More and more states start to introduce the affiliate tax. Seems like its a pretty hot topic as one state after another is bringing it out. There are a ton of updates on twitter, blogs and forums. Geno from AM Navigator just wrote about Vermont joining the list along with a brief update and links to the posts for the other states.
Now, why do these bills matter? Who cares if people pay sales tax on the items they buy online or not? Tax-free shipping is one of the top reasons why people shop online. It drives sales and helps to offset shipping charges and keep the prices low. Theoretically, online retailers are not supposed to charge tax on items shipped to the states in which they have no physical presence. The new tax bills define affiliates as “contractors” working for these online retailers in the state and this is how they try to justify the presence for the most part.
As for the thoughts, I think it will hurt the states more as they are just killing affiliate businesses and will end up losing tax dollars that these businesses could have earned. It looks like it is more profitable to terminate “tax state” affiliates then start collecting taxes in these states and these is what online retailers have been doing. Some say – well, this is why Circuit City got closed, which I think is a crap. Circuit City has always been struggling to compete with Best Buy and Wal Mart. They tried to charge and save every penny possible, just like these “tax states” do. Cheaper unskilled labor, higher prices, crappier service – that’s what killed them… Best Buy reported profits while Circuit City was slowly going out of business and thinking of opening up “The City” instead of focusing on improving their service. By the way, in case you did not know, online division of Circuit City is still selling. They actually have better email marketing now , but I think that the prices still suck comparing to new egg and amazon. Even if online merchants had something to do with the closing of Circuit City stores, what are these states trying to do? They are not going to get sales tax from them anyway, just lose more people who actually make money and pay taxes on the money earned. Will they drive more sales to local stores? I doubt that it will be noticeable. Affiliate marketers will shift the focus, move, do anything they can to keep working with these merchants…
The opportunity will still be there for some states. For instance, Amazon already charges sales tax for Washington residents and since I live here, it makes sense for me to keep working with Amazon since if Washington tax bill ever passes, it will not affect Washington affiliates. It makes sense for Utah affiliates to keep investing in their Overstock.com affiliate sites, California affiliates – newegg, etc. However, what would you do if you work with all of these merchants and do not want to lose a big chunk of earnings? Move to another state? How can you be certain that the other state will stay away from the bill? At this point I can only think of states like Oregon where there is no sales tax… Let’s all move to Portland! 
Just kidding, but not really.
Now, would you be pissed if you would have put years of SEO/Development/Design/Brand Building work into your affiliate site around a merchant and received an email saying that the merchant is done with your state? Some can lose a significant portion of the income and it would just make sense to move out to another state. “Tax states” may lose in a long term. America may end up losing in a long term too. Imagine if you did all the work moving to another state which would change something because of the budget deficit too… All the work for nothing? Oh well, time to move to Canada… or India… or whatever… May be… May be not… Just thinking…
Most affiliates I know do not work with just one merchant and wouldn’t move to Washington just because Amazon is here. However, as I said in the interview with Murray Newlands a few days ago, I see the growth in local and international affiliate marketing. I already have a few landing pages for the local retailer and will probably put more effort into Amazon since I am not planning to move anywhere yet. International market is cheap, not too many merchants want to go there yet, but it is a growing market.
There are a lot of changes in affiliate marketing industry. It gets harder and harder. Sometimes I am thinking to shift all of my focus to web development, but I don’t want to drop something that I just started…
Anyway, just personal thoughts out loud…
01.30.10
