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  1. #1
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    Unhappy Affiliate Tax Bill Sends Jobs Overseas
    Has anyone demonstrated how affiliate marketing is a referral transaction that is not geographically bound. Meaning, overseas providers (not subject to our taxation) can just as easily do what affiliate marketers provide.

    Because they would not be bound by our tax laws, but still could handle the referral transaction, it would be more advantages to setup off-shore to avoid new affiliate tax laws all together.

    As small US based affiliates shutdown (or are excluded), overseas providers would take up ground eliminating any local revenue produced through affiliate marketing. Larger companies who already have overseas data centers would follow.

    Why start up in the United States when in many states your affiliates, independent sales representatives, and other marketing channels would be burdened? Any affiliate tax, due to the nature of technology would impact jobs in the United States.

    Build this case and every affiliate can contact their local representatives to make this a federal issue, and an issue to enforce standing laws on interstate trade.

    Having affiliates pay local state and federal income tax is enough (and maintains a national competitive advantage.)

    Respectfully submitted,

    Justin Hitt
    Publisher / Affiliate Marketer / Affiliate Manager
    [i]Always interested in great B2B affiliate programs that serve Sales and Marketing professionals. Private message if you have something.[/i]

  2. #2
    OPM and Moderator Chuck Hamrick's Avatar
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    Buying groceries sends jobs offshore. States looking for tax revenue could care less about where the sales are initiated from. They simply are looking for more tax revenue. Affiliates are not an identifiable job classification and I don't think New York was intentionally targeting online affiliate but more the general term affiliate: http://www.merriam-webster.com/dictionary/affiliate

    I don't hear that small US based affiliates are shutting down, they are changing their business to adapt to a change in the business climate. If eBay or Amazon end their affiliate programs it doesn't mean the end of affiliate marketing. I don't hear the Big 4 networks lamenting about the tax issue. Haven't heard of any merchants going out of business due solely to their affiliate program.

    We clearly saw gambling and hedge funds take their servers offshore but that was due to federal legislation. It is a tragedy that some merchants chose to shut down their affiliates in certain states but I believe they did this while fighting the law. I hope that one day the New York Internet Tax is repealed for affiliates and Overstock opens their program there again.

  3. #3
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    I agree that with so many states proposing "Amazon tax" laws that recharacterize advertising payments to in-state web publishers as "physical presence" by the merchant, non-US web publishers will definitely be better positioned to profit from performance-based advertising. But they will only be "better positioned" compared to their current position, not when compared to US-based publishers in states without "Amazon tax" laws.

    If merchants choose to terminate or reject performance-based advertising relationships with residents of specific states (NY today, perhaps adding CA, HI, CT, MN, TN, and/or other states this year), it leaves more opportunity for web publishers who are located outside those states -- whether they live in states and territories with no sales tax, or outside the US. This may actually lead certain merchants to seek more relationships with non-US web publishers, and perhaps some merchants who currently exclude affiliates from certain countries will re-consider and begin working with affiliates in those countries to try to regain any lost advertising exposure.

    However, I don't think these laws will have any significant, measurable impact on the existing trend toward more "cross-border" relationships between merchants/advertisers and publishers/affiliates. There are a lot more people outside the US than inside the US, and even for merchants and markets where the customers are mostly US-based, the increase in English-literacy and internet savvy by non-US workers is already shifting traffic and revenue to "offshore" businesses (web development, server management, web hosting, content writing, PPC management, publishing, SEO, etc.).

    I'm sure that there are a few web publishers who might decide that if they must move out of California or another state (in order to maintain their business relationships with specific advertisers), then they would move to another country -- but I think this is a relatively rare exception, even among the small group of affiliates who may choose to move.

  4. #4
    OPM and Moderator Chuck Hamrick's Avatar
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    Technically an affiliate can create a legal entity in the Bahamas or Canada and have their checks sent to a clearing house there. We have caught several Chinese affiliates doing this through agencies in California acting as US citizens. Ultimately its fraud if caught.

  5. #5
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    Justin,

    I agree strongly with your points. Affiliates in states with the "Amazon Tax" will be disadvantaged vis a vis affiliates in other states and in other countries.

    Although these bills are not intended to harm small businesses or force jobs out of state, they already have, as we saw in New York.
    Brook Schaaf
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  6. #6
    Analytics Dude Kevin's Avatar
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    I don't hear the Big 4 networks lamenting about the tax issue.
    CJ is bricking pretty hard right now.
    Kevin Webster
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    Kayak Fishing
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  7. #7
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    Quote Originally Posted by Chuck Hamrick

    I don't hear that small US based affiliates are shutting down, they are changing their business to adapt to a change in the business climate. If eBay or Amazon end their affiliate programs it doesn't mean the end of affiliate marketing. I don't hear the Big 4 networks lamenting about the tax issue. Haven't heard of any merchants going out of business due solely to their affiliate program.
    Chuck, I think you haven't been paying attention. *Many* affiliates have "gone out of business" and yes the Big 4 Networks are *all* paying attention. The only one I haven't heard from on this issue is Linkshare. Additionaly, OPMs are now being drawn into this issue as creating nexus. The networks are talking seriously about this issue beginning to affect the affiliate marketing business as we know it. And yes, merchants are going out of business.

