The Controversy of Amazon Nexus Laws and Affiliate Marketing

amazon.nexus.lawsAffiliate marketing with Amazon has taken the ax in many states in the US, as a result of Nexus Laws.  Update:  As of January of 2015, 15 states have now been dumped the right to affiliate with Amazon.  Many affiliates have suffered a HUGE drop in income due to these laws. Have the “powers that be” in your great state jumped on the Nexus band wagon? Will YOU be next to ‘get the ax’ from Nexus?  What is behind all the ‘Nexus Laws’ controversy with Amazon?

The Amazon Nexus Laws Controversy in a Nutshell

One HUGE variable is the Big Chain stores like Best Buy, Target, Home Depot and many others. Whenever they sell any X product (for say $100), they must pay also charge tax & pay the feds on that purchase (around 7%). However consumers can buy the same item from amazon.com without paying that tax. The big chain stores did not like that, and neither did the feds who want their piece of the money pie.

Because big chain stores have both physical retail AND online presence, the DO have to collect sales tax and pay it to the state. I suspect they might have complained about amazon having an unfair advantage. Maybe they got in the ear of the state, telling them about how much tax money they were missing out on, think?

Online shopping is growing dramatically. Lots of money is being made and the feds want a cut. The tax percentages that consumers would have to pay if they bought the same product from an actual brick and mortar store in the state is lost.

These big brand chain store retailers who must collect and pay sales tax aren’t happy that companies like Amazon do NOT have to. So this becomes a controversial war with more than two sides.

Which US states were hit by Amazon Nexus laws?

US states where affiliate partnerships with Amazon are now shut down include:  Arkansas, California, Connecticut, Georgia, Illinois, Kansas, Maine, Missouri, Minnesota, New York, North Carolina, Pennsylvania and Rhode Island.

In this controversial NEXUS WAR, all sides (below) are having a hissy fit over …

  “WHAT IS FAIR?”

  • state government officials
  • big chain retailers with stores AND websites
  • online merchants like Amazon
  • local brick and mortar businesses who have no website
  • affiliate advertizers having only an online presence

Understanding Nexus Laws 

The Sales Tax Institute says: “Nexus means a business entity has established a direct or representational presence within a particular state or jurisdiction. This presence gives the state the right to require a company to pay or collect and remit certain taxes.”

Meaning of the above:  The term nexus in general refers to a connection. In tax law, the term refers to situations when businesses have a ‘nexus’ or simply a presence in a state. Then that business is subject to sales taxes within that state. Those who affiliate with online merchants such as amazon through online advertizing, reviews and such are exempt because Amazon has no ‘nexus’ – no physical store in that state.

Amazon Nexus Laws:  The Plot Thickens

The Nexus Laws create a different picture, one where even though an online merchant (Amazon) doesn’t ACTUALLY have a retail presence in the State, sales are no longer exempt from taxes. These Nexus Laws create a retail ‘presence’ for them through the affiliates with an address in that state who affiliate with Amazon and advertize their products online.

Rather than make the adjustment for these changes, Amazon eliminated their affiliates who live in ‘Nexus Law’ states! Rather than deal with all of this confusion over Nexus Laws, Amazon has just chosen to deactivate the affiliate sales accounts of any affiliate who resides in a state governed by the new Nexus Laws. So those business owners who were involved in affiliate marketing partnerships with Amazon have been expelled from that earning stream even though they did nothing wrong.

Maybe amazon considered the changes to be an accounting nightmare. However, they could have begun collecting tax from Nexus states by programming their shopping cart apps to collect the tax, as some other online retailers have done. Instead amazon chose not to deal with the tax law by just dumping those affiliate partnerships effected by the laws.

The result has been catastrophic for many small businesses who were very active in their affiliation with amazon. According to the Performance Marketing Association, more than 90,000 people and businesses have now been directly affected by the passage of these Nexus laws.

