New Sales Tax Laws May Kill Affiliate Marketing

Are you an affiliate marketer? If so, you need to be aware that state governments are enacting legislation that could effectively kill your business. I am greatly concerned about this since I would say 50% or more of my monthly income stems from affiliate sales.

As an affiliate I post links and banner advertisements on my sites to Amazon and various other online companies. I send them traffic and potential sales and when a sale is made, they in turn pay me a commission… anywhere from 4% to 75% depending on the company and product. I get a big fat check every month from Amazon and smaller but still very nice checks form a host of other places. But my profession as an affiliate marketer is under attack in many states and sadly many affiliate marketers just got the axe.

First some background though. Online stores like Amazon, Zappos, or Barnes and Noble are only required by law to collect sales taxes in the states where their company resides. That is their tax “nexus”. If they are based in Idaho for example then they only have to collect sales taxes on purchases made by people in Idaho. Sales from Ohio would fall outside their tax nexus and they would not be required to collect sales taxes on those purchases. For years, states have been looking for a way to to get those taxes and the new economic crisis has given them the incentive to try and do it. Unfortunately for affiliate marketers they have decided to use us as the means to do this.

New York and North Carolina recently passed legislation that identifies affiliate relationships as something similar to an employee relationship. Using this logic North Carolina and New York can now require online companies to collect state sales based on the fact that they have “employees” (affiliates) in those states. Well, these companies are not stupid… they saw that they were being railroaded into a new tax nexus by way of their affiliate relationships and in response they are simply firing their affiliates and avoiding the taxes. They avoid a new tax nexus and affiliate marketers in those states are essentially without a job anymore.

Yesterday Amazon.com fired 1000 affiliates in North Carolina. Termination letters have been sent to affiliates in Hawaii from Zappos, Amazon, Endless and several other smaller merchants. This may very well be the sole source of income for these people and now due to a poorly written law they have no income anymore AND the companies avoid paying the taxes anyway. The affiliates lose, the states lose (the sales taxes AND your income taxes), and the companies go on with business as usual. Half a dozen other states are poised to pass similar legislation.

I am simply horrified that these laws are being passed and I am so sorry for affiliate marketers living in these states. I know several affiliate marketers that live in Hawaii and they can only afford to live their because they work online as affiliate marketers. Local jobs are almost non existent in their areas.

If you make any money from affiliate marketing, if you work online, or if you just hoped to make money affiliate marketing some day then you need to write the legislators behind these awful bills. Affiliates are not employees, they are advertisers. Does contracting with a radio station to buy advertising make them your employee? Heck no! The affiliate marketing profession is being used as a weapon to collect state revenue and we will be the ones hurt.

Talk about it, blog about it… we need to stop this before more states adopt it and affiliate marketing is dealt a death blow.

And now more then ever we should all find ways to diversify our income so that if this law passes in our state it will not leave us without any income.

Visit the Performance Marketing Alliance for details.