[Brian - ShareASale]

Hey Everyone - we are working hard on this along with several other networks, affiliates, and groups in Illinois... no updates as of now but if you would like to help and you live in Illinois please shoot me an email to brian@shareasale.com

[runner2]

Hello,

I am a total newbie. Starting my first website. I was looking for some other infor and then encountered this tax information.

Can someone please explain in simple words what this bill means (I don't understand that tax mumbo jumbo in official document). Does it affect affiliates, merchants or buyers?

Thanks

[2busy]

What it is? States looking for more money decide that businesses that do business in their state must collect sales tax. The problem is that the law has decided that if a Merchant has any affiliates in their state, that is enough reason for that merchant to need to collect and pay the sales tax, even if the merchant has no actual business in that state.
Basically it means that in states that pass these laws the Merchants quite often drop all their Affiliates from that state rather than collect taxes for a different state than where they are located. NY started it and it is being discussed in many states. You would need to read up on each state that you have an interest in to see what their status currently is. If you are an Illinois Affiliate it means that many (probably most) merchants will not work with you. The PMA has filed a suit to stop the Illinois law but it may be awhile before there is a decision.
Good luck.

[AffiliateHound]

Originally Posted by runner2

Hello,

I am a total newbie. Starting my first website. I was looking for some other infor and then encountered this tax information.

Can someone please explain in simple words what this bill means (I don't understand that tax mumbo jumbo in official document). Does it affect affiliates, merchants or buyers?

Thanks

All three.

First, the bill was passed and signed into law, and has now been challenged in court. However, do not expect to see a final court resolution for at least five years.

What these taxes do, is to impose the duty of collecting a state sales (or in most instances, more correctly a "use" tax) on out-of-state merchants who sell products to consumers in that state, here, Illinois. So, a merchant such as Amazon, that has no physical presence in Illinois -no legal "Nexus", or connection, to the state in question, as required by the US Supreme Court ruling in Quill v North Dakota and the Commerce Clause of the US Constitution- is now required to collect Ill. taxes on purchases made from them by Ill. residents. These states have come up with the legal fiction that by having affiliates who reside in their state, the requirement of a nexus is satisfied. Thus, the states allege their laws are constitutional and think that these giant online only and out-of-state merchants will start collecting massive amounts of taxes and paying them to the state.

That, however is not what has happened. In each state that has passed such laws - New York, Rhode Island, North Carolina, Colorado, etc) the result has been that Amazon, Overstock, and hundreds more merchants, rather than collecting the tax, instead fire their affiliates, to avoid the tax-collecting requirement.

So, if you are an affiliate in Illinois, you will be denied access to the Amazon affiliate program, and all of the others who take the position that they will not be subject to the obligation of collecting Illinois state taxes.

There is a wealth of information on this issue in the Affiliate Tax Law sub-forum.

[runner2]

Hello 2busy and AffiliateHound. Thank you very much for thorough responses.

Let me just clarify something as I still don't get one thing.

I am a resident of IL and I started a website promoting affiliate products. Lets say that I found a merchant ( say located in Wisconsin) who accepts me as its affiliate. I don't know how much is that tax that we're talking about so let's say it is X%

With all above being said does this mean that:

a) vistor of my website who lives in California will pay: $product price + X%?

b) visitor of my website who llives in IL will pay: $product price + X% but visitor from California will only pay $product price?

c) none of the above. Visitor will always pay only $product price (price that merchant displays). The sales tax will be paid by the merchant.

Thank you very much.

[AffiliateHound]

The merchant never pays the tax - the customer pays any tax that may be applicable.

Visitors you send the merchant from your site to a Wisconsin merchant will have a sales/use tax added onto their cost if they reside in Illinois or Wisconsin. Residents of no other state will have to pay sales/use tax if they are referred through your site to that merchant. Note that the tax rates between Wisconsin and Illinois will be different, and (in many states) can vary among different areas of the state.

[runner2]

Hello AffiliateHound and thanks for explanation. Ive been reading articles about this for the whole morning. Would appreciate if you could explain last few aspects.

If i got it right if given merchant has at least one affiliate (such as me) in illinois it is being treated as he has physical presence in illinois thus will add a tax to any buyer who is resident of IL regardless if he/she was reffered through my site or not. Is that correct?
2) even though given affiliate resides in IL he is sending traffic from all states. From this point of view i am not sure about amazon strategy. They give up 49/50 of traffic not to charge taxes for 1/50...or on the second thought that is not entirely correct. they simply dont want to charge state taxes from IL based customers who of course don't need Il affiliates to purchase something from amazon. Right?

3) does this mean that IL residents will pay tax twice 1st tax of a merchant state location 2nd tax for IL? Logically thinking if an affiliate is an analogy for physical presence then online visitor should be an analogy for real visitor. A visitor from Wisconsin who comes for a weekend to Illinois and go to Kohls to buy shoes is only paying Ilinois tax and not wisconsin tax. Shouldnt that be the same for online? You want to charge illinois tax? Fine! But then don't charge wisconsin tax as that becomes double taxation. Is that about right? Thanks.

