This guest post is by Yasmine Mustafa of 123LinkIt.com.
The Business Insider recently reported that ten thousand affiliates were recently dropped from Amazon’s Affiliate Program with little warning.
How much income would you lose if you were no longer permitted to use the program?
This is an issue that bloggers in California, Colorado, Illinois, New York, North Carolina, Rhode Island, and Connecticut are currently facing. They were instantly cut from Amazon’s affiliate program due to a new affiliate tax law.
Update: Amazon dropped the ballot fight last week and cut a deal with California on the collection of sales tax. According to CNN Money, they have not stated whether or not they will reinstate their CA affiliates.
How did it happen? What can you do to avoid this law from passing in your state?
All about the affiliate tax law
Online retailers such as Amazon that do not have a physical presence are not required to collect sales tax like brick-and-mortar businesses. Big companies like Wal-Mart who are taxed see this as an unfair advantage and are paying lobbyists to push what is now called the “Amazon tax” or the “affiliate nexus tax.”
In short, this affiliate tax states that online merchants can in fact be taxed if they have a “nexus” or connection within the state. Affiliate marketers are one of the groups of people viewed as a connection. As a result, state governors in the above-mentioned states are signing a law that taxes Amazon and other online vendors through its affiliates. They are now being treated as having a physical presence and are subject to pay taxes.
Amazon has reacted immediately. Wanting to avoid being subject to costly tax inquiries from the government, they are cutting connections to every state that passes the affiliate tax by terminating agreements with all affiliate marketers, leaving many bloggers with decreased incomes and some with no incomes from their blog. As long as there are states that do not tax its sales, Amazon has stated that it will continue to avoid affiliate marketing in the states that do. As of June 30, 2011, California, Colorado, Illinois, New York, North Carolina, Rhode Island, and Connecticut have been affected by the nexus tax.
How you can make an impact in the Amazon tax battle
The war is not lost and bloggers can make a difference in fighting back or preventing the affiliate tax law from passing in their state.
- Visit the Performance Marketing Association (PMA) Tax Nexus site to further educate yourself and join one of their state-specific Google groups.
- Join PMA’s fight in the reversal of the tax currently underway in certain states. To learn more, visit PMA’s contribution page.
- Bloggers can write their state representative and explain how the legislation will harm their income. The best letters are concise and honest, and include supporting examples. About.com has a great structure on how to write letters to Congress that is worth checking out beforehand.
What are some Amazon Associates alternatives in the meantime?
If you have been affected by the affiliate tax, there are other options consider.
- Find other affiliate programs to join. Some of the most popular that can fulfill Amazon’s inventory include Barnes and Noble, Buy.com, Best Buy, Newegg, the Apple Store, Wal-Mart, Target, and Sears.
- Sign up for an affiliate tool that aggregates all the affiliate programs and automatically embeds affiliate links in your blog. These include 123LinkIt (Disclaimer: I am the Founder of 123LinkIt), Skimlinks and Viglink.
- Relocate. This is a drastic step but worthwhile if your revenue warrants it.
Questions to consider about the affiliate tax law
Will national standards for taxing online retailers be implemented? How will all this affect bloggers and small businesses? Let us know in the comments!
Yasmine Mustafa is the Founder of 123LinkIt.com, a service that allows WordPress bloggers to earn affiliate revenue from product keywords in their content. It is currently the #1 downloaded affiliate plugin in WordPress.
The California decision by Amazon was a big punch in the gut. My brother was affected by this and lost a fairly decent income stream from this. It has happened in quite a few states now, so it could be coming to a state near YOU!
Great tips for alternate strategies here. Having another plan is always a good thing. Wheneever you rely too much on one single traffic source (whether that source is Google or Amazon or something completely different) it is only asking for trouble.
Diversify is a good watchword!
The California decision by Amazon was also bad for me. Even though I was just making a few hundred dollars a month from it, it was enough for me to be very upset.
The alternatives are OK, but it was just so much easier with Amazon!
I’m an Amazon affiliate in NY, and I still have my account. From what I’ve seen across the net, CA was the biggest hit with NY keeping its affiliate status for now.
Always smart to diversify your income, but this just flat out sucks. Just gotta start making your own products and start relying less and less on affiliate income.
They’re always finding new ways to suck as much money as they can from people.
They (the tax hounds) just can’t leave well enough alone. Every time they DO get more revenue from citizens they STILL end up broke and wanting to take more of our pie. Disturbing. I need to check out the status in Texas.
Samantha
Here in Washington State, Amazon has had to collect sales tax since day one (Amazon’s HQ is in Seattle, so it falls under the “physical presence” law that predates the Internet). So it seems like Amazon already has the infrastructure to collect state sales taxes.
