By Andrew Kardon
As a publisher who’s lived in NY his entire life, to say the Affiliate Nexus Tax has affected me is an understatement.
Whether you call it the Internet Tax, the Amazon Tax or the Affiliate Nexus Tax, they all have the same horrible effect: they’re hurting affiliates. If you’re unfamiliar with the Affiliate Nexus Tax, let me briefly explain.
Like most things in life, it all boils down to money. States are trying to raise new funds and have decided to go after sales on the internet for it. Certain states (NY being the first. I feel so proud.) Basically, the states who have adopted a Nexus Tax are going after their resident affiliates by claiming they are acting as part of a sales force for merchants who live outside the state. So any purchases made through that affiliate should collect sales tax. In short, they’ve labeled affiliates as a “nexus” for any out-of-state merchants that they’re promoting on their site.
If merchants want to comply with this ridiculous notion, that means they need to accept sales tax from every single state that their affiliates live in. This may not only be crazy expensive for some online retailers to set up, but it could put them at a distinct disadvantage over other online retailers who don’t even have affiliate programs. Why would a customer buy from Store A, when Store B has the same exact merchandise and doesn’t charge sales tax?
The reason this is hurting affiliates, and me personally, is that rather than try to fight or deal with this Nexus Tax issue, the majority of merchants have simply terminated relationships with any affiliates in specific states.
As co-owner of a coupons and deals website, there are a ton of great merchants I’d love to be promoting but they won’t accept my application simply because my business is located in New York. Stores like Overstock.com and ThinkGeek happen to be two of my favorite sites, and ones that easily fit into my niche. But as I can’t earn a dime off of them, I can’t (and won’t) spare even a minute promoting them.
Before I started JoeShopping.com, my business partner and I ran a hugely successful coupon site. We routinely ranked in the Top 10 results for coupon searches based on popular online stores. Yeah, we were doing really well. But then the Amazon Tax was passed, and suddenly merchants were in a panic. Here we were, a Super Affiliate, easily one of the top performing affiliates for many many many programs. And yet, it didn’t matter; these merchants dropped us in a heartbeat. They simply cut ties and wouldn’t let us back in their program.
At first, it was just a bit of an annoyance, as a handful of merchants contacted us with the bad news. Thankfully we were in hundreds of popular programs, so we felt okay. But then it was almost like a domino effect as more and more merchants (some big names) started pulling the rug out from under us.
The Affiliate Nexus Tax was actually a huge factor in our decision to sell our coupon site. When we were approached to sell roughly four or five years ago, the fear of being kicked out of dozens or hundreds more merchants weighed heavily in our minds. We knew we’d be able to find other programs to get into, but it’d be a brutal uphill battle.
Ultimately, we sold to a company in California (no Affiliate Nexus Tax there… yet), who didn’t need to worry about it. But we soon started up our new company JoeShopping, and knew we’d potentially have the same issue all over again. One way out of it would be to open up our new office in a different state. We live close to the NY/NJ border, so we heavily debated opening up an office in NJ.
Being New Yorkers, we really didn’t want to go to NJ. It was certainly doable, but it’d be much easier all around if we set up shop in NY. Besides, we had a strong feeling that right after we’d open up offices in NJ, they’d pass their own Nexus Tax and we’d be out of luck anyways.
It actually was a tough decision but ultimately we set up offices in New York. We also managed to get back into a small handful of merchants who normally wouldn’t deal with NY affiliates. It took a lot of emails and personal phone calls to explain our situation and thankfully some merchants were willing to work with us. We had to sign a special set of terms that said we would not target any NY customers via email or social channels, though. That meant we couldn’t promote a store, sale or coupon via our newsletter or Facebook page. Small price to pay but one we were certainly willing to do.
It’d be great if EVERY merchant offered this tactic. We’d sign a new terms sheet every single year if it meant we’d no longer be ostracized from a majority of merchants out there. But sadly, the whole Affiliate Nexus Tax is still in its infancy and still a murky grey area. Most merchants would rather cut off a chunk of affiliates than spend time and money figuring out how to legally navigate the system.
There are some great organizations out there, like the Performance Marketing Association, that are working hard with affiliates to overturn existing Nexus Taxes, and prevent more states from adopting their own. As an affiliate with a giant NY bullseye on his chest, I would love every single state to either adopt this law at once or rule these Affiliate Nexus Taxes unconstitutional and revoke them everywhere.
To me, it’s an all or nothing thing. I don’t see how it can be properly policed and set up online anyways, so I’m really praying the NY Nexus Tax gets overturned soon. Otherwise, we very well may have to leave NY and set up shop in another state. Yeah, it’s kind of the opposite of having State Governments support their small businesses.