The end of an era or a time for new opportunities, new thinking?

[Ron Bechdolt]

As an affiliate manager I am hearing every day about an affiliate program closing or letting go an affiliate manager. These are hard times and they may get harder before they get better. As I hear these stories and have some of it happening to me as well, I've asked myself if this is the end of an era...

...or is it a time for new opportunities and new thinking?

Affiliate marketing has become a prominent source of sales generation for merchants so I really do doubt it is now circling the drain. What I do think is this is now a time for affiliates and affiliate managers to reinvent themselves. To not say, "This is the way we have always run affiliate programs" and look for alternatives, anything new and innovative.

For affiliate managers you need to get in the face of your affiliate manager and let them know affiliate marketing is not an advertising expense, but more like finding a nation full of great salesmen that work on commission, not salary. You need to let them know that in these tough economic times customers are looking for discounts and their store could be the source of that discount. Use the economic crisis in your advertising if you can.

For affiliates you need to diversify. If you are promoting one merchant or just a handful, see what other merchants are out there with similar products. Sign up, try them out and be ready to switch your links in the case any of your merchant programs come to a sudden end. Try some new sites or completely different products as well.

Everyone in this business needs to fight to prevent the new sales tax laws. For years this has been a pretty work alone business. It's time now for affiliates in each state to get together and be prepared for any tax legislation that may come up. You want to be able to show your state officials you are more than one person out there. Supporting a national organization may help as well.

 

[djbaxter]

I confess I'm having a little difficulty understanding the reaction to sales tax legislation. Up here, we're accustomed to GST and PST on most items. I'm not sure why the application of sales tax to internet purchases is seen as such a catastrophe to affiliate marketers.

 

[Ron Bechdolt]

I think the beauty of shopping online was that there rarely was sales tax and if one can get free shipping, it's cost effective to buy online. Now with the new tax laws it raises the prices, but it also creates a mountain of work for the merchants and they have to keep track of different laws for different states. For some it is just easier to drop the affiliates in the states that have tax laws. At least that is my take on it, the short and dirty answer.

 

[djbaxter]

I guess my take is that if you're used to paying sales tax on pretty much everything you don't see it as a deterrent to buying online, since often the prices are cheaper anyway (if the base price is higher in a brick-and-mortar store, I also pay more tax on that item, so I'm still ahead buying online unless the S&H is prohibitive).

On the other hand, regarding this:

it also creates a mountain of work for the merchants and they have to keep track of different laws for different states

I can see this as a bit of a nightmare potentially but I thought that as a rule sales tax was applied according to point of sale, not point of delivery.

 

[FDC]

Good insights on both parts. Yes, I think the economy is also playing a part in the volatility in any market. And no matter what your title you need to become an asset to the company and continue to privide unique and innovative options.

 

[Linda Buquet]

Great Post Ron!!!

I confess I'm having a little difficulty understanding the reaction to sales tax legislation. Up here, we're accustomed to GST and PST on most items. I'm not sure why the application of sales tax to internet purchases is seen as such a catastrophe to affiliate marketers.

I can see this as a bit of a nightmare potentially but I thought that as a rule sales tax was applied according to point of sale, not point of delivery.

David re your Qs.

Here are some reasons the sales tax is a big deal and I'm sure it's hard to understand if you have not been following and are not in US.

Tax is charged based on point of delivery not POS. So in a nutshell here is the dilemma.

I am a merchant with all operations based in Chicago. I have no office, sales reps or anything at all in NY. Should not have to figure out 300 different NY sales tax rates, should not have to add to my current cost to the consumer by charging tax. Should not have the extra labor and expense of figuring out all the taxes in another state, doing the collection, the paperwork and remitting the tax to some other state.

FEDERAL law says you only have nexus if you have a PHYSICAL PRESENCE (as in a sales office or warehouse) in another state. BUT the new law says if I have affiliates in NY I now have to charge and pay sales tax in NY. Affiliates are NOT sales people and do not create a tax nexus. But the NY law considers independent affiliates, who are not employees a case for nexus.

Affiliates are not employees or sales people, they just do advertising which should not create nexus. If it does then any company that advertises on Google, Yahoo, magazines or TV in NY should have to pay NY sales tax. So it's unfairly singling out companies that have affiliate programs.

Why merchants are worried about charging tax (on top of all the paperwork and implementation costs) is this. If I'm a NY consumer and like to buy my electronics from Amazon. But now all of a sudden I have to pay sales tax which adds 8% or whatever to the cost I will now instead buy from ElectronicsWarehouse.com (made up online retailer) or one of the many other electronics places online that does not have to add sales tax. So having an affiliate program gives a retailer an unfair competitive DISadvantage!

That's what the merchant is worried about, so instead of charging the tax they just drop all their affiliates. Amazon has said they will drop affiliates now in every state that implements sales tax rather than have to collect it. Other states have already have merchants dropping their affiliates rather than paying the tax too.

Does that help explain?

 

[djbaxter]

Thanks, Linda. It does help.

Supplementary question, th9ough:

Why merchants are worried about charging tax (on top of all the paperwork and implementation costs) is this. If I'm a NY consumer and like to buy my electronics from Amazon. But now all of a sudden I have to pay sales tax which adds 8% or whatever to the cost I will now instead buy from Electronics Warehouse or one of the many other electronics places that does not have to add sales tax. So having an affiliate program gives a retailer an unfair competitive DISadvantage!

