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  1. #1
    ABW Ambassador La_Valette's Avatar
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    California bills AB 178 and ABX3 27
    Just got an email from CJ about these. Never heard of them previously. Anyone know what they contain and what their impact could be?

    Just reading the summary at the assemblymember's website (at the link provided by CJ in their email) indicates a similar bill to the New York one, which would be a disaster for all affiliate business in California.
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  2. #2
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    It's all here and in the rest of the Ca Affiliates Forum.
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  3. #3
    ABW Ambassador La_Valette's Avatar
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    Those threads deal with how it affects affiliates - presumably the (negative) effect would be similar to that being felt by New York affiliates since their law passed.

    There is an even bigger concern here given that CJ itself is in California. If this bill passes, might merchants be exposed to sales tax just by virture of doing business with CJ? Or will the exposure only occur if the affiliate also is in California? It all depends on how you define "nexus" I suppose...
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  4. #4
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Quote Originally Posted by La_Valette
    Those threads deal with how it affects affiliates - presumably the (negative) effect would be similar to that being felt by New York affiliates since their law passed.

    There is an even bigger concern here given that CJ itself is in California. If this bill passes, might merchants be exposed to sales tax just by virture of doing business with CJ? Or will the exposure only occur if the affiliate also is in California? It all depends on how you define "nexus" I suppose...
    There is no precise answer to any of those questions, and ultimately the "nexus" question will be answered by the courts.

    I just saw the CJ email and this part is very interesting:
    Commission Junction is headquartered in California and impacted by the current California budget crisis. Nevertheless, we are opposed to the recently proposed legislation and are working with a lobbyist and other groups in hopes that we can influence the rejection of the bills' passage. Rest assured, we recognize that our industry and many of our clients may be impacted by these bills.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  5. #5
    ABW Ambassador La_Valette's Avatar
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    It would be a nightmare if merchants were to be exposed to the sales tax issue just by virtue of doing business with affiliate networks like CJ which are headquartered in California.

    One can only hope that CJ has a move-to-Nevada contingency plan in place in case these asinine bills aren't struck down...
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  6. #6
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Quote Originally Posted by La_Valette
    It would be a nightmare if merchants were to be exposed to the sales tax issue just by virtue of doing business with affiliate networks like CJ which are headquartered in California.
    In the long run, that might be the best possible outcome. To have a state-by-state dumping of affiliates as sales tax statutes are passed by one state after another is horrible. Merchants are just going to have to realize that they are going to have to collect sales taxes, period. A national scheme would of course be best (that is discussed in other threads) but by bringing in hundreds of merchants at one time by virtue of a major network may be the next best approach.
    Quote Originally Posted by La_Valette
    One can only hope that CJ has a move-to-Nevada contingency plan in place in case these asinine bills aren't struck down...
    Obviously, you've never been to Santa Barbara.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  7. #7
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    Email from Commission Junction
    As you may already know, there are proposed
    California bills that could require the
    collection of sales tax for online purchases
    similar to bills proposed in other states and
    that could resemble the law that recently passed
    in New York State. At this time, a hearing date
    for AB 178 has been set for April 13, 2009. As
    with all laws, if passed, these laws may or may
    not apply to you and your business.

    Commission Junction is headquartered in
    California and impacted by the current California
    budget crisis. Nevertheless, we are opposed to
    the recently proposed legislation and are working
    with a lobbyist and other groups in hopes that we
    can influence the rejection of the bills'
    passage. Rest assured, we recognize that our
    industry and many of our clients may be impacted
    by these bills.

    The application of the bills is dependent on
    particular business and factual circumstances,
    and Commission Junction is not in a position to
    provide legal and tax advice regarding the bills.
    However, we encourage you to perform the
    appropriate due diligence as it relates to your
    business. You may be contacted by advertisers in
    the Commission Junction network as they perform
    their due diligence.

    Additionally, following are two sources of
    information on the proposed California bills that
    you may find helpful:

    http://comm.cj.com/rd4/ck/6516-35332...&e=hme3d66c756
    http://comm.cj.com/rd4/ck/6516-35332...&e=hme3d66c756

    If you feel that you need more counsel on the
    bills, we recommend you seek independent tax and
    legal advice.


    Sincerely,

    Commission Junction
    Hi, I'm a signature.

