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  1. #1
    ABW Ambassador kse's Avatar
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    Question Can you explain the "nexus" Tax Law to a Canadian in 100 words or less??
    Being a Canadian I have seen alot of post about the "nexus" Tax Law but to be honest I have not been reading or following the new tax Laws but I do know more and more states are adding the law. So can someone please explain this to me in 100 words or less??

    So California just passed the law who is effected?? All California Affiliates?? All California Merchants?? Or is it just when both the affiliate and the merchant are located in California???

    Thanks
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  2. #2
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    Here's a short version for folks outside the USA (just read the last two bullet items if you need a 100-word limit):

    • In the USA, there is no national sales tax or GST.
      Most states (45 out of 50) have sales taxes.
      Each state has its own system for registering a company with the state's sales-tax agency (and for auditing).
      Each state has its own system for computing, reporting, and remitting sales tax to the state.
      Each state may have dozens or hundreds of different sales tax rates (each county, city, and special district might add tax surcharges).
      Local sales tax rates may change multiple times each year, as special surcharges are added or expire.
      Each state has different rules for what products or services are subject to sales tax (some exclude certain foods, some exclude clothing, some exclude services and "intangibles" like ebooks or downloaded software).
      Some states have cooperated to simplify or "streamline" the sales-tax collection process in recent years, but it's still a complicated mess for merchants.
    • Merchants (retailers) in the USA are only required to collect sales tax in states where they have "nexus" (physical presence, such as a store or office, or an employee or agent working in the state).
    • When a consumer buys a taxable item from an out-of-state retailer which does not collect the tax, the customer is legally required to report the transaction and pay the tax*** directly to the state (using a special form, or including the information with the annual state income-tax return). Fewer than 1% of consumers ever report or pay. These consumers' tax evasion costs the states several billion dollars yearly in lost tax revenue.
    • To improve sales-tax collections, some states have enacted "Advertising-Nexus" laws*, which assert that performance-based advertising relationships (affiliate programs) trigger "nexus." The laws say that if an out-of-state merchant pays any person** in the state for advertising on a web site, based on sales, then the in-state person is deemed an "agent" of the company, so that the company has "nexus."
    • To avoid "nexus," companies are terminating their performance-based advertising relationships with in-state persons (affiliates), in states which have enacted "Advertising-Nexus" laws.


    */ Most legal analysts agree that these "Advertising-Nexus" laws are actually unconstitutional, because of a legal precedent in the U.S. Supreme Court's Quill case. However, states are legally able to enforce laws until a court actually rules that the specific law is invalid and orders the state to stop enforcing the law, and it takes several years before a final appellate court ruling.

    **/ In the USA, the word "person" legally includes human beings and business entities.

    ***/ Some states use different words for their sales tax, and some states use a different name for the tax paid by the consumer directly to the state. Thus, you'll encounter terms like "excise tax" and "use tax," which are just different words for sales tax.
    Last edited by markwelch; July 1st, 2011 at 10:28 AM.


  3. #3
    ABW Ambassador kse's Avatar
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    Thanks, That helps explain the problems but now I have more questions:

    1) So if an state adds this law then how come some merchants drops all affiliates in that state and other merchants do not drop all affiliates who live in that state??

    2) I have read here that some big merchants are moving from states that pass this law, Why?? I am under the impression this only effects affiliates who live the the effected state(s)

    Sorry for all the questions.......
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  4. #4
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    Quote Originally Posted by kse View Post
    Thanks, That helps explain the problems but now I have more questions:

    1) So if an state adds this law then how come some merchants drops all affiliates in that state and other merchants do not drop all affiliates who live in that state??
    Merchants who already collect sales tax for that state have no reason to terminate their advertising relationships with publishers in that state.

    Merchants who do not collect sales tax might choose to terminate their relationships with publishers in the state, to avoid the law's impact; or small merchants may not reach the sales threshholds specified in some states' laws (e.g. $10,000) for sales into that state; or some merchants adopt the view that since these laws are unconstitutional, they will simply ignore them. Some other merchants simply aren't aware of the issue, and a few might deliberately choose to violate the law.

    2) I have read here that some big merchants are moving from states that pass this law, Why?? I am under the impression this only effects affiliates who live the the effected state(s)

    Sorry for all the questions.......
    Advertisers (merchants) are not moving -- publishers (affiliates) are moving.

    Merchants have to collect sales tax for the state where their business is located. Sometimes merchants move from one state to another (for example, from California to Nevada) so that they can avoid this requirement for the state they leave, but that's not the issue right now.

    Publishers like me are faced with a difficult choice: stay here in California (and lose advertising revenue from Amazon and other out-of-state advertisers who must exclude Californians from their "affiliate programs" in order to avoid this law's impact), or relocate to another state so I can continue to participate. Some larger publishers have moved; for example, FatWallet moved (with its 50 jobs) from northern Illinois into southern Wisconsin after Illinois enacted a similar law.

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  6. #5
    ABW Ambassador kse's Avatar
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    Thanks Mark, that answers all my question. The Tax system in Canada is so much easier to follow.

    I think I was thinking of FatWallet as my example of a merchant that moved but as you point out they are an affiliate and not a merchant.

    Thanks again
    Kevin.......
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  7. #6
    Full Member gcarson's Avatar
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    Mark, as always, thanks for the well thought out response.

    KSE, its amazing how few people understand what it is, even affiliates. I was speaking with an affiliate yesterday who was saying how unfair it is that California is trying to tax affiliates. What? California isn't trying to tax affiliates. He then says that they are trying to tax Amazon. California isn't trying to tax Amazon.

