Affiliate Marketing and Sales Tax Nexus

States use sales tax nexus in an attempt to increase sales tax revenue by specifying what entities have a presence in the state and must consequently collect the tax.  They have not been successful in attacking all online sales, since they could be interfering with interstate commerce, but if an entity has a presence in a state they can, at least for now, have that entity charge sales tax.  In some cases this presence includes affiliate programs whereby the seller is considered to have a presence in a state simply because they pay a commission to someone who advertises for them while that advertiser living in a state. 

In my home state the budget is so bad that there is now sales tax nexus.  In theory it should not be necessary, since by law the buyer has had to declare online purchases for which no sales tax was collected when filing state income tax.  But, often only large ticket items that were obvious were declared.  So, this law remains, but now there is an attempt to have sellers with any sort of presence collect for the state in case people ignore the law.  While some increase in revenue might immediately be noticed, there are other forms of revenue that could be damaged.  

Learn more about sales tax nexus at Alibris.

Some companies who do not already have a different form of presence in this state have simply filtered out all affiliates with this state addresses.  This avoids the expense of handling the sales tax collection.  The company saves on accounting charges, and on having to keep the records for sales to this state.   Amazon immediately cancelled its affiliate program to Louisiana residents.  After several months they begin allowing affiliate programs from every state except Maine, but affiliates had to start over, meaning there is a probation period of 180 days during which the affiliate is expect to make a sale.  I did not know this, and sales occur near Halloween and Christmas.  So, timing of getting an affiliate account is important.

But, there are affiliate programs to use.  The problem is the time and lost revenue in making the move, and the lack of choices in what can be advertised.  But it can work.  

Next year when state income tax is due the fallout will be noticed.  Affiliate marketers are sent income tax information, and the commission made must be included as income in calculating the tax owed.  When there is a significant drop in income tax perhaps the politicians will notice, but it is unlikely they will understand why if we do not make our voices heard.  Most of them probably do not realize affiliates pay income tax.  It is an unintended consequence that is coming next year.

Gaining tax revenue in one form while decreasing another is not a good idea, especially when there was a law by which the online sales were taxed.  Had that been better enforced there would have been no need for a sales tax nexus, and no drop in income tax.

One thing than many people with disabilities could do is operate a website or blog, and advertise on it.  There are people who invested time and money in establishing an advertising revenue from affiliate programs.  Now, some of their programs have suddenly gone away.  Yes, there are other programs out there, those with stores in Louisiana, that continue to allow affiliates to advertise.  They, because of those stores, have to collect sales tax for the state on online sales to Louisiana locations.  But, converting to other affiliate programs is a slow and arduous task, and finding a product fit to an established website may be impossible.  Establishing a product website takes time to become profitable.

Really, there are things that a complex issue like this could easily be missed, especially when panic mode directs getting revenue and getting it fast.  I doubt the negatives were even mentioned.  So, now is the time to reflect and revise.  States can alter their programs to mitigate the damage to their own revenue.

This article contains links to affiliate programs from some or all of Amazon, Viglink, and Ebay through Viglink, and Adsense advertising.  These must use cookies to allow for proper crediting.