A merchant who is setting up a new affiliate program wrote to me:
I’ve read your new book, and am determined to create a 100% affiliate-friendly program, welcoming affiliates from all U.S. states. I understand that Amazon tax is a problem that many affiliates are concerned about. We are happy to collect the tax, making sure that no affiliate is declined from joining our program based on state residency. Do you happen to have a list of all states that currently require to collect the tax, and how much?
Very commendable approach!!
Just to clarify, for those readers who may not be aware, they are referring to affiliate / advertising tax laws which have been passed in 5 states around the country (New York, Rhode Island, North Carolina, Illinois, and Arkansas), and more states (e.g.: California, Connecticut, South Carolina) are seriously considering similar legislation now.
Ceasing relationships with affiliates — as some merchants have done — isn’t resolving the problem, but only worsens the situation. Therefore, I always advise merchants to collecting the tax instead. In essence, all of the “affiliate tax” laws prescribe collection of an Internet sales tax from online retailers who have more than $10,000 in annual online sales generated/referred by in-state affiliates. The exact tax percentage differs depending on the state, and presently looks as follows:
- New York — 4.00%
- Rhode Island — 7.00%
- North Carolina — 5.75%
- Illinois — 6.25%
- Arkansas — 6.00%
I applaud the above merchant’s desire to create an affiliate-friendly program from the very outset. I hope w’ll see more and more of this in the future.
Wouldn’t they need to collect the local taxes as well? For example, NY state sales taxes seem to differ by county and sometimes city:
http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States#New_York
I’m not too familiar with the details of the affiliate tax laws, but I thought that one of the issues was the complexity of collection…
Very good question, Dave. I’ll see if I can an accountant to chime in here.
Geno,
States have fought long and hard over the years to find a way to charge sales tax on internet sales. Affiliates are finally offering them a way around that darn interstate commerce clause in the US Constitution. The main reason for this attack, in my opinion, goes a lot farther than simply trying to raise revenue. This is a direct attempt to reduce internet commerce and try to bring shoppers back to physical stores in cities across the country. When I was working in a local government back 15 years ago, there was a fear of what internet sales could do to local taxation. That fear was realized. The bad thing is this taxation has nothing to do with enhancing business in the US or improving the economy as a whole. It is all about trying to bring power back to local and state governments – plain and simple.
Keep Up the Fight!
Chip
There is some complexity of collection. But states are bent on doing something in this area to make sure that at least some form of taxation is leveled in order to get a firm grasp on nexus. At that point, they can begin worrying about sorting through local versus state taxes. The idea is to attack the nexus issue first – if this is established, the dam breaks on internet taxes. Affiliate marketers are simply the start. Next, they might go after any sale on Big Cartel or Etsy. The state of origination or these sites could claim nexus based upon the same idea as with affiliates. Those sites are driving sales to an individual shop – it would not be a far stretch to claim that all sales at these sites are taxable in the home state of Etsy or Big Cartel.
Great article! I wish more retailers took this approach.
Just to clarify, though, sales tax is already due on online purchases. When the retailer doesn’t collect it, the law requires the consumer to calculate the tax due and send it to the state.
And for those who are concerned about the complexity of calculating and collecting sales tax online, my company offers a comprehensive sales tax management service, called TaxCloud, that’s free to retailers. It handles calculation, exemptions, and even audits, and it also files tax returns for retailers. (http://taxcloud.net)