  8. #8
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    As the bill is initially drafted, it would do exactly as you say: every merchant doing business with CJ would be required to collect sales tax if the total sales tracked through CJ and shipped to a California customer exceed the $10,000 threshhold -- the merchant pays CJ a commission on all sales (not just sales driven by CA affiliates!). Meanwhile, merchants using ShareASale would only be impacted if their CA-resident affiliates trigger the threshhold. I assume this will be corrected with an amendment, in order to get the bill to pass -- otherwise CJ will lose dozens of merchant clients.

    It doesn't stop there: as initially drafted, these bills would impose sales-tax collection duties on tens of thousands of businesses based on their use of Google AdWords, eBay, and probably Yahoo Stores.

    But that's not all! As initially drafted, the bill is NOT restricted to online sales or online marketing: buying ads from "CA resident" newspapers, magazines, TV or radio stations would also trigger the law!

    CJ's letter is necessarily vague because while they fear the worst, they want to keep their options open -- for example, they hope that if the law passes as written, they might persuade the CA FTB that the law doesn't alctually mean what it says (as happened in NY , where the state agency interpreted the law somewhat favorably for many merchants).

    I also concur that it's nearly inconceivable that CJ might move to another state - as noted, Santa Barbara is nicer than any viable location in Nevada, so it's hard to imagine CJ could ever persuade an acceptable % of it's staff to move (to successfully avoid "residency" they could not retain even one employee (not even part-time) in CA. Of course being owned by CA-based ValueClick makes a move even less likely.
    Last edited by Markiphone; March 20th, 2009 at 02:55 AM.

  9. #9
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Quote Originally Posted by Markiphone
    I assume this will be corrected with an amendment, in order to get the bill to pass -- otherwise CJ will lose dozens of merchant clients.
    Why do you think such an amendment would be necessary for passage? So far, no legislator has shown any interest in the residual effects the bill would have on affiliate marketing, and there is no genuine basis to believe they will ever have any such concern. Only if CJ is successful in hiring the "right" lobbyists and provides the "right" incentives will there be a chance in hell of that happening. As it stands, the bill's authors are likely very happy that there is strong belief that the bill will require such widespread tax collection, and care not an iota for the effects on CJ merchants or affiliates.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
    "If you don't have time to do it right, when will you have time to do it over?" -John Wooden;
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  10. #10
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    AffiliateHound, I edited my post while you were writing your reply, to more clearly explain ways the law is vague and overbroad. If the bill were enacted as written, it would be 99% likely that it would be stricken down by any court. The state can't collect any taxes via this law if it's stricken down before ever taking effect.
    Last edited by Markiphone; March 20th, 2009 at 03:04 AM. Reason: Fix errors caused by annoying iPhone keyboard & spellchecker

  11. #11
    ABW Ambassador La_Valette's Avatar
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    Quote Originally Posted by Markiphone
    As the bill is initially drafted, it would do exactly as you say: every merchant doing business with CJ would be required to collect sales tax if the total sales tracked through CJ and shipped to a California customer exceed the $10,000 threshhold -- the merchant pays CJ a commission on all sales (not just sales driven by CA affiliates!). Meanwhile, merchants using ShareASale would only be impacted if their CA-resident affiliates trigger the threshhold. I assume this will be corrected with an amendment, in order to get the bill to pass -- otherwise CJ will lose dozens of merchant clients.

    It doesn't stop there: as initially drafted, these bills would impose sales-tax collection duties on tens of thousands of businesses based on their use of Google AdWords, eBay, and probably Yahoo Stores.

    But that's not all! As initially drafted, the bill is NOT restricted to online sales or online marketing: buying ads from "CA resident" newspapers, magazines, TV or radio stations would also trigger the law!

    This would be an unacceptable and ridiculous situation (not that that would prevent its passage, I know). If other states start doing this, a merchant doing business online could concievably find itself in the situation of having to track and pay taxes to many states on each purchase. For example, what if you do business with an affiliate in New York and an affiliate network (like CJ) or a sales marketplace (like Ebay) in California? Do you owe sales tax to both NY and CA on the same purchases? If so, how much? Do you split it up between the two? If so, how? And how do you track all this stuff? It would be a real nightmare...
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  12. #12
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    Hey CJ! Where were you last May?