[AffiliateHound]

1. Correct.

2. Correct.

3. No. An online customer only pays tax to the state of his residence. The merchant collects tax on all customers who reside in the state or states in which the merchant has a physical presence (B & M stores, distribution center, adm offices, etc), and on customers who reside in a state that has passed an affiliate/Amazon tax law if the merchant has affiliates who reside in that state. No customer can be charged both taxes.

[runner2]

Ok so if that is the case then i still dont understand something.

Say we have a merchant that operates from California (8.25 % sales tax) case1. Merchand DOESNT have any affiliates in IL. A visitor from IL makes a purchase and pays 8.25 tax per california law.

Case 2 merchant DOES have affiliates in IL. Visitor from IL makes a purchase and pays only 6.25 % (because there is no double taxation).

If above is correct then wouldn that be the same for amazon? (they are in seattle, WA right?) then if IL visitor will have to pay 6.25% for IL tax but doesnt have to pay 6.5% for WA tax then he is even better off. I am sure i am missing something here. Does amazon only collect tax from WA visitors but doesnt collect any tax from visitors outside WA? Would that be the case?

[AffiliateHound]

Originally Posted by runner2

Ok so if that is the case then i still dont understand something.

Say we have a merchant that operates from California (8.25 % sales tax) case1. Merchand DOESNT have any affiliates in IL. A visitor from IL makes a purchase and pays 8.25 tax per california law.

Wrong. An Ill visitor does not pay CA sales tax. (CA Sales tax is higher than that - most of state is 8.75%, LA County is 9.75%)

Originally Posted by runner2

Case 2 merchant DOES have affiliates in IL. Visitor from IL makes a purchase and pays only 6.25 % (because there is no double taxation).

Correct, assuming the Ill. sales tax rate is 6.25%

Originally Posted by runner2

If above is correct then wouldn that be the same for amazon? (they are in seattle, WA right?) then if IL visitor will have to pay 6.25% for IL tax but doesnt have to pay 6.5% for WA tax then he is even better off. I am sure i am missing something here. Does amazon only collect tax from WA visitors but doesnt collect any tax from visitors outside WA? Would that be the case?

Yes. In a scenario without Amazon tax laws, a merchant only collects state sales taxes from customers who reside in a state in which the merchant has a legal presence, such as having B & M stores, administrative offices, distribution centers, an on-the-ground sales force, etc. If a merchant only has a physical presence in the state of WA, it would then only collect sales taxes on purchases made by WA residents.

This is the whole constitutionality issue of Amazon tax laws - forcing out of state merchants to collect sales tax for a state with which it has no connection ("Nexus").

A customer never, under any scenario or tax law in existence, has to pay a sales/use tax to another state not where he resides, unless he is physically present in that state to make the purchase. (RE your prior example: "A visitor from Wisconsin who comes for a weekend to Illinois and go to Kohls to buy shoes is only paying Ilinois tax and not wisconsin tax")

[runner2]

Thanks for all explanations. I don't know what to think about it anymore. I found an inetersting article and even more interestinge debate. You can read it here in case you are interested:

Illinois Internet Sales Tax Bill Is Already A Failure - Getting Real

I also found some people suggesting to register corporation elsewhere like Delaware for example by working with company like this one: Delaware LLC Filing - Incorporate Delaware Corporations or Form Delaware LLCs

...but I am not sure if it is really worth all that hassle. And what do you think?

Thanks

[2busy]

It does not matter where you incorporate if you live in Illinois, you are an Illinois Affiliate. If it was that easy, these discussions would not exist.

[runner2]

Why not? Corporation owns a domain and has physical presence in Delaware and hires me as a data entry person who does the job for them remotely and pays me for doing that. What incorrect about that? If Fat Wallet hired me right now to maintain some campaign for them remotely would that mean they came back to IL?

[2busy]

Ask your lawyer if you think it should be different, seek paid advice for your business decisions.

[runner2]

Thanks for all information. I think I will just give up. Good luck.

[MichaelColey]

Originally Posted by runner2

I also found some people suggesting to register corporation elsewhere like Delaware for example by working with company like this one: Delaware LLC Filing - Incorporate Delaware Corporations or Form Delaware LLCs

You can find discussions about that flawed strategy here:

Any solutions without moving?

The bottom line is that you're (at the very least) in a gray area if you try to do something like that. You might be committing tax fraud. You're definitely opening yourself up to a lot of legal liability.

If you want to be an affiliate in another state, you need to move to that state.

[runner2]

Hello and thanks for all your answers. I didn't know that. I mean from what they claim on that website (http://incnow.com/) it has been a common practice for many companies to move their business to Delaware and per what they say it is perfectly legal. I thought that affiliate business shouldn't be any different. But I am no expert here so if you say it would be fishy then I am sure you know better. Anyhow thanks again for all explanations. I am glad that I found this forum and dicovered that tax issues which I was not even aware of. Thanks to that I modified my plans. Originally I was going to make a big project out of it - hire copyrighters on some freelancer service, invest money in ads etc. Now I will either give it up or make it vey simple and small - find some merchants who are already physicaly present in IL thus don't care etc.

Once again, thank you and good luck!