By now I think everyone has heard about Amazon closing its affiliate program in Illinois after the governor signed a law requiring online businesses to collect sales tax for goods sold in states where they have a “business presence.” Now Amazon and other retailers like Overstock.com are facing the same issue in California, and Amazon has already warned the State of California that they will drop their Californian affiliates if the law is passed (which is pretty substantial considering Amazon is believed to receive 40% of revenue from affiliates).
Here’s a quick chart of the United States to show the Nexus Tax situation in various states: https://www.salestaxinstitute.com/resources/remote-seller-nexus-chart
State governments have been chasing around large Internet retailers like this for years, even my home state of Texas went after $269 million in back taxes against Amazon in February, and it often comes down to them having “sales affiliates” in those states. The thing I don’t really understand is what affiliates have to do with any of this. Are they considered the business presence? We don’t make advertisers charge sales tax for consumers that see a billboard in their home state do we? Or how about those that see a television ad or read magazines. Oh wait, perhaps that’s because we can’t track which of those consumers become customers…
I would like to argue that this entire issue is built on semantics. At the core, we first have to answer the question – Is the affiliate actually a salesman doing business on behalf of the advertiser in another state? As far as I know, a salesman (or internal sales team) not only persuades consumers, but they also walk people through the sales process and receive what is commonly referred to as a commission. Affiliates on the other hand are simply marketers that send people to those sales processes and hope for the best. They are no different than the billboards you pass on the highway or the local newspaper that sells advertisements (though some may be a bit more clever). What I’m trying to say is that affiliates are just marketers and/or publishers that send consumers (not new customers) to advertisers, and in the end they can only strive to send the most relevant, ready to buy, user traffic in hopes that the advertiser will convert users into new customers.
Affiliates are NOT PAID on Commission
Instead, I believe that affiliates receive payouts based on performance. Yes, sometimes the metric that determines performance has a lot to do with actual sales or leads, but there are a host of things that can measure an affiliate’s performance. In fact, some affiliates are paid less for the sales or leads they bring because their quality of traffic is low.
If affiliates were actually the ones hosting the website where the transaction takes place (they collect the credit card number, etc), you might have a different story. Then you would have to call them dealers, or franchises, or sales branches, but the simple fact remains that affiliates simply send qualified, relevant traffic to advertisers, and it is up to advertisers to close the deal. This couldn’t be more true in the case of Amazon, and I hope somehow that politicians will begin to see the truth in this. If they don’t they’ll end up with huge losses in income taxes from the affiliates, not to mention the dollars spent by affiliates in real estate and goods to support state economies.
Learn more about how you can make a difference in new Nexus Tax decisions in various states with the Performance Marketing Association. You can also read their take on the Illinois nexus tax.
A digital marketer by background, Peter is the former CEO of TUNE, the enterprise platform for partner marketing. In 2018, he sold TUNE’s mobile measurement product to Branch, unifying measurement and user experience. He led TUNE’s efforts to bring better management technology and automation to marketing partnerships, across affiliates, influencers, networks, and business development relationships. Follow @peterhamilton