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|CA Sales Tax Law & Affiliates|
Many CA Affiliates May Soon Lose Income
Not too long ago CA targeted digital downloads:
Now they're making a money grab for affiliate income with proposed bill AB 178:
|“This legislation will close the current loophole in California tax law which has allowed out-of-state companies to avoid collecting California sales and use tax,” said Assemblymember Nancy Skinner (D – Berkeley). “During this unprecedented fiscal crisis we cannot afford to lose sales tax revenue from out-of-state companies when our own local businesses are struggling to keep their doors open.” |
So apparently Nancy Skinner doesn't realize that there will be a backlash against California affiliates just like there was against New York, and she'll be costing her constituents that earn affiliate income their livelihood.
Additionally, that affiliate income we earn is spent in CA, sales tax paid in CA on goods, and paid in CA income tax but they probably can't quantify this money (our income) so we'll all be hung out to dry in favor of other people's jobs.
One interesting emotional talking point she makes to rile up people to support this bill is this lame argument:
|Independent booksellers have been hammered by unfair tax competition from Amazon for over a decade. |
The booksellers are going the way of the dinosaur for the same reason the newspapers are, not because of taxes, but because online booksellers have more inventory, more available topics, and last but not least books are, just like newspapers, making the shift to all digital being read on a wide variety of devices including Amazon's Kindle.
Why are digital books an important point?
See the first link above, CA doesn't tax digital downloads!
So as the disruptive digital technology becomes even more pervasive to the book reseller market this latest attempt to collect income won't do squat except cost affiliates resellers their income.
What's the bottom line?
All California affiliates will be whacked across the board. just like with the New York tax, so that Amazon and other larger online resellers can continue to sell into California TAX FREE unabated.
That's right, California will collect NO NEW TAXES and in the end LOSE INCOME TAXES (and sales taxes) from the income we can no longer earn in California thanks to CA affiliates being shunned nationwide.
Nice try but you're going to cost many people and the state money and not earn a penny.
Interesting and confusing. So if a stockholder or an employee of the New York Times lives in California, or if NBC has a California branch, anyone buying a watch in New York City from an ad seen on their media would be subject to CA state sales tax?
I think New Hampshire and Montana are going to see a lot more incorporations.
Well LifeinAsia just beat me about incorporations. But LiA, think about this... lawyers have to eat in this economy too! ;) :P
Google is a California company, they have programs that are similar to affiliate programs. As I am reading the way this is wrote (Which is a bit vague) This could include all adwords advertisers as well. Interesting.......
For the past 2 weeks I have been in communication with the California Taxpayers Association who along with the California Chamber of Commerce has formed a coalition to lobby against California AB 178. Major corporations and industry trade associations are backing the fight.
Now a bunch of industry leaders and the PMA are spearheading a grassroots lobbying effort and building our own affiliate marketing coalition in cooperation with the coalition above. It's important the government knows this could cost CA affiliates marketers to lose their small businesses.
We had a big organizational meeting today and among the affiliate marketing coalition’s plans are letter writing campaigns, a group letter with as many signatures as we can get and a lobby day at the capitol.
We only have til the end of the month to get the attention of the assembly before they go on break. The committee meeting and vote is on April 13.
If you'd like to get involved to fight I hope it's OK to mention the Performance Marketing Alliance (a new affiliate marketing association) as a resource for more info and you can sign up there to join the fight.
(Note to mods, I am not on the board of the PMA or anything, just involved in the lobbying efforts and when I saw this thread thought I would help spread the word so people that want to help, will know there is an organized effort under way.)
[edited by: Catalyst at 10:04 pm (utc) on Mar. 20, 2009]
|lawyers have to eat in this economy too! |
Sez who?!? :)
By the way, can we get some feedback from people in New York who have already had to go through this debacle in their own state? Are there any numbers available yet for how much tax revenue they've actually collected because of it? And more importantly, have there been any studies showing how much revenue they have LOST because of it (from people/businesses moving out of the state)?
Seriously consider opening a shell company offshore for applying to affiliate-related programs. Our server is already located outside the U.S.
Many US based affiliate programs and advertising networks already avoid dealing with non-US companies (it's a bit of extra paperwork for them). I operate via an offshore company (for the perfectly legal reason I was until very recently a resident in that offshore country).
It has caused enough complications for me to consider opening a US subsidary (although in the end it's easier to avoid dealing with the "domestic only" companies like YPN).
Depending on what action is taken against "tax havens" (read: more efficient competitors) at the G20 summit on April 2nd, US companies may be simply banned from dealing with companies in certain other countries. In other words, given a choice it'll make even more sense for me to avoid doing business with US companies, where possible. Less tax income for the US as a result, but that's what protectionism does for you.
