Results 1 to 4 of 4
February 27th, 2009, 04:29 PM #1
How Do We Want to Change California's "Amazon Tax" Bill?
- Join Date
- January 18th, 2005
I received a return call today from David Ruff, who is one of the legislative analysts involved with AB 178. He seemed genuinely surprised by many of the concerns I shared (see the first bullet list, below).
As we spoke, I realized that I was in a very difficult position: I'm aware of some problems with the bill that don't directly affect me (such as the question of how the terms "other consideration" and "otherwise" would be interpreted), but if these problems are fixed, it's more likely that the bill will pass.
My concern is my livelihood -- my income from my "affiliate activities" (selling performance-based advertising on my web sites) would be reduced.
If the California law ultimately mirrors the New York law (and is interpreted the same way the New York law is being interpreted, so that "merely carrying ads on my web site" does not create a nexus, but other activities such as email marketing or direct-to-merchant PPC could create a nexus), I would face two problems. [b]First, some larger merchants who already exclude New York affiliates would simply exclude all California residents (including me) from their affiliate programs completely, in order to eliminate any risk that they'd be forced to collect California sales tax. Second, many other merchants would adopt the "signed agreement" strategy that's been recommended for merchants working with New York affiliates -- a substantial burden on the merchants, and potentially a burden on me to insure that I complete and mail many dozens or perhaps hundreds of agreements annually.
But right now, AB 178 doesn't just mirror the New York law, because it isn't limited to only "commission-based" affiliate programs, but to any promotions in which a California "resident, for a commission or other consideration, directly or indirectly refers potential customers of tangible personal property, whether by a link or an Internet Web site or otherwise, to the retailer..."
- On its face, this would mean that running an offline advertisement in a California-based magazine or on a California TV station would create a "nexus" requiring the out-of-state merchant to collect and remit sales taxes. I'm pretty sure that is not the intent (and I am absolutely certain that such a law would be unconstitutional).
- Certainly, the Google AdWords program "refers potential customers" and thus any merchant paying Google for PPC advertising could be viewed as having a nexus with California, requiring all AdWords customers to collect and remit sales tax; I'm pretty sure that is not the intent (and I am almost certain that such a law would be unconstitutional).
- Even if the bill were amended to apply only to "pay-per-sale" arrangements, it would also force every merchant who uses Commission Junction or the Google Affiliate Network (but probably not LinkShare or ShareASale) to collect and remit sales taxes, because merchants pay these California firms a percentage of sales. (CJ is based in Santa Barbara, California; the Google Affiliate Network is a subsidiary of California-based Google and probably also has employees here). The likely result is that many of these merchants would move from CJ to SAS (shifting taxable income from California to Illinois) -- or more likely, to an offshore affiliate network or an in-house solution.
- Even if all three of the prior outcomes were avoided, the bill still reaches farther than the New York law "as interpreted" by New York's sales-tax agency, because it doesn't require that the California resident actually "solicit" or otherwise act in some way as a "sales agent" -- even if a merchant's affiliates merely publish the merchant's advertisements on their web site, with payment based on sales, the merchant would be required to collect and remit California sales tax.
I do expect the bill will be amended to prevent the first three outcomes above, and quite probably the fourth situation also. In the end, I expect that AB 178 will be amended to mirror the operation of the New York law.
But that still doesn't help me, as I explained above. If I remain in California, I'd still end up being excluded by many large merchants, and many others would add the annoying "signed agreement" requirement.
After all this discussion, I'm faced with a sad conclusion: the only way to defeat this bill is to demonstrate that the increased sales-tax collections would be less than the lost income taxes from affiliate earnings. And I'm never going to get credible, valid data for that:
- I can't reliably compute the earnings that California affiliates would lose if the bill passed. (It would be great if the affiliate networks would disclose this information -- for example, the aggregate amount paid to New York affiliates in the first half of 2008 by merchants programs which excluded New York affiliates when the New York law took effect, and the amounts earned by California affiliates in 2008 for programs which currently exclude New York affiliates. But I doubt any network would feel comfortable sharing this information. And as others note, some merchants don't even acknowledge that they have a policy excluding New York affiliates.)
- I don't think New York will reveal how much sales-tax revenue was actually collected from out-of-state merchants who only began collecting sales tax because the law was passed. I'm not even sure they could figure this out. Nor could they accurately identify the sales tax which "should be collected" under the new law but are not being collected by out-of-state merchants who are ignorant about the law or who simply refuse to comply.
Last edited by markwelch; February 27th, 2009 at 04:43 PM.
February 27th, 2009, 04:56 PM #2
Wish I could add here, Mark, but you're at the same place in your head that I was in mine last year at around this time.
I'm not firmly convinced that the industry "as a whole" embraced the problems created by the New York bill, and therefore, the industry "as a whole" is not near ready to do any of what you are asking for.
And I don't think your requests are unreasonable, by any stretch.
You might have one card in your favor. If Google can delay the proceedings because of the language perhaps being stronger than intended, you (and we) might be able to gather some of that data. It might be more anecdotal than you were hoping for, but it might be better than nothing.
March 25th, 2009, 01:35 PM #3
- Join Date
- January 18th, 2005
I've often mentioned that I expect that AB 178 would be amended during the legislative process, because it is facially unconstitutional as written. However, I now believe that this is much less likely, because nearly identical bills are advancing in several other states (HI, CT, MN, TN).
As I've also mentioned before, it appears that the proponents of this bill are persuading state legislators that the New York law has been "approved" or "affirmed" by the New York Supreme Court -- and unfortunately, the legislators aren't aware that this is the name of New York's lowest trial court, and that the law has never been considered by any appellate court.
Although Google and Commission Junction have both indicated their intent to oppose this bill, it's unclear if they will suggest amendments that would narrow the scope of the law. As written, the law would effectively require every Google AdWords or ValueClick advertiser to collect California sales tax if they sell more than $10,000 to California residents -- period. I haven't yet seen any opposition from "traditional media" (newspapers, magazines, and broadcasters), even though the bill facially includes them.
Has anyone heard anything about any proposed amendments? I know that many times, an amendment is created and circulated among an "inner circle" of lobbyists and staffers, and then is introduced as a "surprise" at a hearing, affording no real opportunity for public input. My concern is that I cannot think of any amendment that would actually address the main concerns of web publishers, but we might be "swept aside" by a "narrowing" amendment that still undermines our businesses.
March 25th, 2009, 05:56 PM #4
Mark, you nailed most of my concerns. I'm not a California affiliate, but an Oregon merchant. I'm not sure what our CA numbers are, but we ship enough product to California to be concerned.
If this was solely targeted at commission based advertising it would be bad enough, but at least something we could attempt to address. This however, hits on multiple fronts - AdWords, print advertising (the national magazines we advertise in are mostly based in California), television, even print catalogs. I shudder to think where a customer driving through California with one of our bumper stickers might fall. Nexus...?Eathan Mertz
Black Cat Mining - Gold Prospecting & Rockhounding Equipment
By Linda - 5starAffiliatePrograms in forum Affiliate Tax LawsReplies: 1Last Post: March 9th, 2010, 02:32 PM
By markwelch in forum California Affiliate TaxReplies: 8Last Post: June 20th, 2009, 01:27 PM
By markwelch in forum Affiliate Tax LawsReplies: 4Last Post: March 22nd, 2009, 04:48 PM
By markwelch in forum California Affiliate TaxReplies: 4Last Post: March 22nd, 2009, 04:48 PM
By markwelch in forum California Affiliate TaxReplies: 3Last Post: March 20th, 2009, 02:07 PM