    They aren't going "offshore" but there are *a lot* of people that are suddenly worried about losing their entire businesses. Some are not small businesses.
    Deborah Carney
    TeamLoxly.com BookGoodies.com ABCsPlus.com

  8. #8
    OPM and Moderator Chuck Hamrick's Avatar
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    Merchants are going out of business because the economy is tanking. Poorly managed or no managed programs close down all the time. Show me a thread where a long standing affiliate is going out of business because of the New York tax nexus. This is the first I heard of an OPM being a nexus, where is that written into the law.

    I will tell you right now that I consider the state tax issues to be significant but I do not buy that affiliate marketing is dead. I also do not believe that affiliates need to run and hide or move out of state let alone out of the country.

    Where were the networks at the New York tax discussion in Boston? Where are the network reps on ABW? A press release is not doing something. Point me to all these threads, I'll read them and it will shut me up for a while.

  9. #9
    Analytics Dude Kevin's Avatar
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    Whether or not the networks were in Boston or here at ABW is irrelevant in my opinion.

    CJ has stated in a letter (email) that they definitely feel threatened by the CA legislation.

    What I can't figure out from your posts, Chuck, is whether or not you ACTUALLY feel this is a big deal or not. On one hand, you seem to feel people aren't doing enough, yet on the other you seem to feel that noone is being hurt or run out of business.

    I promise you, both have happened.

    Switching merchants is not always a quick enough fix to keep an affiliate going. I've stated many times here that those that think that the percentage of merchants dropping affiliates is what the crux of the issue is. It simply isn't. There are scenarios that develop that make even 1% too high a number.

    A virtual presence does not equal a nexus. Period. It's a disgusting perversion of tax law, guised under "keeping up with the times".

    While you (or anyone) is free to state that they don't care about it, or it's not a big deal, or it seems OK to them, I think it shows a fundamental misunderstanding of both the problem, and the premise on which this country of ours was founded.

    As far as the States that are enacting this kind of legislation to bridge budget gaps: Grow a pair, trim your budgets, get rid of the fraud in welfare and medical claims, and THEN you can come screw with my business.

    Until then, keep your ugly, dirty, misguided hands out of my wallet.
    Kevin Webster
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  10. #10
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    Chuck, look at the threads in the tax law forums that have been started over the past week. Check your inbox for emails from CJ. GAN and SAS. Go to the OPM forum. IF you still aren't "seeing it" get me on Yahoo early today or later tonight (going back to SES this afternoon).
    Deborah Carney
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  11. #11
    OPM and Moderator Chuck Hamrick's Avatar
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    A virtual presence does not equal a nexus. Period. It's a disgusting perversion of tax law, guised under "keeping up with the times".

    While you (or anyone) is free to state that they don't care about it, or it's not a big deal, or it seems OK to them, I think it shows a fundamental misunderstanding of both the problem, and the premise on which this country of ours was founded.

    As far as the States that are enacting this kind of legislation to bridge budget gaps: Grow a pair, trim your budgets, get rid of the fraud in welfare and medical claims, and THEN you can come screw with my business.

    Until then, keep your ugly, dirty, misguided hands out of my wallet.
    Couldn't agree more and affiliates should be at the fore front of the effort in their state to get the nexus language out of these bills. Do you suggest that affiliates with merchants in states that have bills in legislation should contact those merchants and networks to ask what their intent will be once the law is enacted?

    Once again I will state that I am not making light of this situation. What I am looking for are effective recommendations for affiliates and now OPM's. I got the email that CJ/GAN are working with a lobbyist/legislatures. Also know that Brian @ SAS is working hands on with his states legislature. But where were they when New York proposed the law?

  12. #12
    ShareASale President/CEO and ABW Veteran Brian - ShareASale's Avatar
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    Quote Originally Posted by Chuck Hamrick
    Also know that Brian @ SAS is working hands on with his states legislature. But where were they when New York proposed the law?
    For the most part, people in the individual states should be the ones contacting and talking with their state level legislators. They are being represented, etc... Out of state companies aren't represented by these in-state legislators so there isn't much regarding direct communication that will be effective.

    The best you can do in these cases where the laws are in states that don't affect you is to help those people who are taking action within that state. Help find them contacts, ideas, etc... We all know a ton of people and spreading out the net, so to speak, to find out who can help is a help in itself.

    I believe that everyone, no matter what state they are in, can help here by simply contacting their local representative and discussing the topic with them. Explain how it has had a negative effect in every other state, and why it would be a bad road to go down, etc... Point out to them how hurtful it has been to local businesses in other states, etc...
    Thanks,

    Brian Littleton
    President/CEO - ShareASale.com, Inc.

  13. #13
    OPM and Moderator Chuck Hamrick's Avatar
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    Thanks Brian for the post and the email with some solid solutions. Being Utah I have not heard that they are considering this. One thing unique about Utah is there are tons of MLM companies headquartered here and these laws would significantly effect them.

