There’s been a lot of talk regarding the fact that Amazon and/or Commission Junction have been “booting” affiliates from certain states out of their affiliate network.
I just want to take a moment to explain exactly what is going on here…as it really has nothing to do with wether anyone likes or doesn’t like affiliate marketing and that business model. It’s all about sales tax.
As it stands now, national retailers like Amazon do not collect sales tax from customers where they don’t have a “presence”. As you might imagine, Amazon works hard to NOT have a presence in most states as this gives them an advantage over brick and mortar stores that must charge the tax. As you can also imagine, the states that are “losing” this sales tax are not very happy. With the current fiscal situation, all the states are looking hard at ways in which they can get more revenue. This “opportunity” is seen in many states as something they can go after. But…how to do that? Since their own laws state that the retailer must have a “presence” in the state to collect the tax. THAT’s where affiliates come in.
The way that many states have decided to go after this money, is by saying that…if an affiliate from their state pushes the traffic to a retailer (like amazon), then that triggers the “presence” and that retailer must collect the sales tax.
Amazon (and other retailers from Commission Junction etc.) do not want to collect the sales tax for two reasons. First is the overhead required to collect, document, and pay the sales tax. This is an expense that they currently don’t incur. Second, and perhaps more importantly, they feel it will hurt their conversions and take away their advantage over brick and mortar stores. Their solution (in some states) ? Kick all the affiliates from that state out!
So, how does this affect you now and in the future?
First of all, if you’re outside the US…this has ZERO impact on you.
Clickbank - (Commission Blueprint) Clickbank opportunities are unaffected now and for the foreseeable future. Digital goods are generally not liable for sales tax, AND, the way that Clickbank sets up their business model makes any affiliate impact very unlikely.
eCommerce Sites - (Niche Blueprint) These sites are unaffected by this, as sales tax is already something that’s addressed. The only potential issue here, is if you are using affiliates to drive traffic to your site. You may be faced with the same decisions that Amazon has had to make.
Amazon and other (Commission Junction etc.) - These sales are what is at risk right now. So, what can you do? Simple. Incorporate your business in Delaware and set up an “agent” there where you can have a Delaware address for your company. In this way, no matter where you are, your company is driving the traffic … and they’re in Delaware. Why Delaware? That state makes a ton of money incorporating businesses. They do so by being VERY business friendly on tax and MANY other issues. Almost every big company in the US is incorporated there. I would check here: Commission Junction Tax Update and see what’s going on with your state. If you have a lot of business that could be at risk, and your state seems to be heading towards this kind of thing…then get yourself to Delaware! :-) I would be SHOCKED if Delaware EVER passed legislation like that anytime in the future.
Don’t PANIC! Just adjust…
July 10th, 2009 at 2:48 pm
Thanks for the share but don’t forget to look at incorporating in Nevada … the home of 24 hour gambling, liquor, ladies and very private (and cheap) corporations.
July 10th, 2009 at 3:06 pm
Well, there is another choice and that’s to leave your affiliate JOB behind and move a bit higher on the food chain. Amazon is only the beginning. In fact, I would be willing to bet that as part of their strategy, it is written somewhere that they will use affiliates for a certain length of time to gain all the market intelligence they need to do it themselves.
My point: as an affiliate you are expendable and you really have little control over your so-called business. Unless, you are using affiliate products to PAY for your lead generation efforts (PPC, CPA, whatever) it’s a pretty feeble business model.
July 10th, 2009 at 3:14 pm
With 44 of the 50 states currently in a financial deficit situation you can bet there will be more of this going on. Those of us in California are probably in the worst situation right now.
In our business (printed t shirts) it’s common for the big online (virtual) t shirt companies to outsource their manufacturing to companies in the region where the order originated. This outsource and fullfill/dropship arrangement has been a big advantage for these companies.
Trouble is, the State of California has figured out that even if you are a third party for an out of state company, you are still liable to collect the tax on orders produced and shipped to customers in the state even though you did not originate the order AND you do not know how much the order was sold for. The State has some bogus formula they use to concoct the Sales Tax owed.
One of our companies was caught in this situation a couple of years ago. Fortunately the main company involved did the stand-up thing and ponied up the tax due, even though they were not obligated to under the “presence” or “nexus” statutes. However, this is only one case and I know for a fact other vendors operating in California have NOT been informed of this potential HUGE liability.