Are you saying here that in New York one does not pay sdales tax at a brick-and-mortar store but one does have to pay sales tax if purchasing online?

 

[Linda Buquet]

Sorry no I was talking about Electronics Warehouse being an online retailer from some other state that does not have to charge tax in NY. (I'll clarify in my post)

 

[djbaxter]

So if I own Amazon, I don't have to charge sales tax? But if I am an Amazon affiliate I do?

 

[Linda Buquet]

No affiliates don't make sales, don't have a cart, don't ever charge tax - they just refer visitors to Amazon and if people buy they buy from Amazon.

Amazon is based in Seattle and should only have to charge tax in their home state. However, now the company has to charge sales tax in NY BECAUSE they have affiliates in NY.

But if Amazon canceled all their NY affiliates then Amazon would no longer have to charge sales tax to NY residents.

 

[Ron Bechdolt]

But if Amazon canceled all their NY affiliates then Amazon would no longer have to charge sales tax to NY residents.

And this is the big fear right now, that merchants will just start dropping states that institute these laws. And the problem is, several states are starting to do this in a very short time. It could put some affiliates and some affiliate programs out of business. In New York, it already has.

 

[djbaxter]

Thanks for the clarifications, guys. I think I understand the issues better now.

 

[Linda Buquet]

Ya imagine being a NY affiliate making 6,000 a month, just enough to live on let's say. Suddenly out of the blue 2/3's of your merchants drop you and you are down to 2,000 a month and can't take care of your family.

Over a law that is UNCONSTITUTIONAL and goes directly against a long standing Federal law.

I'm sure there are some affiliates making $6,000, $10,000 a month or more just from Amazon alone. If Amazon drops them, that's a ton of income to lose just from one merchant. And if Amazon starts dropping affiliates instead of fighting these bills, more merchants are sure to follow in their footsteps.

 

[jcorkern]

I think it would also be very bad for the companies also, they lose the additional placements and sales from these affiliates and it seems that they are just going with the lesser of the two evils in this case as far as business is concerned.

Having the additional book keeping to sort and pay the taxes may outweight the profitability of what the affiliates would produce. This is a triple lose for everyone. The company, the affiliates and the government, but since when does the government do the right thing?

I fear Internet 2 more than anything else though. If you read about it, it is plain out scary.

 

[Linda Buquet]

Jim I haven't read much about Internet 2 yet. Sounds like I better check it out.

 

[stewkelly]

I'm pretty convinced that this recession has lawmakers taking a long hard look at figuring out anyway they can to get more revenues. Internet sales have long eluded their greedy grasping hands, and they don't like it!

Money is like heroin to politicians and my guess is pretty soon all online merchants, not just affiliates, will be forced to collect sales taxes.

I think all those affiliate merchants that dropped your affiliate marketers because they were forced to collect sales tax were cutting off their nose to spite their faces. Affiliate marketers are a major economic force in Internet sales, and they cut off a tremendous customer base dropping affiliates in tax collecting states.

As an aside, I know I wouldn't be eager to promote those programs in the future cause they are untrustworthy to me!

On the plus side, I don't think it would take a super programmer to create software that could handle it all.

 

[Linda Buquet]

I agree Stew,.

I would not mind so much if ALL retailers had to charge tax, then at least it would be fair and affiliate programs would not be singled out. As it is online stores like Walmart who have retail stores, have to charge tax in most states anyway.

I think the streamlined sales tax is the answer though. I believe it would make one flat tax across all states so merchants don't have to figure out all the different tax rates for each state.

 

[karengarcia]

One thing to note about these new tax laws...they are NOT new taxes. They are old taxes that the respective states are trying to actually collect.

For example, California residents BY CURRENT LAW are required to keep track of online purchases made where sales tax was NOT collected and then remit the proper amount to the state with their income taxes. Do people do this? No. Do most people know it's even a law? No. As a result, the state is looking for a way to collect the tax that is already due...unfortunately the ABA (see below) and their lobbyists have been pushing the New York law as the solution.

The new legislation that is in process in CA is actually a collections bill...not a new tax. That's why (at least in CA, not certain about all the others) it only requires a simple 50% majority vote, not a two-thirds majority vote. Much easier to pass.

Also stacked against us is the American Booksellers Association that is actively gunning for Amazon and online retailers with affiliate programs: bookweb.org/advocacy/salestax and bookweb.org/advocacy/salestax/Nov2008letter.html

Is the tax due? Yes.
Are the states going to be able to collect what they believe will be a windfall with their new definition of nexus? No, because the small businesses that they use as the basis for that nexus will falter as merchants cut their ties so they don't have to deal with collecting and remitting tax in the 12,500+ tax districts across the US.

 

[Linda Buquet]

Thanks for bringing that up Karen! It's true the tax is already due, it's just most consumers aren't paying it and that does make it easier for them to pass these bills.

What they maybe don't realize, is if the merchants cut affiliates the state not only will still not get the tax revenue but they will have affiliates earning less revenue and therefore paying less income taxes and having less money to invest back into the local economy.

 

[Tiny1]

So what you are essentially saying is that it will be cheaper for a company to do away with affiliates than to collects this unwieldy tax.

If I buy from a brick and mortar store then I expect to pay sales taxes, but if I buy from an out of state store via mail order or internet I do not expect to pay said taxes.

And because I refer people to your company and I happen to live in a state other than the state of the offices of the web company then why does the company have to collect taxes for my state just because I referred that customer?