    Has to hit close to home to get involved, eh?
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  13. #13
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    But that's not all! As initially drafted, the bill is NOT restricted to online sales or online marketing: buying ads from "CA resident" newspapers, magazines, TV or radio stations would also trigger the law!
    At first I thought you were stretching it a bit far, but after reading it carefully, I think you may be right.

    (5) Any retailer entering into an agreement with a resident of this state under which the 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, if the cumulative gross receipts or sales price from sales by the retailer to customers in this state who are referred pursuant to these agreements is in excess of ten thousand dollars ($10,000) during the preceding four calendar quarterly periods. This paragraph shall not apply if the retailer can demonstrate that the resident with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the commerce clause of the United States Constitution during the four quarterly periods in question.
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  14. #14
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    Quote Originally Posted by La_Valette
    One can only hope that CJ has a move-to-Nevada contingency plan in place in case these asinine bills aren't struck down...
    Have you seen how gorgeous it is in Santa Barbara? They ain't movin' lol

    Motive is also a network in CA (San Diego), but I don't know if there are any others in CA. So I'm definitely interested to learn more about how this might affect them. Not just for merchants dealing with them but for the publishers as well.

  15. #15
    ABW Ambassador La_Valette's Avatar
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    Somebody moved this thread to the CA Affiliates forum. It's miscategorized that way, IMHO. The point here is that if these bills become law, they'll affect all affiliates affiliated with CA-based networks like CJ, not just affiliates based in California.
    Kids, you tried your best and you failed miserably. The lesson is, never try. -- Homer Simpson

  16. #16
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    Quote Originally Posted by Markiphone
    As the bill is initially drafted, it would do exactly as you say: every merchant doing business with CJ would be required to collect sales tax if the total sales tracked through CJ and shipped to a California customer exceed the $10,000 threshhold -- the merchant pays CJ a commission on all sales (not just sales driven by CA affiliates!). Meanwhile, merchants using ShareASale would only be impacted if their CA-resident affiliates trigger the threshhold. I assume this will be corrected with an amendment, in order to get the bill to pass -- otherwise CJ will lose dozens of merchant clients.

    It doesn't stop there: as initially drafted, these bills would impose sales-tax collection duties on tens of thousands of businesses based on their use of Google AdWords, eBay, and probably Yahoo Stores.

    But that's not all! As initially drafted, the bill is NOT restricted to online sales or online marketing: buying ads from "CA resident" newspapers, magazines, TV or radio stations would also trigger the law!

    CJ's letter is necessarily vague because while they fear the worst, they want to keep their options open -- for example, they hope that if the law passes as written, they might persuade the CA FTB that the law doesn't alctually mean what it says (as happened in NY , where the state agency interpreted the law somewhat favorably for many merchants).

    I also concur that it's nearly inconceivable that CJ might move to another state - as noted, Santa Barbara is nicer than any viable location in Nevada, so it's hard to imagine CJ could ever persuade an acceptable % of it's staff to move (to successfully avoid "residency" they could not retain even one employee (not even part-time) in CA. Of course being owned by CA-based ValueClick makes a move even less likely.
    What happens when Nevada starts charging sales tax?

    With the economy in a bad way I think even the Federal Government will add some type of tax to every online sale. California's not the only state in financial trouble and sales tax collection for online sales is inevitable. The affiliates I use already adds sales tax to customers in Utah, Indiana, Missouri, and Washington State.

    Is this bill adding another tax or is it sales tax only. I mean does a customer, who lives in California, have to pay sales tax if he purchases an item through an affiliate link but not if he goes to the site directly?

  17. #17
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    three2one, the New York law and the pending bills in California and other states do not impose any new taxes; instead, they are "enforcement" provisions intended to "clarify" that certain business relationships between out-of-state merchants and California publications will be treated as a "physical presence" or "nexus." (The states are fabricating a "nexus" in direct contradiction to the holding of the U.S. Supreme Court's ruling in Quill v. ND.) If a merchant has a sufficient "nexus" or "physical presence" in a state, then that state can impose its sales-tax-collection laws on that merchant. If there is no sufficient "nexus" nor "physical presence," then the state cannot impose sales-tax-collection requirements on that merchant, according to the U.S. Supreme Court's ruling in Quill.

