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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.
I had already posted this here - [webmasterworld.com...]
might want to axe one or the other.
|legislation that will ensure that California receives its share of sales and use tax revenue from out of state companies leveling the playing field for Californiaâ€™s brick and mortar businesses. |
Nancy says "from out of state companies" but the law targets in state affiliate companies as well, double taxes.
|We welcome this effort to level the playing field for all retailers |
No, it's being welcomed to fill the government coffers, taxes don't get paid to brick and mortar shops.
[edited by: JS_Harris at 12:01 pm (utc) on Mar. 20, 2009]
The Overstock affiliate network cut off all NY affiliates companies because they had a physical presence there.
If you live in California and are an affiliate, you may want to see if the company you're an affiliate of has a presence in California... meaning a building or office or store of any kind.
Since it's California, many major companies do, does anyone have a list?
edit: it's also somewhat ironic that ebay's ex CEO Meg Whitman is vying for the governer's job in California when if this new law passes California EPN affiliates might get the axe.
[edited by: JS_Harris at 12:12 pm (utc) on Mar. 20, 2009]
The main advertisers on EPN are eBay and Half.com and both these companies do not collect Sales Tax. So I am not sure how this would affect EPN.
And more reading - [ebaymainstreet.com...]
ebay is fighting this, it hurts ebay sellers and not just affiliates.
inasisi - remember that if you are paid affiliate earnings you must pay taxes on those earnings. Likewise the affiliate company must report having paid you. They must also have your address on file and if that address is in one of these new tax zones the affiliate must have charged tax on the money you generated and pay it accordingly.
It doesn't matter who the advertisers are, it matters where the affiliate payments are sent to.
The relevant portion of the tax bill to any affiliate marketer living in California is...
|(5) Any retailer entering into an agreement with a resident of |
this state under which the resident, for a commission or other
consideration, directly or indirectly refers potential customers of
tangible personal property, whether by a link or an Internet Web site
or otherwise, to the retailer, if the cumulative gross receipts or
sales price from sales by the retailer to customers in this state who
are referred pursuant to these agreements is in excess of ten
thousand dollars ($10,000) during the preceding four calendar
quarterly periods. This paragraph shall not apply if the retailer can
demonstrate that the resident with whom the retailer has an
agreement did not engage in referrals in the state on behalf of the
retailer that would satisfy the requirements of the commerce clause
of the United States Constitution during the four quarterly periods
It's most likely cheaper to cut off California affiliates than it is to charge these taxes.
Thats why Overstock, and others, axed NY affiliates.
[edited by: JS_Harris at 12:43 pm (utc) on Mar. 20, 2009]
To be clear - a scenario.
A website owned by someone in California shows an offer to a man in Illinois from a company based in Chicago. The deal is concluded between Illinois and Chicago, the website owner is not involved in buying/selling whatsoever.
Under this new law the seller must charge California tax because business was referred through California. That, in my opinion, is very wrong.
using this logic you'll have to collect taxes if your webhost is in CA! This is crazy... If an affiliate happens to live in CA, but the advertiser is in FL, server in NY, and customer in NH... how can CA claim jurisdiction? This is a federal situation, and we have no federal sales tax. (yet)
Crazy? Absolutely. CA is claiming that since a website owned by someone in California made the sale possible the State is owed money. The advertiser in Florida will have a hard time telling the customer in NH that he has to charge California tax...
It's easier to cut off anyone based in California than to deal with this new California tax law and that was intentional by Nancy Skinner who is saying it's just to protect brick and mortar shops in California. Talk about a step backwards, ask any NY based affiliate.
edit: She's hurting the livelihood of all California webmasters who earn income from their sites. they expect a 55 million per year tax revenue boost from this but I don't think they are accurately measuring the number of affiliates who will be told to go away from the programs they've been in before the law passed.
I think Nancy Skinner should be ashamed of herself for calling this "the closing of a tax loophole". The California based affiliates were paying taxes on their income, this bill is to create a NEW way to grab OUT of state money too.
