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.


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.


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.


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).


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.


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.


Storefront Backtalk asks: “Where are the consumer advocates?”

April 11, 2011

This post in the StorefrontBacktalk blog ponders why there have been no consumer advocacy groups fighting against affiliate nexus laws. The answer, though, is contained in the post:

Rightly or wrongly (OK, it’s wrongly), consumers in those states have been avoiding paying state sales tax.

It would seem to me that a consumer advocacy group would be hard-pressed to make a pitch that says, in effect, “don’t take away a citizen’s right to evade taxes.”

Instead, the debate continues to focus on the issue of fairness—whether it is fair that only bricks-and-mortar retailers collect the tax, and whether it is fair to ask online retailers to calculate and collect the tax.

Today large online retailers easily manage millions of items for sale at any given moment, and even the smallest online retailer can calculate accurate shipping rates to every corner of the country in a blink of an eye. It is no longer too difficult to keep track of a few thousand tax jurisdictions.

What’s more, comprehensive sales tax management services are available—for free—making it even easier to calculate sales tax online. TaxCloud calculates the sales tax due for any purchase anywhere in the country. It is certified to comply with the Streamlined Sales and Use Tax Agreement (SSUTA) and can therefore also prepare, file, and remit sales tax for states that are members of SSUTA. The service is completely free to retailers.

Perhaps another reason consumer groups are shying away from the debate is because it is local community services that are losing out on uncollected sales tax as more shopping shifts online.

What does surprise me, though, is that the Performance Marketing Association and other groups that support the affiliates have not been coming out in favor of Streamlined and federal legislation that would require ALL online retailers, not just those who sell through affiliates, to collect and remit sales tax.