April 18, 2010

Tracking the progress of in-state affiliate sales tax

Although we're not doing affiliate stuff, we've been watching with interest the move by a number of states to apply sales tax to affiliate referrals by residents of those states that result in sales.

This is being referred to as the "modern nexus" — and while I haven't read the underlying laws (and I believe this is still being duked out in a New York court), I would assume that the issue is not quite the same as requiring sales tax from a company that does not do business in your state. Looking at it from a hopefully more balanced view, it could be argued that a state resident with a website offering affiliate links (some of which presumably end in sales) for an out-of-state company might be similar to a company whose in-state sales personnel obtain sales lead (which end in sales) … that is, a point of business presence is established in the state. I'm wondering if I should duck after saying that.

At any rate, New York and North Carolina (and, it appears, Rhode Island) have all implemented such taxes, and Amazon (among other large affiliate companies) ceased their affiliate programs in those states. Last I looked, other states — California and Hawaii — were considering it, Amazon was going to cease affiliate offerings in those states, and the states did not implement the "modern nexus" sales tax.

The thing that peeves me — perhaps unsurprisingly, given my Web orientation — is that affiliates of modern nexus states stand to lose (and some have already lost) income due to their states' desire to tax.

At any rate, Affiliate Advocacy has been tracking what states are doing in this regard — and they provide a convenient Map of Nexus Legislation page showing which states have passed modern nexus laws, and which are "at risk" or at "high risk". It's clear to see from the latest map, for January 2010, that the number of "high risk" states is growing.

For those who, although living in modern nexus states, would yet like to be able to make an income as affiliates, there may be companies who have not pulled their affiliate programs from those states. And, given the growing number of high-risk states, my hope is that this all gets ironed out one way or the other, and that affiliate folk can get back to doing what they do.

Or, as Melanie from Affiliate Advocacy suggests in her post about Connecticut's attempt to pass an affiliate sales tax:

Affiliates should continue to prepare their business should merchants decide to terminate relationships. Identify replacement merchants for all at risk relationships. Merchants should also explore alternate solutions including collecting and remitting the sales tax.

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