To get back to the server in California issue, I do have a server there, although as it's hosted (not owned) it's not considered a physical presence under the OECD rules (whether California is going to ignore those rules is not clear). Seems like a good time though to make plans to move that server away from at least that state, and prehaps out of the US alogether. More loss of income for California as a result.
|Many US based affiliate programs and advertising networks already avoid dealing with non-US companies |
Hmmm, I hadn't thought about that. Well, maybe we'll keep the shell company in the U.S. But which state will hold out the longest against the tax dominoes? :(
I am in New York and I can actually say that New York has been collecting from the larger .com's. The big reason why they are collecting is that the publically traded companies have stock trading on the New York Stock Exchange, Nasdaq or the Dow. The State of New York has a lot of power over the stock market because the trading is conducted in New York. So all of the big companies started collecting taxes. Each case that goes to court in New York loses. There are some cases on the Federal level right now, but they have not played out yet. Currently all the larger .com's are complying and sending New York a check every quarter because they do not want their stock trading suspended because of Tax violations.
Yes, some out of state companies that are not traded in New York dropped their affiliates, but for the most part they are collecting the taxes and paying New York. There are some companies who are publically traded who are not collecting but I fear they soon will face some consequences.
Some companies, like Overstock, dumped affiliates to avoid raising prices to cover the new out of state tax. Some are collecting and paying, yes, it's important to note that they basically ate the loss associated with the new tax, something they could do when it was NY only.
Now with California apparently heading for the same outcome, and other states legislators likely to follow as fast as they can, it seems inevitable that companies won't be able to absorb the cost.
This bill is extremely poorly conceived. If I live in Colorado, sell products online in Colorado, and sell to someone in Colorado... how the heck am I supposed to track what other websites the buyer may have visited before buying from me so that I know when to collect the tax? Under the proposed law if the buyer found me on a site owned by a California resident... I'd have to charge the tax! It's absurd.
edit: and by "absorbing the cost" I mean its not sustainable to charge a tax fee based on the total sale price when the sales commission was only a small fraction of that price. If you sell items worth 5000 and pay out a 100 commission per sale the new tax can be bigger than the money you set aside for affiliates to begin with.
[edited by: JS_Harris at 11:02 pm (utc) on Mar. 20, 2009]
Let's assume all the affiliates don't lose their jobs, the premise of taxing online sites to protect local stores is still NONSENSE.
Why? because Amazon will deliver direct to my door for one annual Amazon Prime fee and often the prices are cheaper so it's still a WIN-WIN to buy something from Amazon, even with tax, because I can do it from the comfort of my chair, no gas used, no time wasted with idiot clerks in stores, it's cheaper, and shows up on my doorstep a couple of days later.
In reading some of the replies posted above....
I highly doubt affiliates in California will be
dropped by their advertisers. It doesn't seem
plausible. I also highly doubt a webmaster
who lives in Ca. and has an affiliate link on
his webpage will be forced to collect sales tax
by the state.
But, worst case scenario:
If this goes into effect, I'm moving out of California.
Screw this state.
If this bill goes through, it will give me the much needed
push to move out of Cali once and for all. Have lived here
all my life and have watched the quality of life (especially
here in So Cali) decline massively.
This state is SO business unfriendly it isn't even funny.
California is no longer the "land of milk and honey" like it
once was back in the 60's and 70's.
What this state needs is a massive earthquake to sink it to
the bottom of the ocean once and for all.
Good bye and good riddance.
[edited by: BaseballGuy at 11:12 pm (utc) on Mar. 20, 2009]
Uniform federal e-commerce tax is the only solution.
You know, I'd love to collect more taxes for California but I have to say I share that sentiment BaseballGuy. This doesn't give me any new tools to improve my business or generate more revenue, it makes my business less attractive to companies who would have me affiliate with them... JUST BECAUSE I LIVE I CA.
The bill puts a value of 55 million on how much income will be generated for California from out of state buyers/sellers who happened to use a CA based site. Does this figure assume a 100% acceptance rate? If companies can't absorb the new tax the easiest option is to cut off all CA based affiliates like Overstock did in NY.
As this spreads either the price of things will need to rise or the affiliate commissions will need to decline for EVERYONE.
Canada is looking extremely good right now from a business point of view.
|Uniform federal e-commerce tax is the only solution. |
Don't hit and run like that - solution to what problem? The one being created by the new tax?
I don't see how a uniform federal e-commerce tax solves anything, if someone from Chicago buys something from someone in Chicago... how does a sales tax apply for California? California already collects an income tax on affiliate earnings, as do all states, but a sales tax too when affiliates don't buy/sell product?
edit: or even live in the states involved with a sale? Affiliates provide a service, they don't sell product.
[edited by: JS_Harris at 11:55 pm (utc) on Mar. 20, 2009]
I see a big rush to Bahama based server farms in the near future :)
|I highly doubt affiliates in California will be |
dropped by their advertisers.
It already happened in New York so expect it to happen here as well.
|But which state will hold out the longest against the tax dominoes? :( |
States with no sales tax: Oregon, New Hampshire, Montana, Delaware, Alaska. It would be harder for these to suddenly start imposing a sales tax on ONLY online transactions.
Can anybody point me to a source which covers exactly what is considered a California presence/nexus/connection for the proposed bill?
For example, I am a non-US company, renting a server in California, collecting a affiliate payment from an Australian company for a sale to somebody in Canada.
Would somebody somewhere be expected to charge and remit Calfornia sales tax? (if so, who?). Would it make any difference if the company paying me the affiliate payment was in Washington and the customer in Texas? if so, why?
