What does the law do?

Basically, it’s California’s way of trying to circumvent a federal law regarding collecting sales tax in a state where a business has a physical presence, be it a store front, a warehouse, distribution center, mailbox, what have you. The new law includes affiliate marketers in California as having a physical presence. California law makers would have you believe that it would increase tax revenue at a time when the state is heavily in debt and the base tax rate reverted from 8.25% back to 7.25%.

What will it really do?

The lawmakers either ignored, or failed to realize, the fact that those same affiliate marketers the law relies on are the same ones who pay income tax to the state on the commissions they earn from affiliate marketing – from companies like Amazon.com. The enactment of this law will also require businesses to be able to track the different state, county and city tax rates around the country and charge buyers accordingly.

And…

Additionally, California is forcing tax collection onto companies that are not even in California, as long as they have an affiliate program. Owners, employees and representatives (besides affiliates) of those companies do not get to vote, nor enjoy any benefits of their tax collection. They don’t drive on our roads, they don’t use our emergency services, and they sure as hell didn’t get a say in the matter.

What happened?

Simply put, Amazon.com dropped 25,000 California-based affiliates from their affiliate program in order to continue to avoid collecting sales tax from California residents. Just like what they did in Illinois and Colorado! Some numbers were crunched on CalWatchDog… In 2009 California received $124 million in income taxes from affiliates.

So, instead of the up to $500 million Skinner says might be collected, it might be just $152 million. And notice the key word “static.” That means the estimate assumes Amazon won’t fire its affiliates; and the affiliates won’t be hurt and many of the shut down, or move to more accommodating states.

Let’s do the math: If only $152 million is collected, but $124 million in income taxes are lost (as Runner says), then the net would be just $26 million. That’s less than $1 per Californian.

What does that mean?

California will not be getting any of the sales tax they so desperately wanted from Amazon.com sales. California will no longer be getting income tax revenue from commissions that would have been derived from sales sent to Amazon.com. Companies and individual affiliate marketers will leave California, taking with them their income taxes, sales taxes and any revenue that the state could have generated off of them and/or their businesses.

So, who’s behind this?

It’s not just California lawmakers that are responsible for this, and I’m not going to place the blame on voters. There was a large lobbying effort by big box retailers like Wal-Mart Stores Inc., Target Corp., Best Buy Co. and Barnes & Noble Inc. Note that these stores also have affiliate programs, but because they already have a physical presence in presumably every state, they already have the mechanisms in place to collect sales tax. They’re looking to thin the herd.

How do you really feel?

I fought over this issue a couple years ago and succumbed to the idea that it was just a matter of time. I still have a glimmer of hope that it can be removed/reverted and we can go back to business as normal. Some California lawmakers cannot possibly be so blind as to not see that this is a lose-lose situation. We may eventually get to a point where the federal law is rewritten to address the diversity and complexity of the Internet age. Until then, we all lose out with laws like this.

This is a huge relief. As it is, with the recession, I’ve seen a fairly substantial decrease in online revenue, but it usually ebbs and flows, so I may do better next month. We’ll see…

Thank you for all the support in contacting politicians and the media. It looks like we applied enough pressure to have a positive effect on small businesses in California. Let’s hope other states will follow suit.

As you may already know, there are proposed California bills that could require the collection of sales tax for online purchases similar to bills proposed in other states and that could resemble the law that recently passed in New York State. At this time, a hearing date for AB 178 has been set for April 13, 2009. As with all laws, if passed, these laws may or may not apply to you and your business.

Commission Junction is headquartered in California and impacted by the current California budget crisis. Nevertheless, we are opposed to the recently proposed legislation and are working with a lobbyist and other groups in hopes that we can influence the rejection of the bills’ passage. Rest assured, we recognize that our industry and many of our clients may be impacted by these bills.

The application of the bills is dependent on particular business and factual circumstances, and Commission Junction is not in a position to provide legal and tax advice regarding the bills. However, we encourage you to perform the appropriate due diligence as it relates to your business. You may be contacted by advertisers in the Commission Junction network as they perform their due diligence.

Additionally, following are two sources of information on the proposed California bills that you may find helpful:

• Link 1
• Link 2

If you feel that you need more counsel on the bills, we recommend you seek independent tax and legal advice.

