THUD! Did Congress hear that?

June 30, 2011

Yesterday California passed legislation requiring any out-of-state retailer with an affiliate in California (or warehouse/drop-shipper, or any other physical or economic presence)  to collect California’s sales tax. It’s the seventh state to enact affiliate nexus legislation, after New York, North Carolina, Rhode Island, Connecticut, Illinois, and Arkansas.

This is a signficant move, but unfortunately it’s the wrong one. As a result of this legislation, affiliates face either losing their income or moving out of the state. In fact, in less than 24 hours, Amazon and Overstock have already ended their affiliate programs in California, just as they did in the other states when they passed similar legislation.

A better option is still available for California by simply joining the Streamlined Sales and Use Tax Agreement and urging Congress to enact federal legislation such as the much anticipated the Main Street Fairness Act (or MSFA). Enactment of the MSFA will enable the states to repeal affiliate nexus laws, and in so doing, restore a significant revenue source for many of their smallest businesses, while also gaining the legitimate authority to collect significantly more revenue.

So, the good news is that as the eighth largest economy in the world, California attracts a lot of attention. There’s a reason for the saying “As goes California, so goes the nation.” Congress cannot possibly ignore the message that California is sending: states want and need federal legislation allowing them to require out-of-state retailers to collect sales tax.

But if anyone in Congress is still wondering if this is matters in their district, here is a small portion of the local news websites  that have published the news that Amazon has dropped its California affiliates (not including California sites):

We are confident that with California’s bold statement, Congress will acknowledge the unmistakable THUD heard ’round the country yesterday. California’s legislation is just the latest plea from states that federal legislation regarding online sales tax collection is absolutely necessary. It’s time for Congress to act.

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CNBC’s Maria Bartiromo covers the “Internet Sales Tax Showdown”

June 21, 2011
CNBC: Internet Sales Tax Showdown

CNBC: Internet Sales Tax Showdown - MONDAY, 20 JUNE 2011 @ 04:15 PM ET

Maria Bartiromo sits down with Curtis Dubay and Michael Mazerov

Maria Bartiromo sits down with Curtis Dubay of the Heritage Foundation, and Michael Mazerov from the Center on Budget & Policy Priorities, to discuss whether imposing an online sales tax is the right move to make for states that are in need of revenue.

Yesterday, immediately following the closing bell in New York, CNBC’s Maria Bartiromo interviewed Curtis Dubay of the Heritage Foundation and Michael Mazerov from the Center on Budget and Policy Priorities on whether collecting sales tax online is the right move for states that are in need of revenue.

Ms. Bartiromo initiated the questioning:

Collectively, states are facing a fiscal budget shortfall of $130B according to the Center on Budget and Policy Priorities, and requiring online-only retailers to tax their sales, particularly in states where they don’t have a legal presence, could generate a much needed $10B according to a study by the University of Tennessee. Not everybody believes is the right solution to solving the states fiscal problems. The Heritage Foundation Senior Policy Analyst Curtis Dubay says “such attacks won’t raise any revenue.” Michael Mazerov a Senior Fellow from the Center on Budget & Policy Priorities says “states need the revenue, and should collect it to plug the holes.”

Mr. Dubay then started off:

Rather than nickel and dimeing their already over-taxed citizens with more taxes, states should be focused on cutting their spending. . . No amount of tax increases can bail them out of their profligacy.

As our regular readers already know, nobody in this debate is suggesting any new taxes, or any tax increases! We hate it when people suggest such nonsense. Fortunately, Mr. Mazerov is no stranger to this subject, and he quickly set the record straight:

Well this isn’t a tax increase. Everything you buy on the internet is subject to tax, and has already been subject to tax. All we’re really talking about here is changing the law so that companies like Amazon and Overstock have to collect the same tax that every store on Main Street has to collect. . . Internet sales are already subject to tax in every state [that collects sales tax]. If the seller doesn’t collect it from you, you have to pay it yourself directly to your state. It’s not a new tax. It’s not a tax increase.