The one thing we can count on for sure is that this is only the beginning.
July 10th, 2009 at 3:24 pm
What about the state of Oregon? It has no sales tax and every time it comes up for vote it gets defeated by an ever larger percentage
July 10th, 2009 at 3:36 pm
Nevada is also an option for sure.
As for California…my information is that the Gov. just vetoed the anti-affiliate legislation. So , should be all good there.
John C. we can agree to disagree…I’ve made quite enough money over the years with affiliate marketing. It is fragile at times, but it has some incredible advantages too…speed of deployment, no barrier to entry, agility to respond to opportunities etc. Diversity is really the key, but affiliate marketing certainly continues to be a KEY component of our overall business.
As for Oregon…it’s all about sales tax, if there’s nothing to collect…there’s no issue!
July 10th, 2009 at 3:51 pm
Well, the issue is how much money are you keeping. Oregon may have no sales tax, but they having a communist level income tax, along with Wa and Ca.
That’s what makes Nevada the most attractive of any state.
July 10th, 2009 at 4:04 pm
Thanks for the insight..For delaware do you have any information on how to set up an agent for that state..what about setting up a P.O box address for that?
July 10th, 2009 at 6:16 pm
Any links or info on how to incorporate in Delaware, and how to find an “agent”?
July 10th, 2009 at 7:41 pm
Two weeks ago, Amazon capped commissions for affiliates in the UK and France on any one product at 7 GBP. Given what they did with PPC a couple of months back, I think they are definitely in the mode of figuring out where they can cut back. Although, the sales tax issue has nothing to do with cutting back, I think its prudent to be wary of how much an affiliate relies on Amazon right now. I have liked using Amazon for many of the reasons Steve outlined above, but as he also points out, I think it is more important than ever to diversify.
July 10th, 2009 at 8:35 pm
There are a ton of companies that will incorporate you in delaware..and will act as an “agent” so you can give a delaware address.
Here’s one : http://www.delawareintercorp.com
July 11th, 2009 at 12:08 am
I received messages from Commission Junction and two other companies, but they all included a sample letter and the addresses where I could send the letters to my representatives. At the time Maryland had a proposed bill on the floor for the purpose of collecting an internet tax on all goods sold into our state.
Long story short, I sent the letters, 4 of them, telling them I understood the financial strain and the need to increase revenue. However, if most of the affiliate companies stopped doing business with affiliates who lived in Maryland, not only would the state not get any additional tax revenue from internet sales, they would lose the income tax revenue from the affiliates who no longer got commissions.
I know there were a lot of people who did the same thing. Just a few weeks ago I received a snail mail letter from the office of the Speaker of the House stating that the bill had been killed on the floor during debate. It would not rise again until 2011. Good fortune this time. But you do have to be proactive.
July 11th, 2009 at 2:28 am
This is truly a tricky situation that all governments are trying to come to terms with. Just where is the presence of an internet business?
I operate all my internet businesses from Australia, but host them in the United States, so where is my presence?
Well, I’ve been advised by my accountant that at the moment my presence is where I am based, which is Australia, so I pay my australian taxes on what I earn.
But that only scratches the surface when it comes to the complexities of sales tax and my liabilities to pay depending on where the sales rep resides, and in some countries where the customer resides.
How will it be resolved? Well, there are a lot of people a lot smarter than me working on it, but I think that governments at all levels will have to come together to resolve this issue as country borders and where people can trade is extremely blurred at the moment and the old laws don’t really fit an internet business model.
July 11th, 2009 at 6:37 am
This is all a bit confusing.
July 11th, 2009 at 1:01 pm
We all need to support each other in some way so that all benefits go out to the Communities. If people who have full time jobs can manage their on line business, that’s extra volunteer hours on there part. We all know just that alone is a major challenge out here. Being taxed to say a few only dampers and hinders the small business and even larger corporations. Affiliates are around because they know that there are special features and benefits for them. Please consider each of them on a case by case basis. We all want a piece of the pie, but because it’s is cut into half, there will be less profit to share around. I do not agree at this time but to look at those who are already doing very well and tax them as needed.