    I do not understand what you mean when you write, "The affiliates I use already adds sales tax to customers in Utah, Indiana, Missouri, and Washington State."

    It sounds as if you don't understand how "affiliate programs" or "performance-based advertising" work. And I'm certainly not clear on what you mean by "the affiliates I use" -- online consumers don't "use affiliates," they visit web publications and they shop from merchants.

    Your reference to three specific states seems to refer to a specific merchant (not affiliate) which probably has offices, warehouses, or employees in those particular states. Any merchant who employs people in a state or has a sufficient "nexus" with a state will be required to collect sales tax for transactions with that state's residents. It is quite common for large merchants to operate warehouses in 2 or 3 states (for example, Nevada or Utah to serve West-Coast customers, and Indiana or Ohio to serve east-coast customers). Those merchants would collect sales taxes in those states plus any other states where they have offices or employees.

    Any merchant can also choose to collect and remit sales taxes for transactions with a state's residents. Some merchants have agreed to participate in the "Streamlined Sales Tax Project" because the states which participate in that system have simplified their sales-tax laws so that merchants aren't faced with a multi-million-dollar programming project to compute, collect, report, and remit sales taxes to multiple states.

    What is "performance-based advertising" (a.k.a. an "affiliate program")? Since at least the 19th Century, many publications (including newspapers, magazines, radio, TV, and web sites) have accepted advertising where payment is based on the "performance" or "effectiveness" of the advertising, usually based either on the number of responses (consumers visiting a store, redeeming a coupon, or clicking from a web publication to a merchant's online store) or on a percentage of the sales which are tracked as "influenced by" the advertising. Since the mid-1990's, programs that track these relationships between online merchants and web publishers have been widely referred to as "affiliate programs," despite the fact that the dictionary meaning of "affiliate" doesn't correctly describe the relationship here. Likewise, several firms that provide a technology and payment infrastructure for these relationships are referred to as "affiliate networks" even though they are neither "affiliates" nor "networks."

    I think terminology is part of the problem, because most people think of an "affiliate" as something like a TV station which is affiliated with a TV network -- that "affiliate relationship" is very complex and very close, with very tight controls imposed by the network on the TV station.

    Of course a Federal Sales Tax would eliminate most of the problems that now prevent merchants from collecting sales taxes on behalf of many states. If the U.S. government enacted a national sales tax law, the entire system of sales tax collection would be transformed and simplified: a federal law wouldn't force merchants to comply with the varying requirements of more than 5,000 separate tax districts, and probably would impose a single set of tax rates and definitions of taxable or non-taxable goods. It would also provide a single national entity to collect and audit sales-tax collections and payments, instead of many dozens of separate entities, each with different data requirements, paper forms, and audit procedures. Unfortunately, most folks believe that the imposition of a federal sales tax would substantially reduce the amount of revenue that most states receive (the expectation is that the federal government would impose a single tax rate, and would share a percentage of taxes collected within each state -- but Congress often pledges to pay certain amounts but almost always fails to honor its promises, as demonstrated recently by Congress' failure to fund the billions of dollars of spending required by the "No Child Left Behind Act.")

    Finally, Nevada does have a sales tax, but it is generally viewed as a "business-friendly" state, and thus seems less likely to pass an "Amazon Tax" law that would attempt to unconstitutionally extend the enforcement of sales-tax collections to out-of-state merchants who have no genuine "nexus" with the state. (In fact, Nevada has 17 different tax districts, with sales-tax rates that range from 6.5% to 7.75%.)

    As I've mentioned several times, I think it's unlikely that companies would relocate their offices and warehouses simply to avoid a single state's sales tax. However, self-employed web publishers like me are much more likely to move if the state of California passes a law that causes hundreds of online merchants to cease paying California web publishers for advertising!
    Last edited by markwelch; March 28th, 2009 at 07:09 PM.

  18. #18
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    Everyone seems to be mixing up the Nevada Sales Tax and Income Tax. Nevada *has* sales tax, it does *not* have a State Income Tax. Big difference. Lots of people are making that misinterpretation lately.
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  19. #19
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    Hi Mark,

    Thanks for your reply.

    Quote Originally Posted by markwelch
    I do not understand what you mean when you write, "The affiliates I use already adds sales tax to customers in Utah, Indiana, Missouri, and Washington State."
    Sorry I meant Merchants.