Well put, Mr. Mazerov! On the estimates that states could collect between $10B and $23B and how states may consider this revenue significant in light of the many budget cuts they have already made or are planning to make, Mr. Mazerov continued:

States have been making huge cuts, and $10B isn’t going to offset a very large share of what they’ve been forced to [cut] already. But it is a significant amount of revenue, and it could be the difference for whether kids have a summer school program in a certain state, or whether tuition goes up at the community college by only 5% rather than 10%. So it’s definitely worth doing. Nobody says this is going to solve the fiscal problems of the states, but it can help.

Smartly, Mr. Dubay agreed, but then he quickly went on to try and argue once again that this is a new tax:

Well he’s right, residents are required to file use taxes, but the fact remains this would be, uh, kind-of a new tax.

No, Mr. Dubay. Mr. Mazerov is correct and you are not. This is not “kind-of a new tax.”

Mr. Dubay went on to describe how states that have been enacting the affiliate nexus laws have been seeing companies like Amazon and Overstock terminate their affiliate relationships in those states, with the result that the state not only doesn’t gain any meaningful revenue, it actually loses revenue when the jobs created by those relationships go away. In response, Mr. Mazerov quickly pointed out that:

. . . the states basically have to stick together to solve this problem. The best solution is not at the state level. The best solution is at the federal level.

We strongly suggest you go and check out the the video yourself—and we look forward to introduction of the Main Street Fairness Act (very soon!), which will finally address this problem at the federal level, as Mr. Mazerov and many, many others have suggested.

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Amazon ends affiliate relationships in Connecticut

June 10, 2011
Stamford Advocate

Stamford Advocate: Amazon ending business relations in Connecticut

An article in the Stamford Advocate (CT) reveals that Amazon has joined Overstock in ending its affiliate relationships in Connecticut in response to a Connecticut law requiring online retailers with affiliates in the state to collect sales tax.

The move wasn’t unexpected—Amazon has ended its affiliate program in nearly every state with an affiliate nexus law, and Overstock did the same over two weeks ago. But we are sad to see it happen. Many small businesses rely on income from affiliate programs:

A [Stamford Advocate] reader, Jim Cameron, sells books through his website “CT Yankee Books”, forwarded the email [from Amazon terminating his affiliate contract] to Hearst Connecticut Newspapers.

Cameron said in his email, “For a few years now I’ve had a hobby of collecting and re-selling old books online. Today, I was put out of business.”

It’s particularly unfortunate because there is a much better solution for states, affiliates, and retailers: federal legislation in the form of the Main Street Fairness Act.

The Main Street Fairness Act would let states require online retailers to collect sales tax, as long as the state has adopted sales tax simplification measures that make it easy for retailers to collect sales tax in multiple states. It would solve the problem of uncollected sales tax for states without targeting retailers that use affiliate programs—so those affiliate programs would remain in place.

Only federal legislation will give states another solution and put an end to affiliate nexus legislation. We hope Congress is listening.

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BNET column looks at economics and politics of online sales tax

June 8, 2011

Earlier today, a column on BNET (CBS’s business website) offered an insightful look at the economic and politic realities of online sales tax. The author believes those realities are favorable for the Main Street Fairness Act:

But with states and municipalities across the country facing enormous fiscal challenges, a measure that raises revenue while also leveling the competitive playing field may now find stronger support in Congress.

With this caveat:

That said, the politics surrounding Durbin’s bills are complex. It pits politically wired online giants against even bigger, more powerful offline retailers. The measure is also likely to face opposition from anti-tax lawmakers who falsely label it as an additional burden on business.

The author cites the figures in a University of Tennessee study to illustrate just how much exempting online retailers from collecting sales tax is costing states:

A landmark 2009 study by University of Tennessee researchers projected that over a six-year period through 2012, failing to collect taxes from e-commerce companies would cost state and local governments a total of more than $52 billion.

However, there are problems with the efforts made by individual states to get online retailers to collect sales tax. In particular, the author offers this argument against affiliate nexus legislation of the sort just passed by California’s Assembly:

They result in a patchwork of state tax laws, arguably raising compliance costs. Worse, it allows online retailers to play states off each other by threatening to leave the ones that are weighing such laws.

