[markwelch]

We've discussed this in another thread, but I think it's worthy of its own discussion thread.

To ALL Web Publishers: ALL of your merchants who don't collect sales tax in your state will terminate you from their "affiliate programs" as soon as your state enacts the "Amazon Tax" (affiliate/nexus) law.

They are going to Do What Amazon Does, which means terminating all of their performance-based advertising relationships with all publishers in all states which choose to enact unconstitutional laws that pretend that these contracts create "physical presence." (For many years, I've included one very simple test for any decision about e-commerce web site design: "Why are we doing this differently than Amazon?" That's not because Amazon is always right, nor are Amazon's best solutions always best for other merchants. But since Amazon invests millions of dollars in research and analysis, it's definitely worthwhile to consider how it does something, and make clear our reasons for doing something differently. This is no different.)

After getting "caught" by New York's inclusion of the affiliate/nexus language in an emergency budget bill last year, Amazon is pro-actively terminating its advertising relationships with web publishers in each state where this language has been approved by the legislature or included in the state budget. A few merchants terminated publishers sooner; more merchants have terminated publishers following Amazon's action in each state. I expect that several hundred more merchants will start terminating their performance-based advertising relationships with publishers, in states which enact the "Amazon Tax."

As I discussed in another thread, Amazon has probably gone through a careful decision process, and has concluded that unfortunately, charging sales tax would reduce profits more than expelling a state's publishers from Amazon's Associates Program.

Some merchants might do a similar analysis and reach a different conclusion -- but I doubt it. The costs (to register with each state individually, and to compute, collect, report and remit sales taxes for each state) are not trivial, especially for smaller merchants.

For various reasons, Amazon is the only merchant which has announced in advance that it will end its advertising relationships with publishers in states that enact the affiliate/nexus ("Amazon Tax") language. However, as we've seen in recent days, a number of other merchants are enacting the same policy, dropping web publishers in each "Amazon Tax" state.

In New York, hundreds of merchants dropped in-state publishers from their "affiliate programs" after the "Amazon Tax" was enacted. Some didn't announce any reason (perhaps not wanting to draw the ire of New Yorkers), but the removal and subsequent rejection of all New York publishers (but not publishers in other states).

"Very small" merchants may be exempt from these laws in some states, but note that the "threshhold" varies from state to state ($2,000, $5,000, or $10,000).

"Small" merchants might elect to drop publishers in some "Amazon Tax" states but not others, if they're confident that sales won't reach the threshhold. However, publishers who continue to accept advertising from such merchants risk being cut off if sales increase!

The bottom line is that web publishers in any state that imposes a sales tax should assume that if an "Amazon Tax" is enacted in their state, then all merchants who don't currently collect sales tax for that state will terminate the publisher from any performance-based advertising program.

The wisest strategy for all web publishers is to start shifting toward a policy of accepting performance-based advertising only from merchants who already collect sales tax in the publishers' state of residence.

[AffiliateHound]

Networks should require all of their merchants to tell them in which states they collect sales taxes, and that should be included in the merchant's detail, so that all current and prospective affiliates can easily determine if the their state is or is not "compatible" with the merchant's program.

[loxly]

Mark, all LARGE merchants will probably drop affiliates, but not all merchants will. Affiliates may need to revamp their strategies to focus on smaller merchants that will be glad to pick up the slack from the larger merchants.

Many smaller merchants won't meet the sales targets, others have products that aren't taxable in various states.

[markwelch]

Loxly, I agree that many smaller merchants who don't expect to meet the threshhold (or ignore the laws) will not terminate publishers immediately. However, as I wrote above: > "publishers who continue to accept advertising from such merchants risk being cut off if sales increase!"

You do make a very good point that certain products (including downloadable items) aren't taxable in many states anyway, and such merchants won't need to terminate publishers.

[loxly]

I think that everyone needs to take a breath and relax. General sweeping statements like the ones you are making can hurt the industry. If affiliates in the states affected reach out to smaller merchants they may be able to build relationships that will benefit both. If a Connecticut resident comes to me with a plan and brings in sales that are over the threshhold I would be willing to work with them and set up the proper sales tax. This is most likely the case for many smaller merchants.

Some states are "worse" than others as far as reporting requirements that will be too time consuming for some merchants, but others it will not be so bad. To give out a sweeping "drop all merchants that don't collect sales tax in these states already" is going to hurt affiliates AND merchants that don't know any better.

And nexus is sales from an affiliate in that state to customers in that state, and even at the $2000 level, for most niche merchants that is going to be a hard number to actually hit.

Affiliates do need to do due diligence to keep their businesses alive, but I suggest that instead of wholesale dropping of merchants affiliates approach some that are smaller that they can work with, and even explore alternatives like white label dropshipping. It might be more work for the affiliate because *they* have to collect the cash and pay the taxes, but the actual product processing and customer service can be handled by the merchant. This won't work for everyone, but it might just work for some that are willing to take the extra steps.

We need to be creative and think outside the box, not just throw our hands up and start severing relationships.

