Affiliate Marketing and Sales Tax Nexus

by blackspanielgallery

Affiliate marketing becomes more difficult if a state has sales tax nexus that includes affiliates as a presence in the state, but you can sill have an affiliate program.

Affiliate marketing and sales tax nexus can be challenging, but can still be successful.

Sales tax nexus is something new to me, since my home sate just recently established it. The fallout is likely to be great. The thought process that created it missed significant facts. So, why would a state suddenly decide to engage in sales tax nexus? And what exactly are the problems it has created? These are a few issues that have to be raised, for is has far reaching consequences, many of which are contrary to the intended goal.

What Constitutes 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. 


More Sales Tax Revenue?

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.

Affiliate Reduction

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.  


Tax Reduction

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.


Disabled Impacted

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.


It Is Not Simple

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. 

Updated: 09/18/2017, blackspanielgallery
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blackspanielgallery on 09/18/2016

This is something new. when administrations changed the new governor decided the state was in a dire situation, but this is less about Katrina than about irresponsibility of our lawmakers. So, taxes were the focus, and affiliate marketing suffered. Amazon closed all accounts in Louisiana rather than have the expense of collecting taxes. Had they had affiliates the state would consider them as having a presence in the state and expect tax payment. Interstate commerce aside, they believe anyone with any slight presence is subject to state tax laws. As for enforcement, I have no idea what they would do, it is uncharted waters.

DerdriuMarriner on 09/18/2016

blackspanielgallery, Very nice suite of products, particularly the "Affiliate Marketing for Beginners"! What can be done about the budget and enforcement problems? Do they predate any continuing socioeconomic turmoil from such unfortunate disasters as Katrina?

blackspanielgallery on 06/20/2016

Here it is just a matter of getting sales tax in and fast. There were several tax laws changed in rapid fashion. Now, they are in special session looking for even more. I doubt anyone had time to investigate the problems this causes.
Walmart has a presence here so they already had to collect state sales tax, so it eliminates Amazon affiliates, a strong competitor. I doubt many small companies use affiliates.

Mira on 06/20/2016

Was Wal-Mart behind the affiliates, or behind the nexus law proposal?

frankbeswick on 06/20/2016

That is an interesting point, Nelda. Was Walmart trying to destroy small traders?

Nelda_Hoxie on 06/20/2016

When Massachusetts attempted to pass nexus law, the affiliates banded together and defeated it. In our case wal-mart was behind the initiative. When we explained this to state lawmakers and how it would affect our industry, they backed off.

blackspanielgallery on 06/20/2016

Here, each state has a right to tax, and so does the federal government. A few states do not. But, both states and local governments can tax sales.

frankbeswick on 06/20/2016

It sounds worrying and hard to handle. In the UK we simply declare our earnings to the Inland Revenue,the state tax collector. There are no specific state taxes for the components of the UK, though Scotland has a right to vary its tax, but has not done so.

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