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March 24th, 2012, 09:51 AM #1
The War on Affiliate Marketers
- Join Date
- March 4th, 2012
From the International Council of Shopping Centers, donor to your local politicians..
Affiliate Nexus and the Sales Tax Fairness Effort
What Is Affiliate Nexus?
In 1992 the Supreme Court ruled (Quill Corporation v. North Dakota) that Internet and catalog
retailers should be exempt from collecting sales taxes unless they have a physical presence (or
nexus), such as a store or warehouse, in the purchaser’s state. Affiliate nexus legislation
essentially expands the meaning of “nexus” from a simple physical presence to both a physical
and affiliate presence.
Affiliate programs set up by large online retailers are business relationships with third-party
entities, such as small retailers that sell products through the online retailer, charities that use
online retailers to assist with fundraising, and other businesses that are compensated for driving
traffic back to the online retailer’s website. Amazon is one of the largest online retailers that
relies on the affiliate business structure, which is why these bills are often called “Amazon
Laws.” In a state that has passed an affiliate nexus law, an online retailer with affiliates would
need to either begin collecting sales tax on purchases made by residents in the state or cut off
all relationships with affiliates in the state to avoid the collection obligation.
Why Has Affiliate Nexus Become A Recent State Legislative Trend?
There are two main reasons why states are considering affiliate nexus bills: 1) Certain states do
not want to undertake the difficult changes needed to comply with the Streamlined Sales and
Use Tax Agreement (SSTUA). 2) States that have streamlined their sales tax codes are getting
tired of waiting for Congress to pass the Main Street Fairness Act. In the current economic
environment, states are especially eager to collect this outstanding revenue.
The Status Of Affiliate Nexus In The States
In 2008, New York was the first state to pass affiliate nexus legislation. Many online retailers
ended their affiliate programs and cut off businesses in the state, however, Amazon has
continued its program so that it can challenge the law’s constitutionality in the courts. While the
state had estimated that it would receive $50 million, the National Conference of State
Legislatures estimates that the actual collection may be between $9 and $12 million.
Rhode Island, North Carolina and Colorado have since passed affiliate nexus legislation. In
each of those states, online retailers ended their affiliate programs. As a result of the economic
damage caused by affiliate programs ending, several legislators in Rhode Island have
suggested repealing the law. So far this year, Illinois and Mississippi are considering affiliate
nexus bills. In Illinois, the bill has passed both chambers and is awaiting Gov. Pat Quinn’s
Limitations Of Affiliate Nexus
Affiliate nexus laws only target large online retailers such as Amazon, Overstock and Blue Nile.
They do not include small online retailers and sales made via catalogue or telephone. As a
result, many critics accuse it of being merely a shortcut with limited benefits to in-state
businesses and no long-term revenue or growth opportunities for the states. There is also
disagreement in the legal community concerning the constitutionality of these laws.
Benefits Of Affiliate Nexus
It is much easier to pass than SSTUA-conforming legislation, especially in states that have
significant complications in complying with SSTUA. It also puts pressure on large online
retailers to be more actively engaged in promoting SSTUA in the states and the Main Street
Fairness Act federally.
It appears that the ICSC believes that getting affiliate marketers (including charities) fired helps put pressure on online retailers to push the federal legislation.
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