The Nexus Tax Threatens To Tank Affiliates and Networks

Governor Brown of California gained enough votes to pass his budget bill. The catch? Burried inside his budget is the notorious Nexus Tax.
The new tax is aimed at major online retailers like Amazon and Overstock.com. However, the greatest impact is to independent sales agents like affiliate marketers, ebay sellers, and even stay-at-home moms selling arts and crafts from a Wordpress site.
The additional burden of extra taxation laws, penalties and profit loss due to the Nexus Tax creates a natural barrier to entry for new commers. Worse, it certainly will wipe out a large segment of marketers and retailers who simply cannot afford to stay in business with the additional overhead.
The Fight
However, in its ever worsening deficit, California has taken a foolish approach to boosting tax revenue in the short term, while forcing businesses to close or move operations out of state. This domino effect will quickly and summarily offset any perceived economic gain by the adoption of the Nexus Tax.
The tragedy is small businesses and independent proprieters make up the "long tail" in online sales, which represents a several billion dollar market capitalization.
Major retailers had been proactively working against the Nexus Tax from passing in other states by immediately terminating their advertising contracts with affiliates and retailers in those states. Such heavy handed tactics by large coffer wielding companies like Amazon.com effectively stemmed the passing of the tax.
But what can we do as small fish in a big pond?
The Performance Marketing Association (PMA) is the national trade association representing affiliate marketers. The not-for-profit trade association was founded in 2008 by the leaders of the performance marketing industry. The PMA gives performance marketers a unified voice to address issues and challenges facing the industry, such as the "nexus tax" proposed in some states.
PMA's primary contact on this issue is:
Shelly Sullivan
(916) 858-8686
The Panic
I received an email this morning from Pace Latin from OfferVault.com, who also own the first CPA network for the mobile market. Pace sheds some more light on the issue and how it will affect those of us in the performance marketing arena. I have shared Pace's email below in its entirety:
Via OfferVault - How the Affiliate Tax will CPA Networks Also.
There has been a great deal of discussion of all the Affiliate Tax laws being passed in the media. Unfortunately, thanks to a great spin campaign by companies such as Walmart, the discussion has been focused on how these new Nexus Tax laws will affect large companies like Amazon and Overstock. Time and time again these new laws being proposed are called “Amazon Taxes” for the sole purpose of ignoring the rest of the companies that will be affected when these taxes are passed. The real truth behind the Affiliate Tax debate is that these laws will have a profound and significant affect on almost every company in the industry, from the largest to the smallest – but will have the greatest impact on the small companies.This is not an “Amazon” tax, or an “Overstock” tax, but instead a “Small Business Tax” that has been labeled incorrectly in order that the general media might ignore the reality of what these taxes will do to small businesses. I’ve actually met a few attorneys who don’t quite understand the real problems with these laws. Let’s quickly look at what most of these tax laws will do, and explain it simply:The laws specify that if there is any affiliate of any company making revenue for a product in that state, then the company itself has to pay taxes for any transaction in those states.
My explanation is purposely obtuse and vague, because in many cases so are the laws that are being passed. The definition of a transaction or purchase is not very specific and thus is extremely problematic. This means that anyone engaged in any sort of ecommerce, whether it is sale of a product, promotion of a program, signups to site, in theory could be forced to pay those states taxes.Thus if you are CPA network promoting a product and you have affiliates in those states, you may be liable for taxes in those states. Why? Because as anyone who is in this industry knows, the definition of who is selling the product, versus what a network is and even what a publisher is, is often difficult to pin down. Sometimes affiliates of CPA Networks are the publisher, sometimes they are just a PPC buyer, and sometimes the network is a publisher of another network. With all the connections, who is to say what establishes the nexus? Don’t expect States that are desperate for money to actually define this for you, but instead send any company that has any affiliates in that state, anyone that reports that their money is made from marketing, tax bills. We are their new “banks.”Even if we knew the answer definitively to the different questions, many companies, from lead generation firms to dating sites are going to start avoiding CPA networks in those States for that specific reason. They do not want to risk that working with a company in a certain State will somehow cause a nexus and thus require them to file paperwork, file additional taxes. They’d rather make it easy and work with someone else.Thus, as I started, the victims here are not the Amazons of the world. They are the small businesses. Most CPA networks are just that: Small businesses, with a few employees, working hand in hand with their affiliates to create valuable opportunities for their advertisers. They, along with their affiliates will suffer the most. These taxes are aimed at our industry, our friends, our community and our businesses. If we continue to allow them continue without standing up, supporting those people who are fighting, it is very possible in a few years we all will wish we did.Pace Lattin
pace@pacelattin.com