Workarounds for Affiliate Nexus Tax in California and Pennsylvania

Raven

On August 21 Performance Marketing Association (PMA) alerted the industry of the expected developments on the affiliate nexus tax front: regardless of the fact that earlier in April of this year an Illinois Circuit Court Judge declared this type of tax unconstitutional, we were expecting to see the affiliate nexus tax law reinstated in Pennsylvania on September 1, 2012, and in California on September 15, 2012. Immediately that became a worrying news for many…

However, yesterday, a great news on the state of things in California. In their blog ShareASale posted that merchants, after all, may be able to continue working with California-based affiliates:

The PMA announced in a Legislative Bulletin this week that they have successfully negotiated a workaround with the California Board of Equalization (BOE) to allow out of state retailers the ability to continue to work with California affiliates (publishers) with out creating a nexus so long as the parties involved abide by the newly established compliance process.

The Board of Equalization (BOE) whose mission is to “to serve the public through fair, effective, and efficient tax administration” and is the agency overseeing the Affiliate Nexus Tax law, has made an amendment to Regulation 1684. This amendment includes language that affiliate marketing relationships are allowed to remain in-tact so long as the affiliate (publisher) agrees not to “engage in certain marketing practices that the BOE deems as ‘solicitation’ activities directly targeted to California consumers”.

And as far as Pennsylvania goes, 3 hours ago PMA has announced that they have:

…negotiated a work-around to the Affiliate Nexus Tax with the Pennsylvania Department of Revenue. In a nutshell, remote retailers can still have affiliate programs with Pennsylvania-based publishers if they are NOT paid out on commission or relating to a sale. Put another way, it is allowable to pay affiliates based on clicks (CPC). This is the first state to explicitly allow CPC as a payout method that would avoid nexus for remote retailers.

A copy of the written ruling, in letter form to the PMA attorneys, can be found here.

Both: positive enough of developments (and Amazon has already agreed to collect sales tax in PA), regardless of the limitations. Thank you for your hard work, Performance Marketing Association!

About Geno Prussakov

CEO & Founder of AM Navigator – an award-winning OPM agency. Founder & Chair of Affiliate Management Days conference. Author of bestselling "A Practical Guide to Affiliate Marketing" (2007) and "Affiliate Program Management: An Hour a Day" (2011), speaker, consultant, and affiliate marketing evangelist.

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3 Responses to “Workarounds for Affiliate Nexus Tax in California and Pennsylvania”

  1. [...] Workarounds for Affiliate Nexus Tax in California and Pennsylvania, http://www.amnavigator.com [...]

  2. Bryan says:

    Geno,
    I’ve been knee deep in research for the impending tax and this workaround, as it impacts my business. I wanted to get your opinion on the solicitation section and the use of “coupons”. Sharing coupons on Facebook for others to use, do you think this is seen as soliciting?

    • Bryan, thank you for your comment.

      On their website PMA wrote that “the acceptable use cases, where nexus is not created, are described as:

      * A California publisher can post click-through ads or links to retailers’ sites in return for commissions earned on sales resulting from those ads (including ads tied to search engines, banner ads, CPA ads, and links to retailers’ sites), as long as the publisher doesn’t solicit California purchasers; [Section (c)(9)(A)].
      * A California publisher can advertise its own sites, on other sites or via mail or email, as long as it refers people only to its own sites. [Section (c)(9)(B)].”

      Furthermore, they point out that in BOE’s (California Board of Equalization’s) eyes “solicitation activities specifically target California consumers to encourage sales,” whereas “advertising practices” (which they’re okay with) “are passive in nature and don’t target Californians specifically, are generally acceptable under this regulation.”

      The way I read it: “sharing coupons on Facebook for others to use” is okay as long as you do not specifically target California residents.

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