    Quote Originally Posted by markwelch
    Finally, Nevada does have a sales tax, but it is generally viewed as a "business-friendly" state, and thus seems less likely to pass an "Amazon Tax" law that would attempt to unconstitutionally extend the enforcement of sales-tax collections to out-of-state merchants who have no genuine "nexus" with the state. (In fact, Nevada has 17 different tax districts, with sales-tax rates that range from 6.5% to 7.75%.)

    As I've mentioned several times, I think it's unlikely that companies would relocate their offices and warehouses simply to avoid a single state's sales tax. However, self-employed web publishers like me are much more likely to move if the state of California passes a law that causes hundreds of online merchants to cease paying California web publishers for advertising!
    I was thinking of incorporating and Nevada sounds like a good place to do that.

    If this bill passes ...

    As an example lets say I have a website called "Bob's Shoes" and my merchant is a "Big-go Shoe Company" in Arizona. A customer from Texas goes to my website and clicks on my Big-go shoe link and then purchases some shoes them. Since my website is located in California does "Big-go Shoes" have to pay California sales tax? If the same customer from Texas simply went to "Big-go Shoes" directly would he still have to pay California sales tax.

    Just wondering and thanks again for your answer.

  20. #20
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    The location of a web server does not create a nexus to require collection of any taxes in connection with transactions which are placed through that server. Thus, in your example, the Arizona merchant accepting an order from a Texas customer using a California web server would NOT be responsible for collecting sales tax, unless the merchant has some "nexus" or physical presence requiring collection of Texas sales tax.

    Sales and use tax almost always apply to the location of delivery or domicile. It can get a bit complex: as a California resident, I must pay a sales or use tax on any car which I purchase for use in California, even if I purchase it in another state. (I cannot register the car in California without doing so.) Someone on this forum noted that he'd purchased an airplane in an adjoining state, and his state of residence later demanded that he pay the use tax for the state where he lived (and I assume where he stored and used the airplane).

    The "Amazon tax" bills do not attempt to force collection of sales or use tax for any transactions where the customer resides in another state and the order is shipped there.

    However, it is important to recognize that if the "Amazon Tax" law triggers a duty to collect sales tax, the merchant must collect for ALL TRANSACTIONS with California residents, NOT just the transactions which were referred by another California resident. Thus, if a merchant sells $10 million worth of merchandise to California residents, and only $10,000 of those orders are referred by California publishers, then the merchant must collect sales tax on the entire $10 million of orders. This is why many merchants choose to expel all California affiliates -- sacrificing $10,000 in saless worthwhile if it eliminates the expense of computing, collecting, reporting, and remitting nearly $1 million in sales taxes (and the costs and risks of an audit by California's Franchise Tax Board).

  21. #21
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    Hi Mark,
    Quote Originally Posted by markwelch
    The location of a web server does not create a nexus to require collection of any taxes in connection with transactions which are placed through that server.
    What happens if I live in California?

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    In your example, it does not matter if you (as the web publisher "referring a customer" to a merchant) live in California.

    California does not (and even if AB 178 is enacted, California will not) seek to collect sales tax on any transactions which are shipped outside California to non-California residents.

    The $10,000 "trigger" that in AB 178 focuses only on sales to Californians which were referred or influenced by California publishers who are paid "any consideration."

    In another discussion thread, I assumed:
    (1) that orders by Californians probably represent 5% to 20% of most merchants' total orders,
    (2) that California-based publishers probably refer 10% to 25% of a merchant's orders tracked through an "affiliate program," and
    (3) that a merchant's affiliate program might represent as little as 1% of sales or as much as 50% or more of all sales.

    It is important to understand the complexity of making this particular computation: the merchant must determine which "referrers" (publishers) are located in California, and which of the orders which were "referred" by those publishers were placed by or sent to California customers. This is actually a fairly complex programming task, which requires drawing special data from multiple databases (usually including one or two third-party databases). Companies like Commission Junction (which provide technology to track transactions and to aggregate payments and earnings for merchants and publishers) actually had to modify their systems when New York passed this law, because previously merchants did not actually know where each publisher was located.

  23. #23
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    Hi Mark,

    Thank you for the information. I really appreciate it.

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