On the other hand, the “nexus” idea is the lamest possible excuse for simply slapping a tax on something, and Amazon may be right to protest in the only way they can – hopefully those states will see that they lose more from their state-based affiliates not paying that tax revenue than they would gain with a “nexus” tax.
Very interesting. I didn’t know so many states had passed this law.
Another great reason to live in Texas I guess.
As a sales tax consultant, this has been a very hot topic for my clients. Unfortunately, I have to say that the media is doing a terrible job of reporting the facts on this case. Even worse, it appears that politicians are responding to the hype with their own misinformation.
This discussion has been happening for 20 years actually. It started with mail-order catalog sales and moved toward the internet about 10 years ago. As the economy went south a couple of years ago, the states started to see this as a discussion that needed to be brought to the front burner in order to make up for the decline in revenues.
Congress needs to weigh in on the standards for interstate commerce in order to slow down the frantic pace the states and the online retailers are moving. Will that happen soon? Maybe. It’s possible that we can see some movement on this issue, but I’m cautiously optimistic considering the debacle that recently happened with the debt ceiling. There are a lot of tough federal-level issues on their plates right now (e.g. health care, national security, the budget deficit, etc.) that I think it’s possible to have the interstate commerce issue get lost in the shuffle.
In the meantime, I think we can expect to see more states gain national attention for their moves in trying to get in on the online sales tax discussion. What’s my opinion? Haste makes waste. When the government ties to move at the pace of private industry, things can go awry very quickly.
While there are alternate strategies such as VigLink and others, they do take a 25% cut off the top of your affiliate sales margin. Considering Amazon and their payout percentages this might be just enough to not make it worth it for some people.
I live in Colorado and had several websites that where effected by this sudden drop by Amazon. The profits compared to the reediting of articles, banners, or site pages to eliminate Amazon’s product descriptions. This was much more costly than my profits from Amazon.
I am not a lover of Big Brother and tax’s but I do see the reason for the complaints from Wal-Mart and other big tax paying retail stores and well as the mom and pop barely getting by type of operations.
Yes you can use other sites as an affiliate for the same or similar products. But I have now found any for similar products that can compare price wise with Amazon. I kind of hope the tax law is stetted one way or the other and help level the playing field. This would help keep prices in line and competition always ends up helping the general consumer.
So… Walmart lobbies in favor of this law and you suggest Walmart as an alternative? If I were to consider an alternative, I’d research and avoid companies those lobbying for the the law.
That sucks, especially if you already declare your taxable income with Amazon earnings. They want everything to be taxable, sometimes it goes beyond unfair
If you were an Amazon affiliate, and got cut by Amazon because the nexus tax law became applicable in your state, surely all you need to do is either register a business out of that state and then re-sign with amazon, or just (re-)register with amazon using a home address in a different state? I am sure most of us know someone who lives in a state where amazon still allows affiliates. There is plenty of evidence on the web that amazon will re-instate accounts if the address is updated to another state (ie its easy to find posts of California amazon affiliates reacting to them being cut off). Or, just open up a fresh account with Amazon with an out of state address. Amazon allow most people to sign up to most of their affiliate programs – you don’t have do be based in the UK to join their UK affiliate program, and the same goes for their Canada, France, Germany, Japan, Italy and China programs. Its never going to get to the point where Amazon drops EVERY state in the USA because of the tax collection laws. There is going to be a tipping point where Amazon has cut off too many affiliates/states where it begins to hurt its bottom line. At that point, it will be forced to make a change and level the field again.
Income does matter.But we need to pay tax.We should follow laws.
Relocate? Given the aggressive nature of those who want to tax us dry, it’s hardly a sensible strategy to move to another state — just hoping that you can recoup those losses before new laws are instated and you have to re-relocate!
Just another way our irresponsible government is destroying our economy. Passing anti-business laws, making it harder for small businesses to succeed in this already collapsing economy. Since Walmart is behind this, stop supporting Walmart.
Simply set up an LLC or S-Corp in Nevada on-line and do business as a Nevada business. No worries.
Hopefully we’ll be safe from all this up in Canada. I wonder where the line will be draw, if someone only makes $1 a week from ‘recommending’ a product, should they be really be taxed beyond income tax?
Happy to be in Canada, for now…
True dat – it’s much better these days.
About the taxes, there are things able to do in Canada, that just aren’t possible in US or other countries, such as Transitional and GST/HSTetc.
I read all about stuff like that here.
Too bad I am not eligible to all of that stuff.