The better solution? Federal legislation such as the Main Street Fairness Act:

Federal legislation . . . is the only way to ensure a uniform Internet sales tax. There’s no reason that online retailers that benefit from soliciting customers in a state shouldn’t pay local sales tax. That hurts competition, and it deprives states of essential revenue that they are already legally entitled to collect from traditional merchants.

We must point out the slight misstatement here—the author likely intended the word collect rather than pay. This little slip-up suggests that online retailers would pay local sales tax, when actually the online retailer would simply collect the sales tax from their customer, based upon their customer’s local jurisdiction.

It’s an interesting column from a business perspective, and we suggest you head over to BNET to read the entire thing.

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California is on fire (for sales tax)!

June 2, 2011

Earlier today the California Assembly passed AB 153, the so-called “affiliate nexus” legislation. This development comes on the immediate heels of the Assembly’s approval yesterday of AB 155.

To review:

AB 153 would require any out-of-state retailer to collect California sales tax if that retailer pays click-through commissions  to any California business in excess of  $10,000 $500,000  annually (note: revised upward 3 days ago). AB 153, if approved by the State Senate and signed by Governor Brown, will mandate that any website link advertisement (where compensation is paid if a sale is completed) is the legal equivalent to a door-to-door salesperson—invoking the sales tax collection obligation provisions of the Supreme Court’s 1992 Quill decision.

As many of our regular readers know, many web-based businesses regularly display commission-bearing advertisements on their websites. Perhaps more troubling than the typical “Amazon.com” affiliate relationships that have been in the news so much lately, consider the possible impact of this legislation on California companies, such as eBay. EBay’s entire business is based upon receiving a commission upon completed sales. If AB 153 becomes law, potentially every eBay seller could be required to collect California sales tax if they sell (or even market) any products to just one California resident. We expect this may explain the sudden huge jump in the “occasional sales” exception threshold.

Seriously though?! Is $500,000 annually really an “occasional seller“? That must be one heck of a garage sale!

Meanwhile, AB 155 is now focused entirely on mandating that so-called “sister companies” based in California establish sufficient nexus for out-of-state “parent” or “sibling” companies to be required to collect California sales tax. Our regular readers may recall that AB 155 was initially introduced as reporting requirement bill, very similar to Colorado’s legally embroiled reporting requirement law, HB 1193. Fortunately AB 155 has been amended several times since then to eliminate the more troublesome reporting obligations and achieve its new form. Although, as it is worded now, it would seem quite likely to cause affected out-of-state retailers with investments in California businesses to simply withdraw those related entities from the state entirely. While we are sure there are numerous examples of such entities, Lab126 (the developer of the Kindle for Amazon) comes immediately to mind.

While we appreciate and respect California’s need to fix the current imbalance related to sales tax collection obligations, which costs the state over $1.1 billion annually, we sincerely hope those entrusted to do the people’s work in Sacramento recognize that this matter must ultimately be resolved in Washington DC.

Under the Supreme Court’s 1967 National Bellas Hess vs. Illinois Department of Revenue ruling, the ability of states to compel remote or out-of-state businesses to collect local sales tax hinges on minimizing (or eliminating) burdens implied by such an obligation. In its majority opinion (now forty-four years ago), the Court ruled that

the many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle National’s interstate business in a virtual welter of complicated obligations to local jurisdictions.

So, unless and until California directly addresses these three points of undue burden, attempts to compel remote retailers to collect will not likely survive litigation and judicial review.

Fortunately, California has been working with 43 other states on the Streamlined Sales and Use Tax Agreement since 2000 —a system that alleviates all of these burdens (and is FREE for retailers to implement). Governor Brown and the California legislature should urge California’s delegation in Congress to sponsor and work to pass the federal Main Street Fairness Act, which would eliminate the need for California to venture into such controversial interpretations and extensions of the concepts of nexus and would finally enable California to require out-of-state retailers to collect sales tax, just as any local retailer is required to do.