July 11th, 2009 at 2:11 pm
You mention ClickBank as not being affected by this sales tax issue 1) because they sell digital goods and 2) the way they setup their business model. Hate to break it to you but they have been collecting sales tax on digital products for anyone who lives in New York State and they’ve been doing it for several months. Here’s an article on the NY law:
http://bits.blogs.nytimes.com/2008/06/02/let-the-tax-collection-begin/
What’s interesting about what ClickBank has done is that they are collecting the tax on digital products and they don’t have to. CB can see the writing on the wall and have taken a pro-active position by starting to collect tax now. As the economy worsens over the next 1-3 years you will see every Internet marketer having to collect sales tax from the states in which they have affiliates who are driving their traffic. That will create havoc (and opportunity?) with every US based IM’er. The states are and will be more desperate to boost revenue and they will look at the ‘tax free’ Internet as one new main source of revenue.
July 11th, 2009 at 2:19 pm
I live in NC, I was and sort of still am an Amazon affiliate. I feel this report is more of a rant and was not written with full research.
Amazon has only suspended us for now, they will reinstate if the laws that affect us do not go through. In NC I have spoken to my senator, and there were many other marketers in his office that day and making their way through the senate. I have been assured that the senators in a majority capacity do not support the part of the bill that will affect affiliate marketers.
The main reason given is that the unemployment rate in NC is so high as it is, it makes no sense to them to add to that statistic by taking the job away from people who have taken it upon themself to not be a part of the unemployment rate.
Now as far as sales tax not being needed on internet sales. That is not entirely true, and it is one of the issues I discussed with Senator Tillman. The company selling the product does not have to pay, the liability falls in the “use” tax category and it is the responsibility of the purchaser to pay that tax. It is the same as sales tax, but it becomes the end users responsibility to report it. So what we discussed was provisioning the bill to target those people who are not reporting the tax on products they purchased rather than the company that sold them the product.
This was a good article, I just feel you should have done more research first.
–Chuck
July 11th, 2009 at 2:22 pm
Oh one more thing, your incorperating in another state would not work, the law if you actually read it targets anyone who has a representative working in NC. Does not matter where the company they work for is at. Otherwise it would not affect amazon at all and it would not matter. In fact trying to mask where you are working from would be considered a fraud on the tax department, and everyone knows you dont mess with the tax department.
July 11th, 2009 at 2:30 pm
In Singapore, our Tax Dept would check our bank savings and we must declare our earnings whether we are employed of unemployed. Even lottery winnings have to be declared to the Tax Dept without fail. Otherwise, we can be heavily fined and/or jailed for not declaring our earnings to our government. Why are certain countries so crazy of affiliates’ earnings? Just order all the banks to disclose all unusual earnings to their government and ensure that government-appointed auditors to investigate such serious matter. Why must we, especially the unemployed, deprived of affiliates’ opportunities to make money worldwide? Where would we as the unemployed get a good job to support our big families and it may be costly to have more unemployed communities all over the world without such affiliates’ earnings to look after our big families. Please look at problems in perspective and from all angles before slapping us with a stupid one-sided tunnel vision. Do we know there will be a huge negative repercussion when certain countries need to stop affiliates’ earnings just to prevent tax evasion? Just check with the banks and their suditors for huge earnings in everyone’s bank accounts. Why so hard to do it?
July 11th, 2009 at 2:34 pm
yup Dave…don’t worry about breaking it to me!
I said are generally not liable…there are some exceptions in some states…but, it’s not the norm…however , the point is…because of their business model (they buy wholesale and sell retail) affiliates are not affected by this
July 11th, 2009 at 2:35 pm
Also Dave…I agree…the future is most likely a federal law that simply states that all Internet retailers will collect sales tax…then, as far as affiliates go…it’ll be a non issue
July 11th, 2009 at 2:38 pm
Chuck…not sure what more research I could’ve done here…uhm…I said it was a fluid situation…and it was written for the whole country, not just for NC. It’s a pretty serious issue for anyone in these states making their living with Amazon and Commission Junction etc. And…I pointed to a page that is giving out all the current statuses etc. So…thanks for your comments though…they do flesh out NC a bit more.
This has also been a very confusing issue for many people as they think Amazon and others are moving away from affiliates and we’re hearing the old affiliate marketing is dead thing again…wanted to address what the real issue is. BTW..I live in NC too.
July 11th, 2009 at 2:40 pm
Chuck..you’re totally wrong on that front with re: to incorporating in another state. The state your business is incorporated in , is where you’re doing business plain and simple.
One concrete example of that. I have ecommerce sites…I work in NC…but I only need to collect DE sales tax as that’s where my business is.
