By now I think everyone has heard about Amazon closing its affiliate program in Illinois after the governor signed a law requiring online businesses to collect sales tax for goods sold in states where they have a “business presence.” Now Amazon and other retailers like Overstock.com are facing the same issue in California, and Amazon has already warned the State of California that they will drop their Californian affiliates if the law is passed (which is pretty substantial considering Amazon is believed to receive 40% of revenue from affiliates).
Here’s a quick chart of the United States to show the Nexus Tax situation in various states: https://www.salestaxinstitute.com/resources/remote-seller-nexus-chart
State governments have been chasing around large Internet retailers like this for years, even my home state of Texas went after $269 million in back taxes against Amazon in February, and it often comes down to them having “sales affiliates” in those states. The thing I don’t really understand is what affiliates have to do with any of this. Are they considered the business presence? We don’t make advertisers charge sales tax for consumers that see a billboard in their home state do we? Or how about those that see a television ad or read magazines. Oh wait, perhaps that’s because we can’t track which of those consumers become customers…
I would like to argue that this entire issue is built on semantics. At the core, we first have to answer the question – Is the affiliate actually a salesman doing business on behalf of the advertiser in another state? As far as I know, a salesman (or internal sales team) not only persuades consumers, but they also walk people through the sales process and receive what is commonly referred to as a commission. Affiliates on the other hand are simply marketers that send people to those sales processes and hope for the best. They are no different than the billboards you pass on the highway or the local newspaper that sells advertisements (though some may be a bit more clever). What I’m trying to say is that affiliates are just marketers and/or publishers that send consumers (not new customers) to advertisers, and in the end they can only strive to send the most relevant, ready to buy, user traffic in hopes that the advertiser will convert users into new customers.
Affiliates are NOT PAID on Commission
Instead, I believe that affiliates receive payouts based on performance. Yes, sometimes the metric that determines performance has a lot to do with actual sales or leads, but there are a host of things that can measure an affiliate’s performance. In fact, some affiliates are paid less for the sales or leads they bring because their quality of traffic is low.
If affiliates were actually the ones hosting the website where the transaction takes place (they collect the credit card number, etc), you might have a different story. Then you would have to call them dealers, or franchises, or sales branches, but the simple fact remains that affiliates simply send qualified, relevant traffic to advertisers, and it is up to advertisers to close the deal. This couldn’t be more true in the case of Amazon, and I hope somehow that politicians will begin to see the truth in this. If they don’t they’ll end up with huge losses in income taxes from the affiliates, not to mention the dollars spent by affiliates in real estate and goods to support state economies.
Learn more about how you can make a difference in new Nexus Tax decisions in various states with the Performance Marketing Association. You can also read their take on the Illinois nexus tax.
Author
A digital marketer by background, Peter is the former CEO of TUNE, the enterprise platform for partner marketing. In 2018, he sold TUNE’s mobile measurement product to Branch, unifying measurement and user experience. He led TUNE’s efforts to bring better management technology and automation to marketing partnerships, across affiliates, influencers, networks, and business development relationships. Follow @peterhamilton
Amazon Is one of the best way to get money easily. being in affiliate marketing i’m still not started with Amazon affiliate program. Searching ways to get started with it and make some cool amount of money
My sister owns a pet sitting business. She offers her clients a referral bonus for new clients, which is fundamentally the same as an affiliate program. She doesn’t, however, pay referral bonuses in cash, but in free services.
I wonder if a plausible solution for Amazon would have been to simply change their compensation structure in the states pursuing such action. Some affiliates would still abandon the program rather than being paid in Amazon gift cards/certificates, but I’d think that would be preferable to shutting down the program completely in those states.
That certainly is an option, especially with a company that has so many other potential ways to compensate affiliates. However, I think Amazon is trying to make a statement here. Sort of a “if you’re gonna play that way then we’ll just leave” kind of a statement to show other states like California that they aren’t just bluffing.
Perhaps if states see the impact on the loss of income taxes from affiliates and the number of businesses shut down they will actually see the reality of the situation…
mmm… I don’t want 10k/month in amazon giftcards
lol
Government needs to get their dirty hands off of OUR wallets. Its OUR money we earned it not them! If I tell someone about a product I like do I got to “collect” or pay a “tax” on my opinion. Oh I’m sorry everyone you now got to pay a tax for listening to me voice my opinion! Just insanity at its’ best.
I agree with you, Peter. This likely is Amazon’s attempt to thumb their nose at the Illinois state legislators’ short-sightedness. However, with so much of Amazon’s revenue coming from their affiliates, there is a limit to how far they can go to make a point. Another solution will need to be found before this attempt to stand on principle turns into a catastrophic revenue loss for Amazon.
I would think so too. I’m thinking Walmart and other large brick and mortar retailers are pushing for this tax pretty hard, and they’re lobbying is not going to stop.
It does seem like a bit of a gamble on Amazon’s part.
This is just the beginning
Sad to say I agree with you. Where do you think it’s headed?
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[…] “Amazon’s Affiliates are not Salesmen“ – Are affiliates salesmen paid on commission or just more effective billboard advertisements? The difference could mean big bucks! […]
To say amazon affiliates simply drive traffic is simply not true (in my case at least). I spend a lot of time writing detailed product reviews and educating my audience and it has shown a dramatic increase in conversion rate over my old and incredibly lame content. Sure I could simply send them an egg and hope it turns into a delicious meal (plenty of crappy affiliate sites do that) or I could cook that sucker up and hand it to them on a silver platter.
Of course, I would still argue that I am not a “business presence” for Amazon in the state but to craft that argument I would instead look to stuff like legislative intent and legal precedent.
@Dan I totally agree that many affiliates are sending extremely verified/qualified traffic through education, brand engagement, etc. I did not mean that you were just sending random traffic and hoping Amazon will close the deals. However, at a certain point, no matter how much you have prepped the visitors, Amazon must make the sale and collect the money. Perhaps I over simplified by saying “amazon affiliates simply drive traffic.” I might have been more correct by saying “amazon affiliates drive interested visitors” – though that isn’t always the case either 🙂
[…] “Amazon’s Affiliates are not Salesmen“ – Are affiliates salesmen paid on commission or just more effective billboard advertisements? The difference could mean big bucks! […]
[…] 2. Killing the Affiliate Nexus Tax Dead! Location: Sutton (South & Regent) Time: 3:30pm-4:30pm Possibly one of the hottest topics of 2011 among affiliate marketers, this panel address the nexus tax, how it impacts our industry, and how we’ve been combating proposals in various states. Hear from Rebecca Madigan of the PMA who has lead much of this charge, along with others including Scott Allan of LinkShare, David Andre of Cartera, and Matthew Schaefer. Related reading on this blog: How Far Does Affiliate Nexus Go? Texas Affiliates Show Up for Battle Amazon Affiliates Are Not Salesmen […]
Reference to…
…If you’re thinking about other viewpoints……
Crazy Ideas…
…Why do so many people sound like parrots……
you can still connect to another country version of the program