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Massachusetts considers affiliate nexus bills

May 31, 2011

Massachusetts is considering two bills, one from the House and one from the Senate, that would require online retailers with Massachusetts affiliates to collect sales tax.

According to this article in the Cape Cod Times, a University of Tennessee study puts Massachusetts’ annual sales tax losses at $11.4 billion by 2012. The same article states that the senator sponsoring the bill, Senator Steven A. Tolman, hopes to recover that money in order to fund services that have been cut due to the recession:

Tolman said the tax money is needed to invest in state programs that had to be cut in the recession.

“In these times of tight state budgets and the reduction or elimination of many state-funded programs, Massachusetts can no longer afford to subsidize Internet and catalogue retailers by not collecting sales tax on purchases made by residents of Massachusetts,” Tolman wrote in an email.

Tolman said what essentially are tax-free sales gives online vendors an unfair advantage over bricks-and-mortar stores.

“The current law penalizes Massachusetts’ main street retailers and gives those without a physical presence in Massachusetts a 6.25 percent head start,” he said.

Michael Mazerov, an official from the Center on Budget and Policy Priorities, also commented on states’ need for sales tax revenue:

“State and local governments are losing billions of dollars a year in revenue that they need to provide education, health care, police protection and a whole other range of services,” he said.

Mazerov said the government is already entitled to this tax money; its absence has added to state budget woes.

“Particularly now, with the downturn of a depressed economy, local governments are losing lots of revenue that they’re legally entitled to receive,” he said. “These are not new taxes. We are talking about collecting sales tax on things that are taxable if you buy it in the store.”

Both Tolman and Mazerov make good points, and we agree that online retailers should collect sales tax, just as local retailers do. However, we don’t believe that bills like these, which target online retailers that use affiliate marketers, are the best solution.

When other states have passed these kinds of affiliate nexus laws, online retailers have responded by simply ending their affiliate relationships in the state. These laws end up hurting small businesses in the state that rely on affiliate marketing income and do not bring in any additional sales tax revenue.

A better solution is the Streamlined Sales and Use Tax Agreement (SSUTA) and the federal Main Street Fairness Act. States that join SSUTA implement its sales tax guidelines to make collecting sales tax for more than one state easy for retailers. The Main Street Fairness Act would, in turn, allow SSUTA member states to require online retailers to collect sales tax.

It makes sense: Only those states that have made it easy for online retailers to collect sales tax would be allowed to require online retailers to do so, and retailers with affiliates wouldn’t be singled out.

Everyone would play by the same rules. And isn’t that the best solution for everyone?

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Articles on online sales tax focus on politics

May 25, 2011
Seattle Times: Battle over Internet sales taxes rekindles in Congress

Seattle Times: Battle over Internet sales taxes rekindles in Congress

Two recent articles, one from the Seattle Times and one from the Worcester Telegram and Gazette (MA), focus on the politics of online sales tax legislation and offer incisive analyses of the current political situation.

Although it focuses largely on Amazon and its actions regarding online sales tax, the Seattle Times article includes an insightful analysis of the momentum behind online sales tax legislation and which groups support and which oppose such legislation, and why.

According to the article, momentum for online sales tax legislation is building in part because states are pushing for it:

Now state governments, many in fiscal straits, are aggressively pursuing the estimated $8.6 billion in taxes on Internet and catalog sales that went uncollected last year.

“The state legislatures are telegraphing to Congress that it’s time to act,” said professor Edward Zelinsky, an authority on tax law at Yeshiva University in New York who is following the Amazon case closely.

The Worcester Telegram and Gazette article hardly mentions Amazon at all, but it includes a similar analysis of the movement toward online sales tax collection. It quotes several state and federal lawmakers, more than we’ve seen quoted in any other article, and considers the various types of legislation in play.