HOW can your Amazon advertising links constitute a retail presence for Amazon? You do not stock products for Amazon, and no one comes to your home to buy Amazon products from you. You don’t take Amazon returns or deal with customer service. You are simply an advertizer, NOT a store. These were some of the biggest advantages inherent in the beauty of affiliate marketing, yet they are being threatened.

Amazon Nexus Law History

The Affiliate Nexus Tax law was originally known as H.B.983, then renamed H.B. 386 and then later nicknamed the ‘Amazon Tax’ or the “Mainstreet Fairness Bill”.     At this time, affiliate business partnerships in 13 of the 50 states in the US have been effected by these controversial Nexus Laws.

The industry hopes for movement on a federal solution to the issue, commonly known as the Marketplace Fairness Act. During the summer of 2013. Maine, Missouri and Minnesota are the most recent to have passed affiliate nexus tax laws. New York was the first state to enact a nexus tax law in 2008, with N. Carolina and Rhode Island following suit in 2009. 2011 added Arkansas, California, Connecticut, Illinois and Pennsylvania. Georgia passed Nexus in 2012, and Kansas passed its own version earlier in 2013.

Recent resolution in Illinois!  As of October 18, 2013 affiliates in the state of Illinois are now back in business where the state’s “affiliate nexus tax” law was declared invalid by the Illinois Supreme Court.  Those opposed to Nexus Laws nationwide are encouraged by this victory.  “The court agreed with the PMA (Performance Marketing Association) that advertising via performance marketing affiliates does not give rise to tax obligations and is therefore a discriminatory tax on Internet commerce.”

Controversial Amazon Nexus Law Questions

Should online sales be taxed?

Of over 100,000 Internet retailers in the US, at this time only about 2,000 of them operate affiliate programs. Yet this is growing steadily.  Historically online purchases from these online retailers have not been subject to state taxes.

Meanwhile, shall these online merchants who affiliate now be expected to comply with FIFTY different laws regarding sales tax from each state?  …which begs the next question…

Do we need ONE solution, nation-wide?

Maybe. Still less government involvement, please.

This law not only hurts ecommerce small business affiliates, but it doesn’t help the state or local business owners either.

By the way, you can still BUY tax-free via Amazon regardless of these Nexus Laws.   So you can save money and not have to pay tax at your local retailers when you purchase.   Not that I mind, but how does THAT make logical sense?

What now?

As a resident in the state of Missouri, I am among those most recently hit by the Amazon Nexus Laws controversy.  As the dust settles, I’ll continue investigating options.  Some of my business partners were among the first states hit, particularly in California.

You can  incorporate your business in a ‘safe’ state.  The states of Delaware or Nevada are exempt from such laws.

The above requires not only a financial investment (approximately $500 initially, then annual fees), but also requires wading through some piles of legal documents.  Then each and every affiliate link operated by that afiliate must be changed, an extremely time-consuming process.  For those with multiple websites who are solopreneurs, this process might appear mind-boggling.  Still it IS a viable option, and certainly one that’s likely easier than moving to another state.

Possible Solutions to this Nexus Mess?

1)  One possible solution is the so-called “Internet Sales Tax” or Marketplace Fairness Act.  The proposed bill, which has already passed the U.S. Senate, would level the playing field according to supporters.  If passed, online retailers will be required to comply with local sales tax, no matter where they are located and whether they have a presence in the state or other taxing jurisdiction or not.

While Amazon and many affiliate advocates support the above as a possible solution, the controversy remains a hard hit for small business owners.  Who keeps track and does the bookkeeping to insure this taxation happens on each purchase?  While Amazon is already an ultra wealthy corporation who has brilliant techies on staff who could program this into their sales platform, it seems they want to shirk that responsibility and make 3rd party sellers deal with it individually.

2)  Incorporate your business in an approved state.  Some business owners have formed a corporation in a state like Nevada, then register that entity as an Amazon affiliate.  Possible alternative but one that would add time and cost money, also would result in more red tape at tax season.

