California Considers Affiliate Tax, Illinois Sued Over Such Law

Posted onLeave a commentCategoriesAffiliate / Advertising Tax

You may remember the year 2009 when California had its affiliate nexus bill revived, and then vetoed by Gov. Arnold Schwarzenegger, pointing to the right reason — the unemployment was already “at an all time high”, and the Governor advised: “we should be doing everything we can to keep jobs and create jobs in California”.

Well, Nancy Skinner’s bill is back again, and just as before it is specifically targeting affiliate marketers. If passed into law, it “would require online retailers to collect sales tax if they do business with in-state web site affiliates that refer online shoppers to them” [source]. On Tuesday, May 31, the bill was approved by the state Assembly. However, it is nonsensical to expect for this law to “generate $83 million alone from Amazon” [source]. Just as in earlier instances, Amazon has already made it clear that it will “cut off more than 10,000 affiliates in California if state lawmakers pass” this legislation [source]. Amazon has done this on numerous occasions before, and there’s no reason to presuppose that they aren’t being serious now.

Incidentally, Illinois, which passed a similar law on March 10, 2011, is now being challenged by the Performance Marketing Association (PMA), affiliate marketing industry trade association, regarding the constitutionality of the law. On Wednesday, June 1, 2011, PMA has filed a law suit against the State of Illinois. The official press release reads:
House Bill 3659, signed by Governor Pat Quinn last March, victimizes Illinois entrepreneurs, small businesses, and even non-profit organizations who publish online advertisements for out-of-state retailers in an unlawful attempt to expand the state’s taxing authority…
“HB 3659 is a calculated assault on the burgeoning performance marketing industry and a misguided attempt by the state legislature and Governor Quinn to shore up the state’s budget deficit on the backs of small business,” said Rebecca Madigan, Executive Director of the PMA.  “We’re striking back at a law that not only unfairly targets our industry but also would arbitrarily broaden the state’s definition of nexus.  That’s a direct violation of the Commerce Clause and flies in the face of decisions already established by the Supreme Court.” [full text here]
The past three years have shown how destructive these laws can be — seldomly yielding taxes, but always killing businesses. So far, out of over 20 states which have considered such legislation only 5 (NY, RI, NC, IL, CT) have enacted it; and every time it happened, merchant terminations of relationships with affiliates followed (or even preceded as was often the case with Amazon and Overstock), resulting in immediate income drops for affiliate marketers residing in these states.
For more information, see also my other articles on this topic here.

Leave a Reply

Your email address will not be published. Required fields are marked *