June 26, 2009

"Of course, North Carolina politicians are really just shooting themselves in the foot."
Yea, I dont get it. They are creating the tax to generate more revenue, but merchants will just shut their programs down REDUCING the income of NC residents participating in these programs. This reduction of income will not only hurt the NC resident, but REDUCE the tax revenue collected. It is a lose lose situation. I see no benefit.

Well hell yes, pay your taxes.

Apple already has a substantial physical presence in North Carolina, in the form of Apple stores, so revenue from iTunes downloads should be subject to the state's sales tax, right?

Michael - Apple does have physical locations, but currently there is no state sales tax on downloads. That is a proposed tax in the state budget bill - and it's separate from the one for affiliates.

Does Apple's recent tax deal with the state for a new data center exempt them from the proposed tax provision that would place a sales tax on downloads? We don't know yet.

If so, that's a double whammy for Amazon and possibly posturing by Apple to kill Amazon sales in NC - since Amazon offers mp3 downloads as well.

"But that thinking is misguided. Affiliates are required to pay taxes on their earnings. The state of North Carolina essentially wants to raise taxes on affiliate sales with this new provision."

Now, wait a minute. This isn't what it's about, unless I've been severely misled over the past year or so. The states are using the "Amazon Tax" as a way to implement sales tax on *all* internet purchases, not just affiliate sales. If a company has affiliates in the state, they will be required to collect tax on all of their sales to customers in that state.

Correct?

Individual affiliates will not be impacted - as far as the amount of tax they will pay - any more than they are now.

While I don't like this affiliate-defined tax scheme (I'd much rather see a fairer internet sales tax which is not defined by affiliates), I would like to see an end to the notion that the states are singling out small affiliate businesses for destruction. They're not. They're simply trying their best to come up with a solution to a situation - billions upon billions of lost tax revenue (which we brag about at the end of each year when we thump our chests and say "look how much money was spent on online purchases this year!!!".

They're not going about it the right way, but it's not malicious.

Daniel - if states want to tax internet sales, then they should just tax internet sales. Why change the law to say that affiliates are employees of these companies?

Amazon affiliates are not employees of Amazon. They must pay taxes as a self-

I don't think politicians are targeting affiliate marketers, but that's what ends up happening. If Amazon can avoid paying taxes simply by killing an affiliate program for one state, then they will.

They and 200 others did so when New York implemented a similar bill.

What starts out as ignorance becomes malicious when politicians hear from their constituents and refuse to act, then it does become malicious.

I agree that they should just be implementing internet sales tax. I've been saying that to anyone who will listen for quite a long time, actually. I understand that affiliates are not employees of Amazon - technically - but you have to consider what the states are going through here. They are desperate. They are bankrupt. They can't pay people to fix the roads, police the streets or fight fires.

It's due, in large part, to internet commerce taking away their state sales tax revenue. From their perspective, can you really blame them for going this route? It's a pretty simple matter... a few hundred or a few thousand affiliates versus a few million citizens getting the state services they need. Again, I'm not defending them... but a healthy understanding of both sides of this issue is necessary to come to a reasonable conclusion.

The problem is not ultimately with the states, in fact. The problem is with the merchants - which probably makes me the most unpopular guy in the room right now. It's true, though. Amazon - and others - are killing off their affiliates, but what do you think will happen next year when the states change things around so that affiliates don't factor in? They will, you know. NC, Hawaii, and all the rest that won't be seeing the increased revenue (because of dumped affiliates) will simply change the law again and again until merchants have to collect sales taxes... by next year, at the latest, I suspect. The merchants are so short sighted that they don't get this, and are killing off their affiliates hoping to avoid the inevitable. A year, two years from now, this will all be moot but a bunch of affiliates will be out of business by then.

Is the blame solely to rest on the states?

I think there are two points that important to mention. 1st is that there are literally tens of thousands of affiliate programs out there, and not every one of those merchants are going to have the shortsighted-ness of an Amazon to remove their "nexus affiliates". There are plenty of other merchants that affiliates can partner with to replace lost income from the programs that drop them.

Secondly, affiliates are, without a doubt, some of the most forward-thinking, innovative entrepreneurs. I am confident these smart business people can and will find a way to do whatever is necessary to recoup income that is lost from being dropped from a program. Maybe they pick up a new niche market to focus on, maybe they work special deals with their remaining merchant partners to increase commissions based on sales, or give better placements to certain merchants, etc and etc.

I just think the doomsday approach that thousands of people will be put out of work is a stretch, because I am sure successful affiliates are not going to roll over and die, in fact many may like the challenge of finding something new and would enjoy sticking it to the merchants that had the shortsighted view to drop them. I am not trying to ruffle any feathers, but I think affiliates will find a way to survive, they are smart folks. In fact there is the new affiliate theme-song: Gloria Gaynor's "I will survive"

This is not a new tax people, it is a use tax already in the law books. North Carolina residents are supposed to pay when filing state taxes. They don't so the government wants Amazon to bare the burden and cost of collecting the tax. The tax is only for residents of NC. Who are not claiming it on their state tax forms.

As an aside Hawaii got their affiliate program back after vetoing the bill. Will Perdue be as smart?

Chris, Every other affiliate has followed Amazons lead. I have friends who have lost 40% of their income.

Daniel, There is already a initiative to create a straight tax across the board which NC is a part of. The problem is this is not a new tax at all. Only NC residents are supposed to pay it. As in its a NC state specific use tax only applicable to NC residents. already on the books. The problem is NC residents are not paying and claiming the tax on returns. So the geniuses in Raleigh want Amazon to bare the burden and extra cost to collect this tax for the state. Again because the state can't get people to pay it on their own and can't collect it themselves. So far all the other states vetoed this part of their bills and Amazon and other companies have followed suit. I guess the realize how much income will be lost. I personally had to let my assistant go because of lost income from affiliate marketing. So in hard economic time, the North Carolina government are going legislate small businesses out of business. Affiliate marketing is not new just misunderstood. As a matter of fact look at the bottom right of this web page see the affiliate link? Go surf the web several companies are doing this type marketing. And now thanks to the North Carolina government. Instead of income coming in to NC to be spent in NC and taxes being paid to the state of NC. Some other marketer in another state will be making that money. So NC is not just going to get over this in the blink of an eye. As a matter of fact this collateral damage wont be found out until taxes are filed and less is collected.

I think that this is a new tax people. I have already read this type of information in law books but nice attempt I appriciate your work.