[edited by: JS_Harris at 2:08 pm (utc) on Mar. 20, 2009]
|A website owned by someone in California shows an offer to a man in Illinois from a company based in Chicago. The deal is concluded between Illinois and Chicago, the website owner is not involved in buying/selling whatsoever. |
It will be an even greater mess when/if Illinois starts to charge tax and lays claim to a portion of the sale. Let alone cities such as Chicago. Governments are feeling the pressure of the economy magnified by unrestrained spending. Instead of looking for good ways to cut costs we can expect tax hikes.
If a customer goes through fiber in several states, shouldn't those states receive a portion of the sale? Sounds like another loophole that needs closing!
Let the bears pay the bear tax!
If you live in California, please contact your state representatives immediately and put pressure on them to shoot this bill down. Otherwise, the same thing will happen that did in New York- all affiliates living in CA will be cut off by most advertisers.
And for the rest of you- New York has already fallen. If California falls too, the other states are going to fall like dominoes. So you'd better start sending pre-preemptive letters to your own state representatives as well before they get any ideas.
Well since CJ and GAN (I think) are both in CA does that mean that a company that uses them would be responsible for collecting sales tax on ALL affiliate orders going through them?
That is a step back to segregation.
and how do they plan to enforce this (particularly with the webhost-in-california-scenario-as-posted)?
for example, I have a webhost in California but I reside in another State.
Are they going to somehow require the webhost to figure out the taxes and then bill me?
Now Google's move to have European publishers paid by Google Ireland makes sense. :)
|Crazy? Absolutely. CA is claiming that since a website owned by someone in California made the sale possible the State is owed money. The advertiser in Florida will have a hard time telling the customer in NH that he has to charge California tax... |
|Well since CJ and GAN (I think) are both in CA does that mean that a company that uses them would be responsible for collecting sales tax on ALL affiliate orders going through them? |
If so, most advertisers outside of CA would probably drop them if/when the law goes into effect. If they go under as a result, that would be a big chunk of tax revenue lost and unemployed gained.
Both Google and Yahoo! are in CA. Could this have any ramifications on paid search?
I read that the Florida state legislature was considering something like this as well.
|Both Google and Yahoo! are in CA. Could this have any ramifications on paid search? |
So I read through the law and found this:
|... "retailer engaging in business in this state" a retailer entering into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link or an Internet Web site or otherwise, to the retailer ... |
Google and Yahoo are clearly residents of this state.
The phrase "commission or other consideration" is what worries me here as "other consideration" could be open to a wide interpretation possibly including PPC advertising payments known as AdSense and YPN!
Now read this:
|... directly or indirectly refers potential customers, whether by a link or an Internet Web site or otherwise, to the retailer... |
AdSense directly refers customers via links, so do the AdWords ads showing in the SERPs, therefore it's possible that anyone using Google as an advertising vehicle could be subject to CA tax.
I'm obviously no lawyer but it seems to be worded broadly enough that it could be interpreted in such a manner.
If you want to be a conspiracy theorist you could check and see if either of the backers of this bill are getting any contributions from Microsoft because decimating both Yahoo and Google's advertising programs just as Microsoft's comes online would be an absolute windfall of profits. ;)
One could also read into this that AdWords (not just AdSense) could be taxable.
Can you imagine what the cut would be if Google AdWords was taxed? The California economy would instantly recover.
To know who will take a financial hit on this you need only trace the dollars. If ANY company, be it CJ or Google or Yahoo or eBay or other, sends a commission or payment check of any kind to a CA resident... A sales and use tax will have had to have been collected by the BUYERS of all of the actions leading to that commission generating event, regardless off state (read ESPECIALLY out of state).
this affects EVERYONE, not just CA residents.
- If you DO NOT live in California and buy something from online ANYWHERE in the world you will owe CA sales and use tax if the website owner whos ad you clicked resides in CA. It won't matter if you, and the company you bought from, are NOT based in California...
- Google, Yahoo!: if you click on a cpc ad from a website owned by someone in CA... you'll have to pay the CA sales and use tax if you buy anything.
- eBay sellers and affiliates: if you live IN CA and sell items you must collect the tax, if you live OUTSIDE of CA and buy an item from a website owned by someone in CA you must pay the tax. Same applies to affiliates even though they don't handle product at all, (a double taxing here).