For more information, links and resources for what you can do and who you can contact, please click here.

I won’t get into the specifics about the New York issue as I am still admittedly rather ignorant on it and there is plenty of information out there already. What I want to provide is the information I’ve found on the California bill, introduced by Charles Calderon (D) and Nancy Skinner (D). It appears that the California bill is much more air tight than New York’s. Here is the section that applies to affiliates and referred sales via links:

(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
in question.

If a company is located in California, they currently have to charge tax to California residents. From what I understand, the law will change as follows: Companies outside of California will have to tax all purchases made by California residents if the company has any affiliates located in California and those affiliates’ sales account for $10,000 or more of their quarterly sales. Once that mark has been reached, all sales made that quarter to California residents become taxable.  The reasoning behind this is that politicians believe the merchant is soliciting business, rather than simply advertising. The merchant would have the incredibly difficult task of proving they brought in less than $10,000 in California sales via California-based affiliates in order to not collect the tax. The answer for the merchant who does not want to deal with those taxes is to drop affiliates in California.

I asked Kevin Webster, of 72Kilowatts.com, about the situation, specifically how it affects those of us in affiliate marketing and if it affects in-house ad sales or CPC revenue. This is what he had to say:

1.) It directly impacts the merchant and the consumer. The affiliate is not involved in the tax process. However, some merchants will dump CA affiliates in order to avoid having to collect the sales tax.

2.) Your second question is a good one, as your law is worded a little different than the NY law. I read it that it affects ALL kinds of online advertising. But a lawyer will have to look at that more closely.

Once the affiliate “nexus” is created, meaning it’s determined that a merchant does $10k per quarter to CA residents from CA affiliates (again, can be tough to determine, so many merchants just assume they “do” to avoid trouble), then ANY and ALL sales by that merchant to CA residents become taxable.

The affiliate question then becomes removed from the equation. In other words, affiliates are being used to set the criteria, but once it’s set, they no longer matter.

Please take action: Contact Californai State Assembly, California State Senate, Twitter Schwarzenegger, Revenue and Taxation Committee Members

- Nancy Skinner – Tel: (916) 319-2014 (staffer: Liz Mooney)
- Charles Calderon – Tel: (916) 319-2058 (staffer: Tom White)

You can also leave comments on the bill here.

Do not just call or email – write letters too!

If you call and speak to a staffer, chances are the message will go nowhere and will probably lie to you, especially if you ask for a hearing date in order to speak out against it. They do not want the opposition! And don’t simply contact the co-authors, one of which is the Chairman for the Assembly Revenue and Taxation Committee. Write to your own Assembly Member and Senator as well. The earliest committee vote is, apparently, scheduled for March 5, 2009.

If passed, this bill may very well mean that many smaller merchants may go out of business. The manpower required of small business owners (staffing, collecting, paying, etc.) may be too much for them to bear. For those affiliates who have a lot of their eggs in one basket, and if that basket were a merchant who would would rather drop you than to deal with the taxes, you need to be ready, or else risk having your business destroyed.

Not that this is scary enough as it is, but consider that the two states to look at this law are New York and California. As these two extremely large states, in terms of population and revenue, will become examples, other states are sure to follow. As states, such as California, introduce bills like AB 178, affiliates and businesses will look to move elsewhere. This will be very detrimental to any state considering such action. As one affiliate pointed out, “Politicians will take the way that gives them the better image within their own state. Choice – collect tax from out of state merchant or raise other taxes that get noticed (school, property income…)”

For more information check out the California Affiliate Forum, New York Affiliate Forum, 72Kilowatts.comand NYAffiliateVoice.com.

As of yesterday afternoon, we no longer have SureWest, and are now happy (for the most part) AT&T U-verse customers. Why do I say “for the most part?” I’ll get to that in a second. The important thing is that we are back to 2009 and are no longer stuck with a defunct and painfully worthless DVR. And I was able to switch without incurring the $200 early termination fee!

