When the California legislature tabled Assembly Bill 178 until 2010, affiliate marketers in the state let out a collective sigh of relief.
A Background
Online retailers have traditionally only collected sales tax for sales to customers in states where they maintain a physical presence, meaning an office, warehouse, or brick-and-mortar store. Smart online retailers have spent the past 10+ years building a network of affiliate marketers across the county and world to help drive business to their websites. These are mostly small businesses that earn income from their advertising efforts only when a shopper actually buys something. AB 178 aims to use those affiliates as the basis for creating a California tax nexus for nearly every online retailer. That means that my little home office in Livermore would suddenly require Amazon (WA), Zappos (NV), the International Star Registry (IL), and many more companies with no other California presence to begin collecting sales tax on every California order.
Impact
In theory, AB 178 is a great idea. In theory, it levels the playing field between local brick-and-mortar stores and online retailers. In theory, it would generate maybe as much as an extra $100 million a year for our cash-strapped government.
In practice, we know from hindsight it wouldn’t really work that way. New York passed a similar law last year, and the immediate impact was tremendous, just not in the way the legislature had hoped.
While some online retailers have been dutifully paying the tax, hundreds more decided to simply sever their relationship with their New York affiliates. No more affiliates, no more nexus, no more tax. The plan backfired — and thousands of New York affiliate marketers lose a big percentage of their income, perhaps representing more in lost state income tax than NY gained in increased sales tax. (Plus you’ve got thousands of angry small-business owners, who’ve repeatedly been called “the backbone” of our economy.)
Postponed
Given New York’s experience last year, I was kind of nervous to see California pursuing a similar bill this year. And even more frustrated and upset after I wrote my representative Joan Buchanan and got an email back that she shared my support of the bill. She (or likely a member of her staff) completely misread my message and has yet to respond to my reply. Doesn’t give me a lot of confidence in the democratic process when my only representation in the legislature won’t read / misunderstands / doesn’t respond to the voice of her constituents.
But the good news is that at the committee hearing Monday, the bill was postponed until January of next year. Perhaps AB 178, promoted as a $100 million windfall for the state, wasn’t garnering enough support to push for a vote this session. Perhaps the combined voices of California affiliates helped them see it for what it was: too good to be true.
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Tags: affiliate marketing, business, california, Entrepreneurship, taxes
