Bad News from California: Affiliate Nexus Tax Law on the Threshold

Posted on15 CommentsCategoriesAffiliate / Advertising Tax

Bad news has just come from the state of California — the affiliate nexus tax, which I frequently cover in my blog, seems to be on the threshold of materializing.

No, not into cash — the state treasurer is right on the money when saying that the online sales tax revenue is good in theory, but not being sure certain if the dollars would really materialize [source] — but into a law.

Rebecca Madigan, Executive Director of the Performance Marketing Association, reported:

Governor Brown of California has announced he has secured enough votes to pass his budget, including the Affiliate Nexus Tax and 2 related nexus bills: AB 153, AB 155 and SB 234. The law will go into effect immediately upon signing, and he must sign before July 1st, 2011. [source]

Bad news for California-based affiliates, and thousands of California small businesses.

Merchants, don’t make hasty decisions based on what you may see larger e-tailers like Amazon and Overstock doing in relation to this (in my opinion, there’s more politics behind their decisions than pure economics). In the unfortunate event of the law passing look into collecting the tax. There are multiple tools (e.g. Avalara, or ShareASale’s “US State Revenue” report) than can either help you fully streamline the process, or simplify the monitoring on your end.

15 thoughts on “Bad News from California: Affiliate Nexus Tax Law on the Threshold

  1. Great. California is firing me from my own business. Affiliate commissions bring me several hundred a month extra. Thanks Jerry Brown and all the Dem Senators. Why did anyone vote this guy in?

    1. Sorry to hear this, J. I know of a number super affiliates (we’re talking 6-figure affiliate marketing-driven income a month) who are gonna lose 15-25% of their business because of this.

    1. Of course, I remember you, Danger. Thank you for chiming in.

      I’m not a tax expert, and can’t tell 100% one way or another, but your solution sounds like a possible one. Have you consulted with a tax lawyer on this (to double-check if it’ll really work that way)?

  2. Danger that seems like a good solution and was thinking of doing something similar. Have you consulted with a tax lawyer regarding this? If anyone has more info regarding this please comment.

    All affiliates big and small affected by this should write to Sacramento.

    Can’t believe this, do they want to add more people on unemployment, welfare and other state funded programs.

    Don’t want to move away from CA but if I have no other choice then I will.

  3. Hi Geno,
    No, I didn’t consult a tax lawyer. I’m in Colorado and we dealt with this. At the time I didn’t have an Amazon affiliate account, but after the law passed, I opened one using my Wyoming LLC with registered agent service. Been over a year with no troubles here in CO. I’m not sure if you can reactivate your account. You may need to open a new account with an out of state LLC and change all your links.

    From a legal standpoint, it should be very solid in that the LLC is a legal entity capable of doing things like opening affiliate accounts. Then you just get a paycheck from the company.

    From a tax standpoint, I don’t know. I remember that CA has things rigged with their LLCs in an attempt to prevent people from dodging state income tax. My advice is not meant to help people dodge state income tax, which is tougher in CA. My advice is to help people in CA stay in business.

    Amazon could of course change their terms of service to mess up the workaround, but they have no real incentive to do so.

    Someone who didn’t have enough cash flow to justify the expense of an out of state LLC might consider opening an account in an out of state trusted family member’s name.

    For this situation, I like Wyoming the best. First of all, they are financially sound, so they don’t need to resort to affiliate taxes. Second, they have a small rural population unlikely to generate much money from such a tax. Third, WY has proven itself to be a defender of LLCs offering strong personal liability protection.

  4. Can someone please help me to understand what just happened with this Nexus law & why CA residents can no longer able to do affiliate marketing??…I am a single mother who was in the process of setting up a Health & Fitness website (I am also an ISSA certified personal trainer w/ a background in supplements & Nutrtion) I was going to have a “Pro Shop” page on my site (that is still in the process of being built) where visitors would be able to purchase supplements and accessories so I could make a few $’s!…Now, I don’t know how I am going to monetize it?!….Is the law against ALL Affiliate Marketing in CA or just certain companies like Amazon? I have received email notifications from them and a few other associated companies that I didn’t even get the chance to work with yet, but one that I haven’t heard from yet that I have an account with is Commission Junction? Is this law going to affect working with them too?…

    I would greatly appreciate some feed back!
    Thanks-
    Serafine

  5. Serafine, the law essentially prescribes that out-of-state merchants, who use in-state affiliate marketers to drive sales from residents of California, collect tax on those sales. Some merchants (including those who work through affiliate networks like Commission Junction) decide to drop CA affiliates instead. Others — agree to collect/pay the tax, and keep CA affiliate aboard. In simple terms, just make sure you check on this prior to starting to promote any merchant. Speaking broader, it’s an issue that does affect the industry as a whole (including individual affiliates, merchants, affiliate networks, affiliate program managers, various mediating agencies, etc). Hence, the importance of discussing it here.

  6. Thank you Geno for shedding a little bit of light on this subject…So, my next question is that it seems as though CJ has so many companies/ products that they work with, that according to what you had mentioned in your response to my previous question that they may not be pulling EVERYTHING away from CA residents?..Would it be better to contact CJ or the individual company that they affiliate for to find out the specifics if those products are still available for affiliatizing? (i.e. TRX was one that I was interested in, & I haven’t heard anything about them yet? Nor have I been contacted by CJ; however BodyBuilding.com was affiliate through CJ & they BodyBuilding.com, contacted me personally via email about them not working with CA residents any longer.) Does my question make sense?…Basically, what is the best way to figure out what I can & CAN’T do?

    Thanks-
    Serafine

    1. Serafine, yes your question does make sense. CJ is only a platform that this or that merchant chooses to use for the support (read: primarily technical support) of their affiliate program. Therefore, with any questions regarding the concrete program’s specifics it is always best to concrete the concrete merchant (or, better yet, the person/department responsible for that affiliate program). As far as I remember, TRX has an active Twitter account. I’ll let them know you’re looking for an answer. Hopefully, they will reply soon.

  7. With this new law, we were forced out of California. We dissolved our California business and are moving north. It’s a shame that the folks in Sacramento didn’t realize the impact on small internet businesses.

    Good Bye California!

  8. Bad news, but at least Amazon is fighting back. Is there any way affiliates can help get the word out about the referendum Amazon filed? I hope it has good chances of passing…

    1. Yes, by all means, do spread the word about it, Carl. It has very real chances of passing if 504,000 signatures of California voters are gathered by September 27th [more here].

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