This is fact
July 11th, 2009 at 2:58 pm
I live in RI, where a new law of this type is being/has just been enacted.
For the past two or three weeks, I have received a flood of emails from companies like Amazon, Cabelas, etc., expressing their “sorrow” for having to give me the axe because of RI’s decision to enforce the “internet tax”.
Fortunately for me, I have been doing little or no business with most of these vendors recently, so there was basically no real impact on my business.
What really bugs me, though, is that these very major companies don’t just step up to the plate and do what they know they need to do, and that is to collect sales tax… period.
With thins going the way they are, it won’t be long before the states that do require sales tax on internet sales will outnumber the ones that don’t require it.
Will these marketing giants wait until it reaches that point to step up to the plate and do what they knew they should have been doing all along? Time will tell…
In the meantime, they choose to alienate affiliates and toss them to the wolves. Sooner or later, these things come around to bite you, no matter how big you are.
July 11th, 2009 at 2:58 pm
I just read the post about this. I’m really not surprised they are going after the money and using affiliates to do so. I appreciate the tip that Steve gave: July 10th, 2009 at 8:35 pm
“There are a ton of companies that will incorporate you in delaware..and will act as an “agent” so you can give a delaware address. http://www.delawareintercorp.com/“.
Great tip! I’ll be sure to follow up with!
July 11th, 2009 at 4:13 pm
I have spent twenty year setting up corporations for people in Nevada and Wyoming. I am almost exclusively doing Wyoming now for several reasons:
According to taxfoundation.org report on the best states to be in business; Wyoming is #1, Nevada is #3, Delaware is #9! Wyoming and Nevada are the top domestic havens for corporations in the United States of America. There are basically no taxes and little or no information sharing. They have the tightest and strongest corporate law in the United States. Wyoming changed some of their corporate law in the last 15 years or so to mirror Nevada corporate law and is now equal to Nevada while offering a much lower cost of doing business. They have always had the best LLC law, and in fact, Nevada patterned their LLC law after Wyoming’s. Unfortunately, with the number of people moving into Nevada who are demanding social services, the Legislature has dramatically increased other taxes to make up for no income tax. Delaware has been known for years as the tax haven, the corporate haven in the United States. In my opinion it is still a great best jurisdiction but it is only a tax haven if you are operating a public corporation, not a small closely held corporation. Go Wyoming and consider an LLC, taxed as a corporation for the best of all worlds.
July 11th, 2009 at 5:49 pm
Chuck, you seem to know, so much, do you suggest one, to move to one of the islands in the atlantic that is a tax haven in order to not pay sales tax?:-)
I am an internet marketer and I travel a lot, and it really doesnt matter where I show as residence, because I am not in one place.
perhaps this makes more sense to people like me.
I just have to make sure, if I m in NC I should “really” be on vacation.
But then… what if I am thinking about my business, will that count as working in your great state and be liable to pay your sales tax?
Or perhaps our founding fathers did a big goof up. If it wasnt for them, Queen would still be charging us a whopping 3% tax.
Sorry O’
July 11th, 2009 at 6:35 pm
Ok, Steve… when I first read your solution on incorproating in Delaware, I guess I wasn’t looking at it from the perspective of an affiliate. Instead I was looking at it from a company standpoint. Meaning I was thinking that you would still be in the same situation that Amazon is in, being that if you had affiliates in for example NC, you’d still have to pay sales tax, so what would be the point of incorporating?
Then it dawned on me to look at it from an affiliate’s perspective. You’re suggesting that the AFFILIATE should incorporate his business in Delaware, NV, or as Jim suggests, Wyoming. Which means if I lived in NC, and I incorporated my affiliate business in one of the states listed above, Amazon wouldn’t have an issue with me cause I’d do business out of NV, WY, or DE. Ok, that makes more sense than what I was initially thinking.
Jim, thanks for the suggestions. Do you have a website for your incorporating business?
July 11th, 2009 at 6:54 pm
There is something brewing in Calif right now where Calif is going to require with-holding of 3% on any Calif checks…so Affiliates are Independent Contractors and if you have them in Calif…the LAW WILL apply to you! Best everyone ask the governor to VETO or the other states may follow their lead!