If I simply move my only California server to another state/country (pity, it's my best and most expensive one), would that solve the problem?
Server location doesn't matter.
The issue of nexus was covered in extreme detail in the Amazon vs NY lawsuit but the California law has been worded more carefully and strongly.
A nexus is described as anything a California based company does which helps generate a sale, even if the only action performed is a click or redirect.
The amount of tax charged is NOT based on the affiliate commission, it is based on the sale value, the affiliate commission is ONLY used to set the condition of nexus and then it is ignored. Conveniently.
The exact wording is available on the CA governent site under AB 178.
edit: regarding nexus, sites owned by people in all states trigger the condition whenever a website based in CA sends a buyer to a seller. If you're based in Indiana for example and advertise on adwords, if the buyer is ALSO based in Indiana but he saw your ad on a site owned by someone in CA... you create the nexus and trigger the tax on the final sale price. This affects everyone. If you are in Australia, and sell to a buyer in Vermont, you must collect the sales tax if the buyer clicked through your ad on a CA owned website.
[edited by: JS_Harris at 2:38 am (utc) on Mar. 21, 2009]
robho, you know what, the wording is weak enough that it doesn't distinguish countries unless I missed that part.
Under the current wording China would be expected to collect CA tax if they sold something to India but India found the item on a website owned by someone in CA. Surely the CA government doesn't expect China to collect taxes for them ?
|The exact wording is available on the CA governent site under AB 178. |
Thanks. As far as I can see (as 6.d.1 is unchanged), the mere renting of a webserver is (still) not a business presence ("retailer") in California, following the OECD rules, so it shouldn't affect me (as an affiliate). The website has to be owned by a California resident.
But I can see how it would have a major impact on Google, in fact make Adwords/Adsense non-viable from California.
I'd love to see Google move the whole of Adwords/Adsense to Ireland (just a reissue of contracts would do it). That would get attention.
|so it shouldn't affect me |
It will affect you, it is designed to affect everyone and gather out of state tax revenue. You mentioned being in Australia, if you are involved in a sale with someone from anywhere else, lets say India, and the end buyer has at any point in the transaction left a click trail through a site owned by someone in California... nexus is established and the tax must be collected.
edit: robho If you're an affiliate and you advertise, and someone sees your ad on any site owned by someone in California before visiting your site... and you pass them along to the affiliate company, nexus was established before they reached you.
If the click trail leads through any site with CA based owners, nexus is created. It remains to be seen what Google will do about their displayed search advertising. This bill is sincerely flawed in my opinion.
[edited by: JS_Harris at 4:31 am (utc) on Mar. 21, 2009]
Surely if local businesses are suffering, the answer is to put state sales taxes on ice until the economy recovers? (Seems to me that a federal sales tax to replace all state sales taxes is long overdue for you guys!)
You might be right vincevincevince but the states won't relinquish that power easily I'm afraid. Taxing out of state sources is a better career move than taxing local businesses or schools too. I don't see how the approval of this, and then the spread of this, can be stopped at this point.
I don't feel the feds should replace all state sales tax. Each state has it's own tax rules. Some states are well off enough that they do not even collect sales tax.
I do feel the feds should intervene and collect an interstate sales tax for commerce (not just e-commerce). This tax should be reasonable. 4 or 5%. Just to stop the chaos. a few points to the fed and all pricing and what not level's off immediately.
I don't want additional taxes but if it is going to happen anyway and the days of not taxing interstate commerce are ending, I'd rather deal with 1 collector than 50. On the other hand, the feds could also step in and remind everyone there is no interstate sales tax.
I hope they do step in a remind everyone, homeless, nobody needs 50 mini countries within a country with 50 different sets of cross border tax rules.
Can you imagine if a click trail went through two or three states and each of those states demand a use tax? You'd have to pay taxes 3 times on the same sale.
Also, i wonder if we're about to embark on the absurd with the begining of "click laundering" where people set up servers/companies in tax free states with the sole purpose of "cleaning" the link via redirect.
If I live in Florida and click on an ad from a CA site and it leads me to a NY site where I buy something... I have to pay Florida, NY AND CA tax? Did they not think this through ?
|State stuff has to be paid for. What do people suggest? |
Cut the list of items some politician, lobbyist, trade group, etc. has deemed to be "state stuff"
Lots of posts in this thread, but I wonder how many people here are so upset that they will make this their primary issue in upcoming elections?
Suppose we all lived in California and state House and Senate elections are this November. Candidate A opposes/opposed this legislation and Candidate B supported it. But candidate B is on your side on other issues - pick one (abortion, homosexual marriage, environment, cell phone use in cars, cutting government spending, etc.). How many people here can honestly say that on election day, they would make this the primary consideration as opposed to one of those other issues?
Sadly many webmasters here are not based in the US and may see this as good for them, in all honesty it is good for them, it's creating an instant far from level playing field.
Wait until they want to tax email. You can bet it is coming.
You mean email isn't taxed in the United States? We've had sales tax on Email in the EU for years. (Directive 77/388/EEC)
|Wait until they want to tax email. |
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