Warning – California “Affiliate” Online Sales Tax Proposed

Watch out California affiliates! There is a proposed bill to charge online sales tax in California modeled closely after the infamous New York “Amazon” tax. If it goes through not only will it hurt lots of California affiliates, but if it passes it makes it much more likely other states will follow suit.

UPDATE: 3/20 – Help us Lobby Against CA AB 178 – Affiliate Sales Tax

Melanie Seery broke the story and talks about the impact this could have on affiliates and merchants. California Affiliates Get Ready

Assembly woman Nancy Skinner has proposed Assembly Bill 178 and claims it will raise about $55 million per year for California. According to a story on the California State Assembly Democratic Caucus web site “Her bill is modeled closely on a law enacted in New York, which defines an Internet retailer’s affiliates within the state as a “physical presence” or “nexus” — the U.S. Supreme Court’s standard on whether a state’s sales taxes apply.”

However an apposing view that supports our cause was also raised in that article by State Taxation attorney Fred Nicely. He stated:

Skinner’s bill “represents poor tax policy” and is unconstitutional. He also rejected that remote sellers’ affiliates equate to a physical presence; such an interpretation invites costly lawsuits and distracts the state from collecting other taxes, while costing state jobs by inspiring remote sellers to send their advertising dollars and Web-hosting contracts elsewhere, he said.

The actual bill text is here: BILL NUMBER: AB 178

Related story ABC News: Avoiding sales tax online? Not for long

An important quote from the end of that story: “This proposal changes the way sales tax is collected, not the actual tax rate itself. That means only a simple majority is needed to pass it.

I am still researching and just found out about this so am simply passing on what I’ve found so far. I’m not one of those people that’s well versed on how the government works, so I’m not certain about the timing or what other steps need to happen before they can potentially pass this bill.

There is no time to waste. We need to reach out to anyone we know at the government level and let them know what happened in New York, so they realize this could cause some Californians to lose income or even lose their small businesses. Quote Fred Nicely’s comments as they carry weight and point out additional reasons this bill should not be passed.

If you haven’t yet, be sure to read Melanie’s blog too.

UPDATE: 3/10 – Lisa Riolo is helping to organize some efforts to protest the passing of the bill. If you are in affiliate industry & want to help fight against CA AB178 tax bill please twitter: @lisariolo to get on coalition list(s).

UPDATE: 3/12 – Melanie reports this bill is set to go to committee on April 13th and has recommendations about what to do. California Bill 178 Update

UPDATE: 3/20 – Please be sure to read Help us Lobby Against CA AB 178 – Affiliate Sales Tax

12 Comments on Warning – California “Affiliate” Online Sales Tax Proposed

  1. Thanks for helping to spread the word on this Linda. The California bill is scary because it is very strict, no wiggle room. If it passes, other states will move quickly.

    I’ll be following this and other states very closely.

    It’s going to be an eventful year.

  2. You’re welcome Melanie. Thanks for catching the story and doing so much research to help CA affiliates. You more than anyone, know the impact something like this can have.

    Not only is it tighter, but after what happened in New York, I’m not sure that any big companies are going to want to invest legal dollars to try to fight this unfortunately.

  3. Like everyone else, I’m totally against this and hope it will not pass since I live in CA. I did have a question though.

    NY affiliates were axed by merchants after the law was passed. If this passes in CA, merchants will probably do the same to CA affiliates.

    My question is…if all states pass this tax, won’t merchants then reopen their respective affiliate programs to everyone?

  4. “NY affiliates were axed by merchants after the law was passed. If this passes in CA, merchants will probably do the same to CA affiliates.”

    Many merchants kept their NY affiliates, only some of the merchants canned affiliates.

    “My question is…if all states pass this tax, won’t merchants then reopen their respective affiliate programs to everyone?”

    I suspect what will happen is all states will eventually buy into the streamlined sales tax, then the whole affiliate issue is off the table because all states would have to charge online sales tax, regardless of affiliates. I hate to see it come to that, but at least it would be fair, while this bill that singles out merchants that have affiliates, is not!

  5. Looks like it’s correct – a majority vote is all that’s required.

    It could be heard in committee as soon as 3/5, that’s next Thursday!

    AB 178 Assembly Bill – History
    http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0151-0200/ab_178_bill_20090203_history.html

    I just wrote 2 letters to the assembly.

    You can object and give them your concerns here.
    http://www.assembly.ca.gov/acs/legcomment/legcomment.asp?bill_number=ab_178&author=skinner

  6. Let yourself be heard here:

    http://change.gov/content/home

    Or share this story to The President:
    http://www.facebook.com/barackobama

  7. Right now we are thinking about moving our corporation out of New York – in order to protest this punitive and short-sighted legislation and to remain eligible to promote affiliate products.
    Do you think this makes sense?
    Where would you move a corp?
    Affiliates need to fight back with action. Thanks for the information.

  8. Hi Brian, thanks for weighing in.

    I don’t think moving the corporation is a good idea as they spelled out somewhere in the NY law it’s where you are physically located not the corp location.

    Besides if CA passes this it’s going to spread to other states. I really think this is going to eventually lead to the streamlined sales tax. Then the whole affiliate issue is off the table because all states would have to charge online sales tax, regardless of affiliates, therefore merchants won’t have a reason to drop affiliates from certain states. But that could be a couple years off I guess.

    In the meantime I would just hold tight in NY. Work with the merchants you can that aren’t affected by the law or who have chosen to still work with their NY partners.

  9. I will have some major news on this front some time this week. I need to wait to get the all clear before I can blog it. Stay tuned.

  10. Doesn’t this mean that anyone using Google PPC will have to pay sales tax in CA? the language of the law is “commission or other compensation”.

  11. Avromie, one of the concerns about this bill is that it is overly broad and could affect lots of companies like Google and eBay too. The way it’s written it could almost be stretched to include magazine and newspaper ads too.

4 Trackbacks & Pingbacks

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