    California is trying to force Amazon and other merchants with no physical presence in the state to collect sales tax that its residents don't pay each year. We can argue whether or not sales tax should be paid on items purchased from a retailer with no presence in the state. As far as I know (which is very limited), I have to pay state sales tax on items I purchase from retailers who have no physical presence in my state. The retailers aren't forced to collect and make the payment so I'm required to make the payment on my tax returns. I like 99.9999% of people, do not make the payment, unless of course I was to be audited.

    But that's not my point. My point is.. too many people have no clue about nexus, etc. They just think Amazon isn't paying its fair share of taxes or that California is trying to tax extra, etc etc.

    Additional stuff from Amazon

    Effect of the Internet Tax Freedom Act
    Companies selling over the Internet are subject to the same sales tax collection requirements as any other retailers. Remote sellers (including Internet retailers and catalog companies) are generally required to collect taxes where they have a physical selling presence. If they do not have any such presence, they are not required to collect sales taxes.

    The Internet Tax Freedom Act (ITFA) has been renewed through November 1, 2014.

    Please note, the ITFA was primarily intended to prevent state and local governments from imposing new or discriminatory taxes on Internet transactions and on Internet access. Despite the name of the Act, ITFA does not preclude state and local governments from imposing existing sales tax collection requirements on companies selling over the Internet.
    Sorry, just wanted to bring up one more point this person then made after I shot down his first two arguments. He then said, why do we have to pay taxes on purchases made through Amazon? Amazon doesn't use the roads, water, fire, etc. And I explained, true, they probably don't but those citizens surely do.
    Last edited by gcarson; July 1st, 2011 at 03:54 PM.

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  9. #7
    Outsourced Program Manager Sarah Bundy's Avatar
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    Hey guys, I'm also in Canada and have been pretty confused about this. I know this is a REALLY obvious question for some and I'm going to put myself out on a limb looking a bit dumb here, but I have one more question (since again, this doesn't affect Canadians, I have no idea):

    How does the tax get collected during the transaction? Or does it? for example, if the tax rate is 8.65%, does that tax get changed to the customer during the transaction on the site or does the merchant pay an additional 8.65% on all sales later, whether they collected it or not, or does it get subtracted from the affiliate commission, which is why they are getting hurt? Sorry, I know it's lame, but need a visual or step by step process form a transaction side to understand this better....

    thanks!

    Sarah

  10. #8
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    Quote Originally Posted by Sarah Bundy View Post
    Hey guys, I'm also in Canada and have been pretty confused about this. I know this is a REALLY obvious question for some and I'm going to put myself out on a limb looking a bit dumb here, but I have one more question (since again, this doesn't affect Canadians, I have no idea):

    How does the tax get collected during the transaction? Or does it? for example, if the tax rate is 8.65%, does that tax get changed to the customer during the transaction on the site or does the merchant pay an additional 8.65% on all sales later, whether they collected it or not, or does it get subtracted from the affiliate commission, which is why they are getting hurt? Sorry, I know it's lame, but need a visual or step by step process form a transaction side to understand this better....

    thanks!

    Sarah
    The merchant is required to add the tax on to the purchase price and collect it from the customer. If a merchant fails to do so, and is caught by the taxing authority, the merchant will not only have to pay the tax itself, but will be subject to penalties, interest, and possible criminal charges.

    The tax does not effect commissions. Affiliates are "hurt" because substantial numbers of merchants have taken the position that they will not charge and collect and report the tax, but rather take the escape route of terminating their affiliates who reside in the taxing state. Thus, in CA for example, as the governor prepared to sign the bill into law, Amazon, Overstock, CSN, and others sent termination notices to 25,000 Ca affiliate marketers.
    Since June 10, 2012 a vegan aarf but still writing the Hound Dawg Sports Blog
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  11. #9
    Outsourced Program Manager Sarah Bundy's Avatar
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    Quote Originally Posted by AffiliateHound View Post
    The merchant is required to add the tax on to the purchase price and collect it from the customer. If a merchant fails to do so, and is caught by the taxing authority, the merchant will not only have to pay the tax itself, but will be subject to penalties, interest, and possible criminal charges.
    Thanks, AH, I finally understand. One question though that applies to most of our programs, again since we're in Canada, if the merchant is IN Canada, can the US government still enforce this law, since the merchant is not a resident of the country? That would mean all Canadian based merchants selling in the US would be able to include all affiliates no matter their location because the tax would not apply to them. Is that true?

    Thanks,

  12. #10
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    Hi Affiliatehound,

    Sarah and I are trying to determine if our Canadian merchant needs to collect the sales tax and remit? I don't know how the tax authorities are going to enforce the law on Canadian merchants, any ideas or thoughts?

    Thanks!
    Iain

  13. #11
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    I did not think that Canadian merchants had to comply, but I was terminated by two Canadian-based merchants that I had counted on to replace some of the others.
    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;
    "Raj, there’s no place for truth on the internet." -Howard Wolowitz[/SIZE]

  14. #12
    Super Dawg Member Phil Kaufman aka AffiliateHound's Avatar
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    I think Canadian merchants should consult with a local tax attorney familiar with international taxation laws and treaties that might impact such laws.
    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;
    "Raj, there’s no place for truth on the internet." -Howard Wolowitz[/SIZE]

  15. #13
    Outsourced Program Manager
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    Thanks for your thoughts. Probably best to consult a tax authority this side of the border. Cheers
    Iain

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