July 11th, 2009 at 7:38 pm
That is a useful post if I ever saw one! I am not personally affected by this but was very concerned when I heard about it. Fortunately I live in a sales-tax-free state but I know some people were devastated by this new tax and the resultant change in Amazon’s policies. I hope they read this and follow your advice. I will also keep this in mind for the future in case I should ever be in need of such a strategy.
July 11th, 2009 at 8:46 pm
Hope and change, suckers, hope and change. You wanted it, you got it. Just wait until they figure out how to apply cap and trade to the internet. How long before we’re required to buy carbon offsets to operate your internet marketing business?
http://edition.cnn.com/2009/TECH/science/07/10/green.internet.CO2/index.html
July 11th, 2009 at 10:14 pm
Will this affect instant “affiliate” payments? For instance, I’m considering doing some lead generator products using a script that allows the “affiliate” to place their email address in the payment link, and if they get a sale, the money instantly goes in to their paypal account.
But in that type of situation, I have no idea where the person who gets the payment actually lives. And I wouldn’t be sending an affiliate payment, as the money would automatically go straight to their paypal account.
Are those types of sales considered affiliate sales? And how would I be able to TRACK what state to collect tax for if it is?
That sort of thing is usually used for instant downloads. Do you think they will start taxing downloadable information products also (as one of the previous posts said clickbank is already adding it on for New York, and I noticed it when my clickbank product made sales in New York also).
Thanks for the great information in your post (and in many of the replies!).
Jim Knippenberg
July 13th, 2009 at 11:59 am
I set up my account with Amazon primarily so that all commissions earned could be donated to any charity of their choosing. The same applies to my Adsense Account and if I can do something as easy as this, then I wouldn’t be too concerned about sales tax. I realize the economy is bad and it will be pretty much the same for the next few years but just imagine how much we can each do to reduce poverty in the same process. I’m relying solely on the income that our government helps us with, every financial asset I had has also been donated to a variety of worthwhile causes and I’m happy with that. So think about what I’ve publicly stated above and just ask yourself, “What’s more Important to You”! “pub-
2289850006588701″;
July 16th, 2009 at 11:46 am
As I understand all this I guess living in Montana means I live In another country. We here in “hickville” are constantly offended by the rest of the country. Yes we have no sales tax and are very proud of this fact. Unfortunately we are always passed up by businesses I feel because we just are “too backward ?” Just consider this as your next business address.
November 7th, 2009 at 1:29 pm
FYI
I never buy anything from some one who can’t spell.
eg a ‘wether’ is a sheep (as in “wether anyone likes or doesn’t like affiliate marketing”) .
February 5th, 2010 at 9:39 pm
Digging up an old post, but Colorado is on the verge of passing the “anti-amazon” legislation.
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September 17th, 2010 at 4:31 pm
Any chance you can give us a list of which states are having the greatest problems with Amazon?
September 17th, 2010 at 4:34 pm
I’m sure that Amazon does not want to lose business by limiting their affiliates. Have they been doing any lobbying in DC to help the situation?
October 20th, 2010 at 8:46 pm
Sure, I agree. That’s very good advice and I hope I might take that advice. By the best way, thanks…
November 8th, 2010 at 12:41 pm
Hi Friends,
Thanks for this post! I was wondering what this was all about but of course it had to be sales tax.
I am from Europe so I am not affected by this as such. However, when marketing within in Europe it can get very messy. The sales tax over here is often 25 % so mistakes can be very costly. All the countries are of course fighting among themselves to get this income and they certainly do not agree. - It is more than enough to give you a good headache.
However, I guess you could line up with some Europeans instead of incorporating in Delaware since there seem to be some “rubber paragraphs” which the authorities will apply anyway just because you happen to exist and breath.
Remember Beatles and Taxman:
(if you drive a car, car;) - I’ll tax the street;
(if you try to sit, sit;) - I’ll tax your seat;
(if you get too cold, cold;) - I’ll tax the heat;
(if you take a walk, walk;) - I’ll tax your feet.
Because I am the Taxman
Best wishes
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January 7th, 2011 at 3:48 am
I live in Illinois and just got the notice from Amazon & Overstock of my possible termination. Patt Quinn just need to sign it and I’m history.
Does anyone know if I can set this LLC up using Legalzoom.com? I have my affilate income direct deposited into my back account in Illinois.
What does it mean to have an “agent” set up? Does that give you a Deleware address you can change in the the Amazon contact form?
Does Amazon care if the bank account for affilate payout is in Illinois?
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