    I am going to start networking here to see what is in play and to get the word out that laws like this can actually take state income tax away. If Amazon, Ebay and Overstock removed all NY affiliates and are still not charging sales tax, how much did NY lose in state income tax from those affiliates?

  14. #14
    ShareASale President/CEO and ABW Veteran Brian - ShareASale's Avatar
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    One other thing you can tell your local representative...

    If a company in Utah, is declared to have nexus in the state of California for example... just for having advertisers there....

    They would now owe income tax to the State of California. This income tax would be based on a portion of their income.... This is money that should 100% be going to the State of Utah, that will now have a portion being sent to the State of California.

    Nexus isn't just about sales tax.... income tax will be affected next if not now.

    Think of it as a parasite, with the Utah business as the host, and the State of California taking a portion of income tax that won't belong to them.
    Thanks,

    Brian Littleton
    President/CEO - ShareASale.com, Inc.

  15. #15
    Outsourced Program Manager Jorge - SHOPiMAR's Avatar
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    Quote Originally Posted by Chuck Hamrick
    This is the first I heard of an OPM being a nexus, where is that written into the law
    Never heard of that one either. OPMs do not earn commissions based on sales from consumers on the merchants or even based on affiliates.

  16. #16
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    Quote Originally Posted by Jorge - JRami
    Never heard of that one either. OPMs do not earn commissions based on sales from consumers on the merchants or even based on affiliates.
    If you are charging your merchants based on the commissions earned by affiliates or on the gross sales of the affiliate program, yes you are. Some OPM firms do, some don't.
    Deborah Carney
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  17. #17
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    As Loxly notes, there are some OPMs who charge a fee based on performance (essentially a commission), usually with a minimum fee also; other OPMs charge a more traditional flat fee or fee-for-services (hourly, monthly, whatever).

    Assuming that the OPM does NOT charge on any kind of "pay for performance" basis, and does NOT actually refer any customers, then the OPM would probably not be impacted by this law (that's not a legal opinion; these laws are so overbroad and vague that it wouldn't surprise me to later find a state asserting a "nexus" arising from such a relationship).

  18. #18
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    If the interpretation of the language includes agencies / OPMs collecting a % of the revenue generated from merchandise sales--it will also apply to the Affiliate and CPA networks that also collect fees based on a percentage of revenue.

    I've read that this is not the case or the intention of the laws being proposed. Nonetheless--as Mark points out: the language is broad enough that these relationships with merchants might be leveraged to establish nexus.

  19. #19
    OPM and Moderator Chuck Hamrick's Avatar
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    Talked to our CFO and he agrees that if you are working on a performance based agreement it is considered a commission. That said I still stand by the fact that a state would have to figure out all these relationships. With their level of sophistication I just don't see it happening. They still need to get the sale tax from the merchant who resides out of state. Are the networks being audited by the state?

  20. #20
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    Mellie asked the question directly to the states and they said yes, OPMs are included. Unless I misunderstood what she said. She had a busy day so hopefully later or tomorrow she can pop in.
    Deborah Carney
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  21. #21
    ABW Ambassador simcat's Avatar
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    Am I missing something...???

    Lawmakers are pushing these 'nexus' type bills in order to collect online sales taxes, right?.

    Do they understand that when the merchant dumps their affiliates because of this legislation, the nexus will be gone and they still won't be collecting that sales tax revenue!?!

  22. #22
    ShareASale President/CEO and ABW Veteran Brian - ShareASale's Avatar
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    That's pretty much what we are trying to explain to them. If you can get that point across to your local lawmaker that would be a definite help.
    Thanks,

    Brian Littleton
    President/CEO - ShareASale.com, Inc.

  23. #23
    ABW Ambassador simcat's Avatar
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    right!
    Do they care anything about a small (tiny?) % of people (successful affiliates), their 'jobs' or even the income tax they pay. Doubt it.

    I think the bottom line $ is the only thing that will get their attention.

  24. #24
    ShareASale President/CEO and ABW Veteran Brian - ShareASale's Avatar
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    simcat,

    This has the potential to affect a lot more people than just the affiliate industry.

    New bills have language in them such as ... "any representative that indirectly or directly refers potential customers to a retailer, by either internet link or otherwise".

    In other words - it affects any form of online advertising and perhaps more than that. Any advertising. Ad networks, agencies, OPMs, affiliates, anybody with a website, etc.. etc...

    They only way you'll find out if your rep will listen is to call him/her. Usually those offices will get back to you within 24-48 hours.
    Thanks,

    Brian Littleton
    President/CEO - ShareASale.com, Inc.

  25. #25
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    Chuck,

    The issue about enforcement of the tax collection is that merchants don't seem willing to risk it. They just drop the relationship--as what we saw in NY with affiliates. Instead of affiliates, these merchants would, potentially, drop networks, OPMs, agencies, etc. to avoid nexus.

    Many businesses will go to great lengths to avoid nexus in certain states. I think we need to highlight this response when talking with state representatives. The merchants' likely response (severing relationships) leaves the states in the same situation that exists today: failing to collect the sales tax they already consider due. In their mind, it is right and necessary to pursue the revenue. We want them to understand this approach won't reap the reward they are expecting.

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