who have current bills to repeal previously passed legislation see the Affiliate Tax Laws Forum on ABestWeb, which provides discussion forums by state.  Also visit the Performance Marketing Association Tax Nexus Page for information on individual states and how you can get involved.

Keep in mind that, even if your state is not currently on the list, that it could be in the near future. The status of legislation on this topic is constantly in flux.

If Tax Nexus Legislation Is So Bad, Why Are So Many States Considering It?

Legislators are not always well educated on the issue and there is a powerful lobby led by brick and mortar retailers who promote the matter as a fairness issue. To make matters worse, companies such as Walmart hold themselves out as suitable replacement programs for Amazon.com, yet they generally do not carry the same or best converting products.  Further, Walmart is notorious for denying bloggers entry into their affiliate program, who are the very people often harmed the most when dropped by Amazon (For more, see my article on why I dropped the Walmart affiliate program). Often Legislators don’t quite understand the harm that such statutes actually do to small online marketers and blogs, and they buy into the lobbying efforts in favor of the legislation, in part because the  people harmed are not  stepping up in the numbers needed and making their concerns heard.

How You Can Become Involved In the Tax Nexus Battle

  • If your state is considering passing tax nexus legislation, write and call your state representatives and explain to them the harm that the legislation can cause.
  • Visit the Performance Marketing Association Tax Nexus Page to learn how you can help and to join a google group specific to your state.

Help! Amazon.com And My Other Top Affiliate Programs Dropped Me, What Can I do?

Depending on the nature of your site and how dependent you were on any given program, your options for responding when tax nexus legislation passes can vary. Below are options that others have exercised.

  • Find replacement merchants if possible. Sometimes this is easier said than done, and changing out links can take weeks for a larger site.  Be prepared to explore new affiliate networks and programs. If you used solely Amazon before, look into Commission Junction, Linkshare, Share a Sale, and others.
  • Change your business model. A higher traffic site that was operating solely on an affiliate basis might be able to convert into an ad based income model, convert to drop shipping, or develop a product to sell that is compatible with the existing content.
  • Sell the site. Some affiliates have simply chosen to sell to a buyer in a state that is unaffected by tax nexus legislation.
  • Relocate. When Illinois passed affiliate tax legislation, a number of affiliates moved to the neighboring states of Wisconsin and Indiana.

Comments

  1. Thanks for this informative article. I’m from Missouri and I’m worried about this happening to my state. I will be forced to move if this happens!

    • Carleen says:

      When Illinois passed its legislation, I considered a move to Indiana and many here went to Wisconsin. What we saw was that some, even most, of the state legislators didn’t seem to believe that people would actually be forced to move, and they really bought into the lobbying efforts in favor of the legislation. It is all rather unfortunate.

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