Lessons Learned While Fighting the Affiliate Nexus TaxWritten by Pace Lattin
March 29, 2011 # 4:28 pm # Specials # 3 Comments
Waging battles in the growing number of states proposing affiliate nexus bills that threaten affiliate marketers is a lot like the classic episode of “I Love Lucy” where Lucy and Ethel attempt to keep pace with the conveyor belt at the chocolate factory.
Staying on top of what is happening in each state is becoming more difficult yet even more critical. But as the PMA gains a deeper understanding of the affiliate nexus tax issue, its far-reaching impact and we get some hard-won political experience under our belt; many valuable lessons have been learned.
Given that three different sates (California, Connecticut and Texas) will all be holding hearings this week on proposed affiliate nexus tax bills in their respective states, we thought it might be useful to reiterate the importance of affiliate testimony.
Several affiliates, who have testified in the past, emphasized that “no whining” and doing your homework to be armed with the facts is critical. Being prepared, calm, and polite goes a long way.
Putting a human face on small business is a great way to show lawmakers how real people and their families will be devastated by passing laws of this ilk. Affiliate marketers are a diverse group. There are stay-at-home moms, 1 to 2 person setups and larger affiliates that actually employ others. It seems to play well with lawmakers to be exposed to the wide range of affiliates. Regardless of which side the of the political fence politicians sit on, they don’t want to be seen as killing small businesses and hurting families. Tell your personal story.
Stick to the Basics
There are also arguments about fairness and the constitutionality of these bills. Cases can be made that this law unfairly single out affiliates from other forms of online advertising models. However, it’s just far too complicated to explain the nuisances of affiliate marketing and other forms of online marketing in just a few minutes of verbal testimony.
The most fundamental case to be made is that affiliates do not establish nexus for out-of- state merchants. Affiliates simply advertise offers for retailers on their website and are paid a commission if a consumer takes a specific action. But affiliates do not work for merchants. They are small businesses. They do not sell goods. They do not ship goods or handle the transaction.
These lawmakers are focused on raising additional revenue and often believe that out-of-state merchants are skirting the law and should be collecting these taxes, so getting into the nitty-gritty of affiliate marketing is not always the most productive path.
Know Your State
What may have worked as an argument in one state, may not work in another. In California, using the argument that such laws will devastate more than 25,000 affiliate businesses and affiliates will leave the state just seems to anger lawmakers. Businesses move out of California all the time. While in other states, such as Nevada, a rivalry with Utah over business development opportunities seemed to have some sway with lawmakers.
And in Illinois, legislators are very sensitive to the proximity to other states such as Michigan, Indiana and Wisconsin. In fact, those neighboring states often specifically target Illinois businesses with messages of being very business friendly. Initially the argument that affiliates will move and can easily relocate out of state seemed to resonate with lawmakers. But ultimately, the Illinois Governor signed the bill anyway, even as large affiliates threatened to move their substantial businesses out of state.
It’s also important to have a consistent message from affiliates. Again, just tell your personal story. And while marketers are known to be bold and aggressive in their online efforts, taking the same tact for the affiliate nexus tax can backfire. More than a year ago, one affiliate (in a state where a nexus tax bill was proposed) put ads on his site saying something to the effect that “you don’t have to pay sales tax!” to entice consumers. Supporters of the affiliate nexus bill in that state got wind of that message before a hearing and attempted to paint affiliates as people skirting the tax laws. That was certainly not case, nor the intent of that affiliate. But now is not the time to go rogue.
Lisa Picarille is an online content strategist. She develops online content strategies for businesses using unique and compelling written, video and audio content that is deployed across multiple platforms – including the social Web – to help businesses maximize their reach. She also consults on a variety of issues including online marketing, branding, and social media.