3)  Use an aggregator like Viglinks.  Viglinks is an impressive system and I’ve heard of many who began using it to avoid the Nexus mess, however if you look at their website this practice is clearly stated as against Viglink policy.  (See text below).

“Can everyone affiliate with Amazon and eBay through VigLink?

All sites are evaluated individually before we assign them a unique tracking ID for Amazon and eBay affiliation. In general, these sites need to have original content and be updated regularly, and for Amazon affiliation, you can’t be located in states restricted due to Nexus Tax laws (these currently include Arkansas, Colorado, Maine, Missouri, Rhode Island, or Vermont).”

 4)  Other affiliate partners have begun to focus in new directions.  They downplay amazon as an affiliate, and strengthen partnerships with others who are not effected by the laws.  Either way, it is a huge fork in the road for anyone who relied on amazon for a large part of small business income.  No online retailer can match the dramatic size and reach of amazon.com, so it is certainly a direct hit for many.

Can You Relate?

What’s your take on the “fairness” and controversial nature of this episode with Amazon Nexus Laws? Did you get the ax as an amazon affiliate because of the Nexus Laws?

Know of a legitimate way for those banned as Amazon affiliates to regain that status?  Please comment below.

 

Carolan Ross

CFO(Chief Fun Officer) at SoloSpark
Freelance writer, creative soul, solopreneur and former teacher who networks with rebels, visionaries, artists and other square pegs in round holes. I support solopreneurs with copywriting and juggling life and business to SHINE ONLINE!

Comments

  1. Anita Levesque says

    Thanks for explaining this better. I can no longer sell Amazon products as an Affiliate in the state of Maine. Great article

  2. Lisa Howard says

    In California, Amazon dumped their affiliates as soon as the law passed, but they later agreed to pay taxes, so there are Associates here now.

    But the law doesn’t just affect Amazon affiliates. All merchants are subject to the same laws. In California, there’s a provision that allows merchants to have affiliates sign an affidavit saying they don’t engage in certain types of marketing, so some merchants have used that method to keep their California affiliates. Others have just slammed the door. It’s a huge mess. I think a federal law would help everyone.

    • says

      I do remember that you watched these laws pretty closely, Lisa. Am very curious what you mean by ‘certain types of marketing’ and exactly HOW that affidavit worked??? It IS a huge mess, and one that DOES involve other affiliate partnerships, yes…that being a direct HIT.

      While it certainly appears insane for retailers to have to deal with such dramatically different laws in different states, I ‘m not fond of the idea of federal mandates. Seems Illinois has come to their own state resolution, so for now hoping to follow suit rather than wait for the feds to mandate. YOU?

      • Lisa Howard says

        Carolan, some merchants sent out emails asking affiliates to sign a document swearing that they weren’t engaging in certain types of marketing. I had to sign them, swear that I was telling the truth, and send them back by a certain deadline.

        I don’t remember exactly what all the prohibited activities were (there were maybe 4 or 5), but I think one of them was email marketing. So if you were someone who was collecting email addresses of people in California and marketing directly to them, you couldn’t sign the affidavit. In general, I think people who were just posting links on the web were ok, but anyone who was actively marketing was not.

        I’m not really fond of the idea of a federal mandate either, but I think it would be more fair than what’s happening now. I think it’s crazy that someone living in California can’t be an affiliate of Overstock any longer, but someone living in, say, Oregon can. Either person could post a link on Blogger or Squidoo or somewhere out in the wide cyber world and drive a sale from someone in Florida, but the person in Oregon could earn a commission in the person in California can’t. And the sale happened in Florida! It’s crazy.

        • says

          I did not know that, so THX Lisa. So they targetted LIST builders as active marketers? Now THAT is interesting. As it goes, a list would be one area they’d not have had control over in other ways, since it happens in kind of ‘behind the scenes’ way. I’d have deep reservations about giving that control over ,,, to anyone. Lotta NERVE! Still once the links are dead, then they are dead, eh”

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