[affiliatemanager]

Dear Affiliates,

Buy.com currently charges sales tax in the following states:

California
Massachusetts
Tennessee
New York

We just learned of termination letters sent out to CA affiliates (among others) and want to reach out to all CA affiliates and help. Since Buy.com's headquarters in located in CA, we have nexus and already charge sales tax for CA residents, therefore, we won't be terminating affiliate relationships in CA.

Please reach me directly - melissa@buy.com (melissa at buy dot com) if you have any questions!

Melissa
Director of Marketing, Buy.com
BuyTV Co-Host
949-436-6776

[davidh]

Mark -

The constant reiteration of how Amazon's decision must be well-thought-out and based on thorough research is only going to encourage more merchants to follow suit without thinking about it first.

[markwelch]

Loxly, the reason I started this discussion thread was that people were expressing surprise (and outrage) at CSN's last-minute announcement that it was terminating web publishers in NC, HI, and RI. To me, the real surprise was that any publisher expected that they'd be retained by a program like CSN which had terminated its NY publishers. (As I mentioned, Amazon was the only merchant to announce its decision to terminate affiliates in "Amazon Tax" states well in advance, and even then, we weren't sure if they'd do it in California until very recently.)

The sky is not falling. Most web publishers can work around the affiliate/nexus issue by being more careful when selecting which merchants' advertisements to accept. This is just one more of many factors to consider when choosing which merchants' ads to accept for a site. There are many other important issues (including "coupon prompts," parasites, 800-numbers, and many more).

But this is a very important issue, especially for publishers who invest substantial time manually adding specific advertisements (such as individual product links) into their web sites.

I was one of many publishers who didn't take any action after New York passed the first "Amazon Tax" law last year; after all, it didn't affect me. I didn't realize how much of a mistake that was -- until I heard the bookseller lobbyists who wrote the law argue that "Amazon has already collected $60 million in sales taxes for New York, so they'll also do it here, and California will collect even more."

If (when?) we discover that the "Amazon Tax" language was secretly included in some other states' budget bills, we're going to hear from publishers in that state that they are shocked and surprised, not just about the law but about the abrupt termination notices they'll receive from many merchants. This thread may help get their attention now, and help them to plan more effectively for the future.

[markwelch]

DavidH wrote: > "The constant reiteration of how Amazon's decision must be well-thought-out and based on thorough research is only going to encourage more merchants to follow suit without thinking about it first." <

Of course, every merchant should take the time to "do the math" for themselves. My real point was that legislators need to understand that Amazon isn't taking these actions out of spite, anger, or resentment (which seems to be how some legislators are viewing this) nor is it a "bluff," but that it's a very rational business decision that won't be reversed in a few weeks or months.

But let's face it, most merchants are going to "do the math" and conclude that charging sales tax will reduce profits more than terminating their performance-based advertising relationships with publishers in the state.

Yes, there will be some significant exceptions. For example, some merchants' advertisements on one or a few web publications hosted in a single state may account for a large percentage of total sales. Some merchants might also perceive a competitive advantage in recruiting new publishers in states with "Amazon Taxes" (perhaps because the merchant doesn't expect to reach the threshhold in that state, or will collect the sales tax in that state [e.g. Buy.com], or maybe decides to accept the legal risk of non-compliance with these unconstitutional laws).

[loxly]

Loxly, the reason I started this discussion thread was that people were expressing surprise (and outrage)

Regardless of *why* you started the thread, it amounts to a "The Sky is Falling" type of thread. Your post very clearly states your opinion but presents it as fact and has the tone that if people don't listen to you they will all be out of business. That is not the case.

[Eric Ewe]

I like Loxly's suggestion which is to go after smaller merchants.

AffiliateHound's suggestion holds water too.
I think it will not only be something that the merchant have to watch out for but without the networks' help, it will be a murky for a very long time.

Within a dozen years or so from now, every state will charge sales tax for any online transaction, including downloadable softwares so terminating affiliates is just putting a patch to stop the bleeding and part of the step forward is for networks to proactively engaging merchants in tax issues when it comes Nexus states.

[Trust]

"Mark, all LARGE merchants will probably drop affiliates,"

Just to be clear on that. The largest ones, the brick and mortar types, the ones you see at your local real mall, the stores you see in your town won't because they already have a physical presence, collect taxes. etc. The type of merchant you see in most states, Walmart, Target, Barnes & Noble, etc. If I got that right?

[Kevin]

Originally Posted by Trust

"Mark, all LARGE merchants will probably drop affiliates,"

Just to be clear on that. The largest ones, the brick and mortar types, the ones you see at your local real mall, the stores you see in your town won't because they already have a physical presence, collect taxes. etc. The type of merchant you see in most states, Walmart, Target, Barnes & Noble, etc. If I got that right?

Maybe, maybe not. For example, Bass Pro Shops dropped NY affiliates despite having a physical presence here. Their online store is incorporated differently.

The safety check is to look at who is already charging taxes in your home state, and make a decision from there.

I'm not clear as to whether or not a store, say Target for example, can re-incorporate a website to avoid these things. Unlikely they will if they're already bothering to to collect taxes online. But food for thought.

As to this being a "sky is falling" thread... emmmmm. Maybe. Maybe though we should have started "sky is falling" threads a year ago, and then NC, HI, RI and others would have been better prepared.

Sure, we told them "it's coming". But maybe we didn't light it on fire quite enough.