On the surface it may have seemed to be a quiet couple of weeks. Unfortunately, nothing could be further from the truth. During the past couple of weeks some merchants are making the very difficult decision to completely end their affiliate programs, many others are using a state by state approach and terminating affiliates from “risky” states. The reason for the program closures and affiliate terminations is advertising tax. In some cases these actions are in response to legislation passed or a questionnaire received; others are happening in anticipation of developments.
Some merchants are receiving questionnaires from out of state revenue departments including but not limited to Missouri, Florida, California, Texas, Illinois, and Massachusetts. These questionnaires are not new, it is common, been going on for years. So why now decide to close a program? Closing a program in response to a questionnaire does not remove the nexus, if nexus was already established. Closing a program may remove the threat for future nexus but for now it may certainly reduces the stress merchants are feeling.
“Each day I worry that my business will grow to the point where nexus rules affect me. As I understand it I am way under the threshold right now. But what if sales skyrocket? What then?” Imagine being a merchant and worrying that your business will grow.
The other day, my friend Kevin urged everyone to stop hitting the nexus snooze button. I’ll go one step further and say we need to first hear the alarms. Alarms are going off everywhere. The Internet sales tax or advertising tax will affect everyone. Even affiliates in states without sales tax will feel the impact if many more merchants decide to close their affiliate programs. Until replacements are found, closed programs mean less income for affiliates and networks. Merchants may be able to more quickly replace lost sales with more in house efforts but for some that will be cost prohibitive.
So, what is the answer? More likely than not, Internet sales tax or advertising tax is in the future. How can our industry adapt to our own growth?
The only long term answer, when it comes to sales tax, is for merchants to start collecting sales tax. I know it is not as easy at it sounds, that’s why we are having our current problems. The reality remains that Internet sales tax won’t go away.
Before making a decision to close a program or terminate affiliates from certain states, merchants need to examine the option of collecting sales tax. I spoke to a merchant last week who said they had not even thought about it. They called back this week to say their accountant is looking into it more carefully.
Merchants should also examine each state to see if they offer subsidies to out of state merchants who comply to sales tax regulations. Small merchants can examine the possibility of shared resources with each other to trim costs of complying. Perhaps even networks could examine the possibility of helping their merchants comply by making sales tax software available at reduced costs. Maybe these are not practical solutions but they are ideas.
Our industry is filled with forward thinkers, filled with people who thrive on doing what seems impossible. Share your ideas; let me know if you want to work together looking at an idea. By no means is this limited to sales tax and nexus issues. We are currently working on several projects addressing other industry issues and welcome helping hands.
Now, if you have gotten this far. I posted a little contest over at ABW. It is open to affiliates only. Find YOUR state’s definition of nexus as it pertains to sales and the affiliate marketing industry. (If you live outside of US you can pick your favorite state ) Post an excerpt from the definition and the link to the official government website in the Nexus Contest thread. See the thread for more details.
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