In just one example of its political analysis, the article considers why lawmakers changed the name of the Main Street Fairness Act:

Politics is at play, Mr. Delahunt said, with “significant players such as Amazon and E-Bay” playing on “the nervousness in Washington about getting near anything that may be misinterpreted” as raising taxes. He quickly rebranded his “streamlined sales tax” bill to the “Main Street Fairness Act” but it had little effect.

We were also interested to see in this article a figure we hadn’t yet seen in any other publication:

For example, Georgia, which joined the coalition this year, collected $264,000 in the first three months of this year in taxes it would not have otherwise had, Mr. Peterson said, a rate that will increase as more states join and more companies agree.

Overall, these are terrific articles for those interested in what’s going on behind the scenes in the push for online sales tax legislation.

One small note of concern: Both articles suggest that the Main Street Fairness Act will be introduced either this week or next, but we are unsure of such predictions. We do know that quite a few legislators are working tirelessly on this bill. Given the gravity of this issue for states, retailers, and citizens, our representatives in DC are understandably proceeding with prudence and deliberate diligence to ensure broad bipartisan support from both chambers of Congress—not an easy task in today’s contentious and frequently divisive political climate.


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An interview with the head of the Streamlined Sales Tax Governing Board

May 23, 2011
Governing

Governing

An interview with Scott Peterson, executive director of the Streamlined Sales Tax Governing Board, has been published on Governing magazine’s website. It’s a fascinating article; we recommend you read the entire thing in order to get a good idea of what Streamlined stands for (in a word: simplification) and how Peterson feels about affiliate nexus legislation (called “Amazon laws” or “click-through legislation” in the interview).

We have to quote just one part of the interview, however:

What we care most about is how to make state sales and use taxes simpler and more uniform for those collecting the tax. What’s going on now is all about money. Money is important but our initial effort was aimed at taking a tax that was 80 years old and bringing it into the 21st century.

That is the clearest statement of Streamlined’s goals that we’ve seen, and we hope people are listening. Laws have struggled to catch up with technology in many areas, and sales tax is no different. It’s past time to make sales tax laws reflect the realities of present-day technology, which makes it easy for any online retailer to collect sales tax. Just look at TaxCloud.

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California’s affiliate nexus bills supported by PublicCEO.com

May 20, 2011

This article on PublicCEO.com offers support for California Assembly Bills 153 and 155, which would require online retailers with California affiliates to collect sales tax.

The article focuses on the sales tax revenue California is missing out because online retailers are not required to collect sales tax:

The League of Cities also has come out in support of both bills. According to their letters of support, the additional revenues are sorely needed by California’s cities, and these bills increase revenues by equitably revising out-of-date tax law.

A recent analysis of the bills estimated that California has lost more than $1 billion in tax revenues due to Internet sales not charging or collecting taxes. Furthermore, the analysis conducted by the Board of Equalization estimates, “That the proposed change would lead to a state and local revenue increase of $152 million in 2011-12 (a half-year effect) and $317 million in 2012-13.”

As more consumers turn to the Internet, the amount of forfeited tax revenues will grow.

What the article doesn’t mention is that the two bills it advocates would actually get at only a small portion of the lost sales tax revenue—online sales through retailers with California affiliates are only a portion of all online sales. And if the bills pass, online retailers are likely to drop their California affiliates—as they have in most states with similar legislation—which means that even fewer online sales will be affected by the legislation, and even less lost sales tax revenue will be collected.

A better solution—one that, curiously, the article doesn’t mention at all—is the Main Street Fairness Act. It would allow states to require all online retailers, not just those with in-state affiliates, to collect sales tax. It would therefore recover all, or nearly all, lost sales tax revenue, and it wouldn’t hurt small businesses that rely on their affiliate relationships for income.

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Texas affiliate nexus law awaits governor’s signature

May 13, 2011

According to the AP, the Texas legislature has passed an affiliate nexus law that now just needs the governor’s signature to become law.

We’ve written extensively on affiliate nexus laws and why federal legislation is a better solution here. Nonetheless, we’re not surprised to hear that Texas has become (or is about to become) the latest state to pass affiliate nexus laws.