- CJ, why on earth would they want California based websites in their network when it means they must pay taxes on all sales with those sites involved (remember - the affiliate site is used to determine if tax is owed BUT not how much tax is owed, the affiliate site only triggers the event, the total sale amount triggers the tax owed and so it's possible for a $10.00 commission to generate 1000.00+ in taxes owed for a large item).
If you live in CA and own a website, prepare to be scorned. If you run any advertising that shows up in CA, prepare to collect tax on sales (which somehow your affiliate program must pay, not you).
edit: I can't say it strongly enough that don't look at this as just a CA problem, when both NY and California no longer exist to your business and it spreads to other states (which is happening now - Florida and Indiana apparently) everyone is going to be affected.
[edited by: JS_Harris at 7:40 pm (utc) on Mar. 20, 2009]
|Can you imagine what the cut would be if Google AdWords was taxed? The California economy would instantly recover. |
Not really, the business who was paying already steep fees to advertise with adwords and is hurting in this economy will have to stop advertising. Less money for Google, less revenue for the business, less sales in general, not more.
You have to remember that this is not a tax on how much you spend on advertising, it's a tax on the sales you create. You can spend just 10 dollars on adwords and generate a 15,000 car sale... you'll owe over 600.00 to CA if the buyer left a click trail through CA.... and it won't matter if you and the buyer are in Chicago.
I'm wondering, though, what people expect states to do. They are losing sales tax revenues because of the internet. I know myself that now that Amazon charges NY sales tax, I tend to buy used books more, because the other sellers don't charge sales tax. But I also know NY is hurting for tax revenues, esp. with the collapse of Wall St., which is where most of the tax revenues were coming from. State stuff has to be paid for. What do people suggest? These weird machinations the states are coming up with are a response to a real need.
Short term - it sucks
Long term - it helps or at least it helps NY affiliates by bringing in another group of concerned parties that will lobby the federal government to get rid of this.
ps isnt commission junction in california?
FYI, the hearing date for AB 178 has been set for April 13, 2009 so there's plenty of time to get our voices heard in this matter.
|I'm wondering, though, what people expect states to do. They are losing sales tax revenues because of the internet. |
I expect the states to stop wasting money on frivolous nonsense like landscaping medians on the highway with pretty flowers, building waste water infrastructures to water this landscaping, catering to special interest groups, basically CUT THE FLUFF and balance the budget.
When I couldn't afford making long distance calls back in the day I simply didn't make them, it's real easy to live within your means.
This law isn't a solution, it's a kick in the head to anyone making affiliate income as we're all just going to be slaughtered when major corporations give a few thousand of us the axe just to keep selling tax free in CA.
Let's face it people, the politicians may make big talk about the job situation but all of us independents are about to get thrown under the bus.
Coming to a state near you ... what will you do without your affiliate income?
|I'm wondering, though, what people expect states to do. They are losing sales tax revenues because of the internet. |
No, what laws like this do is try to impose taxes where no taxable relationship exists.
If a CA resident buys something from a local company, he is subject to CA sales tax. OK- I accept that.
If a CA resident buys something online from a company in CA, he is subject to CA sales tax. OK- I accept that too.
If a CA resident buys something from out of state (whether in person or online), he is subject to CA use tax. I don't really agree with that- that's stretching it. But I accept that's the law.
If an IL resident buys something from a merchant in FL, there is no way that transaction should EVER be subjected to CA state tax. (Well, if the FL merchant ships from a CA warehouse, perhaps then...) Yet that seems to be exactly what this bill proposes.
Given the size and influence of Internet-related companies in CA, and given that CA politicians are already skating on thin ice over the recent huge tax increases, I'm don't know how much support this bill could get. But even if it doesn't pass, the huge amount of money and resources that will be wasted to fight it could be better utilized in the current economic climate!
|Coming to a state near you ... what will you do without your affiliate income? |
Seriously consider opening a shell company offshore for applying to affiliate-related programs. Our server is already located outside the U.S.
[edited by: LifeinAsia at 9:45 pm (utc) on Mar. 20, 2009]
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