State governments are looking for ways to make some more money, and sales tax on affiliate program links is an easy target. Already, New York, North Carolina, Rhode Island and Hawaii have passed new tax legislation that requires companies which use Internet affiliates (including bloggers) for online sales to collect sales tax on purchases when the affiliate link that generated the sale originated on a Web site or blog whose owner lives in one of those states.
The new sales tax is a matter of intense debate with states claiming affiliate Web sites and blogs are acting as salespeople vs.companies who use affiliates, Web site owners and bloggers claiming the relationship is an advertising relationship. However, states claim that not charging sales tax on sales that are generated from an affiliates site who lives in one of these states causes unfair competition with local businesses who must charge sales tax by law (remember, prior to this legislation, companies only had to charge sales tax to consumers who lived in states where the company maintained a physical presence — an office, warehouse, manufacturing plant, etc.).
According to the American Marketing Association, the definition of affiliate marketing is:
An online marketing strategy that involves revenue sharing between online advertisers/merchants and online publishers/salespeople. Compensation is typically awarded based on performance measures such as sales, clicks, registrations or a combination of factors.
Looks like this argument is going to continue for quite awhile.
In the meantime, Overstock.com responded to this new state legislation by dropping its affiliate programs in those states that enacted it. Amazon.com also responded. First, Amazon agreed to collect sales tax when this legislation passed in New York. However, the process must have been a big burden (bigger than the sales generated from New York affiliates according to Amazon representatives), so when North Carolina, Rhode Island and Hawaii passed similar legislation in June, Amazon dropped its affiliate program in those states.
There is no word on the ultimate fate of the New York Amazon Associates affiliate program. We’ll have to wait and see. In the meantime, rumors are buzzing that California is considering passing similar legislation and other states might follow suit. In other words, the fate of online affiliate programs as we know them today, might be very different a year from now.
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