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California’s Affiliate Nexus Tax

Posted by Michael Bloch in ecommerce (Tuesday July 5, 2011 )

They say there are two things you can be sure of in life – death and taxes; but at least you only die once. California’s new tax ruling is going to see many affiliates in the state doing it tough.

The new laws force the collection of taxes on sales made by online retailers referred by affiliates based in California; even where those retailers have no physical presence in the state.

Similar laws have been passed in other U.S. states, which has resulted in some retailers terminating their relationships with affiliates within those states.

Amazon warned shortly (just hours) before the new laws became active that it would terminate contracts with all California residents who were participants in their affiliate program if the affiliate nexus tax law was passed – and it was, and they did; pretty much immediately.

With some affiliates depending heavily on Amazon for a substantial part of their income, it will not only create hardship on those folks, but California will now miss out on taxes on the income those affiliates would have received.

The very curious aspect is that California-based shoppers can still buy directly from Amazon and Amazon doesn’t have to pay a nickel in taxes on those sales.

The situation has made some California based Amazon affiliates understandably angry; at both California’s government and Amazon. Danny Sullivan, editor-in-chief of Search Engine Land, published an open letter to Amazon CEO Jeff Bezos expressing his frustration at he and thousands of other California-based affiliates being made pawns in the whole affair. Mr. Sullivan points out that Amazon has physical presences in other tax-slugging states, so he doesn’t understand why the company can’t accommodate it by collecting the taxes in the interim while Amazon dukes it out with the powers-that-be.

Affiliates in states without these laws shouldn’t feel too secure. Forty-five states impose taxes on retail sales. No doubt more will follow and governments will continue to find new and frightening ways to try and squeeze money from a world they are yet to really understand.


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