In the absence of federal legislation like the Main Street Fairness Act, which would allow states to require all online retailers to collect sales tax, states are limited in their actions by the Supreme Court decision that says retailers must collect sales tax only for states where they have a physical presence.

States are seeing their sales tax revenue decline dramatically as more and more shopping migrates online, and it couldn’t happen at a worse time—the recession has already caused record budget shortfalls. As states are forced to cut more and more services, they are willing to try anything to bring back some of that lost sales tax revenue to fund police, schools, libraries, and more. Unfortunately, affiliate nexus laws aren’t very effective (for all the reasons enumerated here).

These are becoming scary times to be an internet marketing affiliate. We hope that the Main Street Fairness Act will be soon introduced and passed in Congress, ending the need for such devastating legislation (for affiliates). But until it is, we expect to see more and more states follow in the footsteps New York, North Carolina, Rhode Island, Illinois, Arkansas, Connecticut, and now Texas.

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California BOE releases updated e-commerce study

May 11, 2011
California State Board of Equalization

California Board of Equalization: Characteristics of E-Commerce Buyers and Sellers

Yesterday, Betty Yee, First District member of the California Board of Equalization, released an updated research report on e-commerce.

“This report documents the growth and diversity of online retailing, as well as the low rate of tax compliance in this area,” said Yee. “It further illustrates the state’s need for additional tools to collect use tax from online retailers on the same terms as local, ‘brick and mortar’ outlets.”

The report analyzes data from the 2010 edition of the Top 500 Guide, a profile of the 500 largest retail websites in the U.S. Among the most interesting points in the report:

  • 60% of remote sales in 2009 occurred online (rather than through traditional mail or phone order) .
  • The sales of the top 500 online retailers, which account for 94% of all online sales (of those sales tracked by IR), added up to $126.4 billion in 2009. (Note: In February the Census Bureau released data that has that figure as $143.2 billion, an increase of 12% over the BOE estimate.)
  • In 2009 there were approximately 602 million online purchases—20 online purchases every second.
  • The average online sale was $210.
  • Only four-tenths of one percent (0.4%) of California’s personal income taxpayers pay use tax on online purchases on their tax returns. That’s approximately 55,000 out of almost 14 million personal income tax returns filed.

The report also found that a relatively small number of retailers account for a disproportionate amount of sales. Specifically, the top 50 e-commerce firms account for 77 percent of sales.

Such a disproportionate concentration of sales by the largest e-commerce companies would also suggest that sales per company are much greater for the largest ones. . . . The top ten companies average e-commerce sales of $6.117 billion per company. At the other extreme, the smallest 400 companies of the 500 average sales of $44 million each, a factor of 139 times less sales than the top ten average.

Of course, there are many more online retailers that are not in the IR top 500. In fact, we were surprised to find that even online auction giant eBay doesn’t make the list, because eBay is not considered the primary seller. Nevertheless, eBay enables over one hundred thousand “power sellers” (retailers) and has at least 60 million consumers and over $70 billion in transactions annually (according to eBay’s 2009 form 10K annual report to investors). If all those sales were attributed to eBay rather than to the individuals that sell on eBay, the figures in the Top 500 Guide would look dramatically larger.

The entire report is worth a read for the picture it paints of the state of e-commerce today.

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Kaumaha news from Hawaii

May 3, 2011
Kaumaha news from Hawaii

Kaumaha news from Hawaii

We’ve just learned that the word for “sad” in Hawaiian is “kaumaha.”

We learned this word because we just found out that two sales tax–related bills, one to join the Streamlined Sales and Use Tax Agreement (SSUTA) and one to enact an affiliate nexus law, have died in committee in Hawaii.

Although we are glad that in-state affiliates won’t be hurt by an affiliate nexus law, as has happened in so many other states, it’s too bad that the bill to join SSUTA also failed to make it out of conference committee.

SSUTA’s purpose is to make it easy for multistate retailers to collect sales tax. There’s just one sales tax return form for every SSUTA member state, and SSUTA’s guidelines simplify sales tax regulations so that a retailer knows item are taxed the same way in every SSUTA state.