The installation went much better than our SureWest experience. The installer brought all of the needed equipment, didn’t have to run a ton of new wires or drill any extraneous holes and was in and out in about four hours. The service works great and the DVR is a world of difference! Unfortunately, to get the DVR functions, it’s an extra $7 per TV, so we decided to only add the TV in our bedroom for now. In less than a half hour, I had all of our previously scheduled programs loaded on the new DVR via AT&T’s web interface. Yes, that’s right, I can now record shows from anywhere with an Internet connection. Did I mention that we can record up to four shows at once? That’s leaps and bounds beyond the archaic SureWest DVR that would only record half of what we wanted because of conflicts and errors. We also now have unlimited minutes for our phone vs. the 1000 with SureWest.

The only problem we’ve encountered so far with AT&T U-verse is with the DVR functions on TVs other than the main one in the living room. You can watch, pause, rewind & fast forward recorded programs. What you can’t do is record, pause, rewind or fast forward live TV.  I should also point out that there are some complaints that you can only watch one HD channel in the house, but we don’t have an HD TV, so I can’t comment on that.

So, how did I get out of our SureWest contract without incurring the ever-dreadful $200 early termination fee? Well, it’s not a done deal yet, as I still have to return the equipment, which needs to wait until our phone is ported over. But it was about a week long process where I called to try to get out, got bumped up from a customer service representative to a supervisor, who offered to give us a second DVR, credit for lost service and send a technician out to try and fix our existing DVR. I even got her to agree to manually load our scheduled programs onto the second DVR, which we ended up not doing. Fortunately, for us, the technician never called or came to our house. I called a few days later and got bumped up to the lead of an “elite team” (his words) who offered me all sorts of stuff to get us to stay, like a free Digital Choice package and response within one to two hours. I finally convinced him that, because of the poor service, problems we had with the installation and DVR, they should let us out of the contract and waive the $200 fee. Now, we just have to hope that it’s documented in their system and they give me some sort of receipt for returning the equipment, otherwise they’ll probably try and send us a bill, which has been known to happen.

Here’s what I still need to do:

1. Call AT&T and get $200 rebate process started (after 30 days)
2. Take cable equipment to SureWest so we aren’t billed further
3. Wait for the phone to be ported over
4. Take phone/Internet equipment to SureWest
5. Wait for bill from SureWest that I’ll have to fight
6. Hope my wife doesn’t watch to switch again

Click here to check out AT&T U-verse!

It looks like now through March 2, 2009 you can get up to $250 cash back if you order AT&T U-verse online!

We called Comcast first and were not impressed. This experience started with my wife trying to sign up via their web site. For some reason, that doesn’t make much sense to either of us, they require a social security number. Not wanting to provide that information over the Internet, even though they claim it’s secure, I was drafted to give them a call and see if I could get it straightened out. The representative had the attitude that they could live without our business and that I should just trust them that they’re the best around. The rates quoted me were higher than Dish, for less and we’d have to pay more for a second DVR. I loved the part that, if there was a problem, they’d come out and fix it for free! I had to explain several times that the other companies would, and have, as well.

For weeks we had been getting fliers in our mailbox from Surewest promoting their bundles. We looked into it and found that we could save quite a bit of money and retain most, if not all, of what we currently had. So we scheduled an installation and I took time off work, expecting it to be an hour or two. Oh Nooooo. I was surely mistaken! Apparently they have to attach a box to the outside of the house, run new cables, replace phone and cable jacks, and then setup and install the equipment. When it was all said and done, but not quite done, it had taken about six hours! And the best part… they didn’t have our phone ported over from AT&T and they didn’t bring a router, so we had no phone and no Internet. After being on the phone for about two hours, I finally got them to send out someone with a wireless router and got credited for time without phone and the minutes I used on my cell phone on hold. We didn’t have phone service for around a week.

I wish we still had dish. When I called and canceled dish, I found that we could basically have the same bundle for $10 less per month! And we’d have a quality DVR that we loved. And we could have a DVR in two rooms. And we wouldn’t be frustrated by the whole experience. I’ve had a bad experience with Surewest in the past and vowed never to use them again, but I lost that fight. So, now, we’re stuck with one DVR in the living room that randomly and frequently freezes, is a pain in the ass to use, does not record properly, and is just a piece of junk.

Mark my words. We will be back with dish once our contract expires with Surewest. If my wife needs to take anymore classes, we can find someone else to record it for us. It’s that bad.