Advertising Tax Impact, Accomplishments and the Future

Brian Littleton, President / CEO, ShareASale.com

Karen Garcia, Partner, GTO Management

Beth Kirsch, Volunteer, Performance Marketing Alliance

Melanie Seery, President, Affiliate Voice

What is the Advertising Tax?

• It is an effort by states to collect unremitted sales/use tax from citizens by changing the definition of "nexus" to force e-commerce merchants to collect it at the time of purchase.

• This is not a new tax...use tax in California alone has been a law since 1935.

• Most people don't know it exists • States are looking for money• Collection of use tax by the current "honor

system" doesn't work.

What is Nexus?

• Supreme Court case Quill Corp vs. North Dakota, 504 U.S. 298 (1992)

• Examples of physical presence:

sales people, company offices, distribution centers• New laws define affiliates as enough basis for

physical presence despite the fact that they are not company employees

Who Does This Affect?

• Everyone.• Affiliates - coupon sites, bloggers, search, etc.

Don't think you're not included, you are.• Merchants - You need to talk to a lawyer about

legal ramifications of keeping your affiliate programs. Some of these bills are backdated and go into effect -before- they are actually signed.

• Networks - make a percentage of affiliate sales, essentially a commission on the original purchase.

• If you make a commission off of sales from an out of state company, you are affected.

Why is it important?

• According to Avalara, there are more than 12,500 tax zones in the U.S.

• If a company does not want to collect the sales tax, they can simply remove affiliates on a state by state basis.

No affiliates, no nexus.

• Legislators fail to see the big picture:

No nexus = no use tax collection AND

no income tax from removed affiliates

Inaccuracies in the “News”

“Affiliates should pay taxes too.” Fox News reporter

“Why shouldn’t they pay taxes too?” CNBC reporter

“It’s about time they pay taxes too.”It targets Amazon.It’s a new movement.

Inaccuracies in Politics

“Affiliates should pay taxes too.”“I will be very surprised if any of the major

click through retailers refuse to sell to our state…” Governor North Carolina

Affiliates/publishers/advertisers are the same as an affiliate company.

Internet sales tax levels the playing field.

Myths & Inaccuracies in Our Industry

“This is a new tax.”

Collecting tax is easy.

“It’s just an advertising tax, a tax on the Internet, a tax on affiliates....”

“This is a Democrat thing.”

“This is a Republican thing.”

Quill vs. North Dakota is a good defense argument against the tax.

The tax is not constitutional.

The SSTP will save the day.

A defeated bill means you’re safe.

Most damaging Myths & Inaccuracies

We can wait to act, the courts will decide.We can’t do anything once the tax is

implemented.It’s not my problem. “My state would never do that.”

How a Bill Becomes a Law

Legislative Campaigns

Where we can create momentum

• Member visits in the district• Member visits/Lobbying Day in

the Statehouse • Editorial Board• Letter writing• Group letters• Letters to the editor• Friendlies – Coalition building

• Chamber of Commerce• State Taxpayer's Association• Your state website is a goldmine - many can

actually RSS feed updates or allow you to sign up for bill tracking via email.

• Networks - most now have informational pages available

• PerformanceMarketingAlliance.com

& AffiliateVoice.com• Forums• Affiliate Managers

Following Legislation

What To Say?

• Affiliate Tax, Amazon Tax, Internet Retail Tax?Advertising Tax

• The word "affiliate" means something completely different to legislators and Amazon alone is too confining and people like to see the big guy fall

• Don't threaten to move out of state - it's an empty threat, they don't care

• Keep your analogies as simplistic as possible• Don't get too technical or use acronyms - PPC,

SEO, SEM mean nothing• Tell your story

Accomplishments

• California passed budget without Nexus language • Hawaii vetoed HB1405 and Amazon has reinvited

affiliates there• Connecticut & Tennessee - postponed• Maryland & Minnesota - killed in committee

• Affiliates, Merchants and Networks are more aware and are becoming proactive

THIS IS AN ISSUE THAT WILL RETURN

What Now? Reaction to Nexus Law

Once new nexus law is in effect, industry must continue to work together.

Networks, merchants and affiliates all have a role.

Action should not stop

What Now? Reaction to Nexus Law

Role of Networks:

Education and dissemination of information.

Work to Identify Solutions

Action

Must be facilitators in recovery process.

Role of Merchants:

Education

Communication

Respect

Identify Solutions – Collect tax? Rebut the presumption?

Action

Role of Affiliates:

Preparation

Education

Communication

Respect

Identify Solutions

Action

Solutions – What Works & What Doesn’t

Retain services of in state Sales and Use Tax Attorney

Understand the law (sales threshold, ability to rebut …)

Examine the NY Solution – Sample documents available to rebut presumption in NY

Do not use false address

Do not assume incorporating in another state will work

Do not follow advice of unlicensed

Do not follow advice of lawyer for other party

Do not try to circumvent the law, work within the law

Specific Steps

Steps for Every AffiliateMonitor, prepare, react and adaptSteps for Every MerchantMonitor, communicate and adaptSteps for Every NetworkMonitor, educate, disseminate, facilitate

SSUTA and the SSTP

SSUTA = Streamlined Sales and Use Tax Agreement

SSTP = Streamlined Sales Tax ProjectSSTP is the organization working to

implement the SSUTAFederal action

Streamlined Sales Tax Agreement

“The result of this work is the Streamlined Sales and Use Tax Agreement. The purpose of the Agreement is to simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance. The Agreement focuses on improving sales and use tax administration systems for all sellers and for all types of commerce through all of the following:

State level administration of sales and use tax collections.

Uniformity in the state and local tax bases.

Uniformity of major tax base definitions.

Central, electronic registration system for all member states.

Simplification of state and local tax rates.

Uniform sourcing rules for all taxable transactions.

Simplified administration of exemptions.

Simplified tax returns.

Simplification of tax remittances.

Protection of consumer privacy.”

Source : http://www.streamlinedsalestax.org/oprules.html

Streamlined Sales Tax Project (SSTP)

Full member SSTP - A full member state is a state that is in compliance with the Streamlined Sales and Use Tax Agreement through laws, rules, regulations and policies.

Arkansas

Indiana

Iowa

Kansas

Kentucky

Michigan

Minnesota

Nebraska

Nevada

New Jersey

North Carolina

North Dakota

Oklahoma

Rhode Island

South Dakota

Vermont

Washington

West Virginia

Wyoming

Source : http://www.streamlinedsalestax.org/oprules.html

Associate Members SSTP - A state that is in compliance with the Streamlined Sales and Use Tax Agreement except that its laws, rules regulations and policies to bring the state into compliance are not in effect but are scheduled to take effect on or before July 1, 2009 or has achieved substantial compliance.

Ohio

Tennessee

Utah

Wisconsin

SSTP is Not Ideal

Though simplified, compliance requires effort.The Pros & ConsOne tax collection per state, states will distribute to local.Still different rates in different states.Same items must be taxable.Takes years to implement all necessary changes. May not be practical

in some states. Time and difficulty.Still a challenge for small to medium size merchants.If accepted by Congress today, 23 states will require out of state

merchants to collect & remit sales tax. We are not ready.Does NOT answer or solve “What is a nexus?”