Twenty-four states are currently members of SSUTA. For multistate retailers that sell in Hawaii, it’s too bad that Hawaii won’t have a chance be the twenty-fifth (until next year).

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What affiliates can do to fight affiliate nexus legislation (the “Amazon tax”)

April 29, 2011

We were interested to read this article, written for an audience of affiliates, that offers advice for writing to legislators to advocate against affiliate nexus laws.

We certainly understand why affiliates would want to try to stop affiliate nexus laws—they threaten their livelihood—and we agree, affiliate nexus laws are not a good solution. (We’ll suggest a better one in a moment.) But the problem they are intended to solve is real: Shoppers are not paying the sales tax they owe on their online purchases, and online retailers don’t have to collect that sales tax at the point of sale. It’s causing serious problems for the states and communities that rely on sales tax revenue to fund police, parks, libraries, road maintenance, and more. It’s also hurting local retailers, which cannot compete with online retailers that don’t have to collect sales tax. These local retailers are seeing their customers browse their shelves and talk to their clerks only to say “Thanks, I’ll go order it online.”

Given these facts, plus the severe budget shortfalls facing states, we think some kind of legislation on online sales tax is inevitable. Right now, the only option getting much media attention is “affiliate nexus” or “Amazon tax” legislation—although it’s far from ideal, it is a creative attempt to allow them recoup some of the $10 billion in sales tax on online purchases that goes uncollected each year. Five states have now adopted affiliate nexus legislation (and quite a few are considering it). Without action from Congress, states are limited by two Supreme Court rulings, from 1967 and 1992, that say out-of-state retailers are required to collect sales tax only for states where they have a physical presence. All states can do under this limitation is try to change what counts as a “physical presence,” which is why they’ve targeted affiliates—they can make the argument that the presence of affiliates in a state counts as a physical presence, and therefore retailers with affiliates in the state must collect sales tax.

So by now, hopefully you are asking yourself: “Is affiliate nexus legislation the only way states can solve this problem?” Let us borrow from the immortal words of Yoda to answer that:

No. There is another.

Despite all the media attention around affiliate nexus legislation, 44 states have been working on a different solution since 2000: it’s called the Streamlined Sales and Use Tax Agreement, and it solves the internet sales tax issue cleanly and easily. In fact, 24 states have already adopted the simplification procedures of the agreement!

All Congress has to do now is pass a law enabling states (that have implemented the simplification measures of SSUTA) to require online retailers to collect sales tax, and suddenly affiliate nexus legislation becomes unnecessary. And at the same time, all those vital services that sales tax revenue helps pay for, such as police, schools, and libraries, will have much more funding, and online retailers will no longer have an unfair advantage over local retailers.

The Main Street Fairness Act is a bill that would do this, and it’s expected to be introduced in Congress soon.

If affiliates want to help put a stop to affiliate nexus legislation, we suggest they write to their legislators in support of the Main Street Fairness Act. If some kind of legislation is inevitable—we think it is, and the recent popularity of affiliate nexus laws bears witness to states’ urgent desire to pass some kind of law on the issue—then it’s best to pass a law, like the Main Street Fairness Act, that doesn’t hurt affiliates by singling out retailers that have affiliate relationships.

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Forbes article offers great summary of online sales tax history

April 15, 2011
Forbes

Forbes

This Forbes column by Robert W. Wood presents a terrific summary of the history of online sales tax and the issues involved. We particularly like how it defines and illustrates “use tax,” but the entire article—which is brief—deserves a read.

The only thing we’d also have liked to see is a definition of affiliate nexus legislation. Although Wood does mention Amazon at the end, he doesn’t explain that states are increasingly passing laws that say having affiliate marketers in a state is enough to create nexus there, and that this is what Amazon objects to.

We’re looking forward to the day when there is federal legislation allowing states to require online retailers to collect sales tax—something Amazon has said it would not object to, since it treats all retailers the sames, whether they are online or off and whether or not they use affiliate marketers.

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