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California Affiliates Get Ready

California Affiliates had better get prepared,  California Assembly Bill 178, co-authored by Charles Calderon (D) and Nancy Skinner (D) will be even more devastating than the NY bill.

California Bill 178 was introduced on February 2nd. California Bill 178 includes this definition of what will create a nexus in California  “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…”  The dollar threshold at which the nexus is created is $10,000 in the previous 4 quarters.  The only out is a reference to satisfying “the requirements of the commerce clause” of the US Constitution during those four quarters.

You can see that the definition of nexus clearly includes affiliates. My suggestion to California affiliates is to start contacting your local politicians, see where they stand.

Then get your sites ready. Find back ups for every merchant that does not currently charge California tax. Research  new merchants;  start diversifying even more than you currently do. Begin testing new merchants so that you have replacements.

If the law passes and a date is set for it to take effect, begin questioning your merchants and OPM’s in public. Do not ask privately; do not settle for silence.

All it takes to destroy your business is the loss of one key merchant.

I know, I’ve been there.

California has two options to raise money, collect an internet tax or raise other taxes. The internet tax seems like the preferred way – easy, less of a hardship and since it’s due any way as a use tax, the fairest.

I’ll continue to read more about this and will monitor the status. Meanwhile get ready, other states will follow.

Link to California  Bill 178
Link to thread at ABestWeb discussing the proposed bill California Internet Tax

Important information in comments.

{ 23 comments… add one }

  • Kevin February 25, 2009, 1:38 pm

    Here we go again.

  • Melanie February 25, 2009, 1:41 pm

    I thought of you right away Kevin :)

    Hopefully we (members of the affiliate industry) are better prepared to handle it this time.

  • Andy Rodriguez February 25, 2009, 1:45 pm

    As with the NY affiliate situation, the affiliates in California can count on ARC for support if and when needed.

  • Melanie February 25, 2009, 2:15 pm

    Thanks Andy, I know we can count on your support.

  • Kunal February 25, 2009, 4:39 pm

    I remember when the NY situation happened and how a lot of affiliates were thinking of moving to NJ but if more states are to follow after California – it will be a mess. Mel – please keep us updated :)

  • Melanie February 25, 2009, 8:52 pm

    Hi Kunal, will definitely keep you updated. Many states will probably follow. A streamlined tax would be much simpler!

  • Melanie February 25, 2009, 9:14 pm

    Charles Calderon is the chair of the Tax Committee so this looks likely.

    Since the bill has two sponsors (including committee chair) the likelihood of it passing increases.

  • Kim Salvino February 26, 2009, 11:20 am

    Thanks for the post, Mellie. On the ball with all the details, as usual. :) Thank you for lending your experience-driven advice as well.

    I’m sickened that this trend appears to be growing more legs and I urge everyone in CA to reach out to their local politicians – NOW.

    I’ll be checking in with my merchants to verify which pay both NY state sales tax and CA state sales tax so that I can post that information once it has been confirmed.

    This is not meant to be a pitch, but one of the pillars on which buy.at was founded is transparency. All buy.at merchants have the ability to view a list of their affiliate base, complete with address, email, phone number and URL’s submitted when they applied. Of course, if anyone has any questions, please feel free to contact me directly.

    I plan to rally behind this change as I did with the NY tax change, so I’ll be following closely all of your updates, Mellie. Thanks again for your post.

  • Melanie February 26, 2009, 5:01 pm

    Thanks Kim, I know we can count on your support as well.

    I look forward to adding the Buy.At merchants :)

  • Brook Schaaf February 26, 2009, 5:49 pm

    Thanks for posting this, Melanie.

    The phrase seems broadly worded enough that pay per click programs would be included?

  • Melanie February 26, 2009, 8:37 pm

    Yes Brook, in my opinion, the phrasing would seem to include pay per click programs.

    I am also concerned that the reference to “directly or indirectly” will also include OPM’s as creating a nexus.

    If this law passes, affiliates will need to get a good tax lawyer to decipher it.

  • Brook Schaaf February 26, 2009, 9:09 pm

    Funny you should mention that, Melanie. I wondered the same thing myself on the second read.

    On ABW, Convergence pointed out this could apply to television, radio, etc.

  • peter bordes February 27, 2009, 12:25 pm

    Thank you for this VIP post and info. Posting tour community and pushed thru our social channels.

    BIG BTW : Brook the answer to that is YES. we have been working with the IAB and it is hands down heading to touching ALL forms of media. NOT just the internet. Its in Washington DC and the IAB is working on this.

    I have also started a discussion with the IAB about how the Performance Marketing Alliance can partner with them to get the information out into our community and support their efforts and lobby power in DC.

  • drivelocity February 27, 2009, 3:50 pm

    Thank you very much for the info and getting people involved in this very important issue. I’ve just posted about it on my blog and will be drafting a letter today to send out ASAP. If you wouldn’t mind, I’d appreciate some verification that the information I posted is accurate.

    Thanks!

  • Leo Ramos February 28, 2009, 12:00 am

    I’m a relatively newbie as an affiliate marketer, so I guess I am not sure I understand this bill as much as I should. However, it doesn’t sound like a good thing at all for us affiliate marketers. How can I make a difference, do we have any petitions or resources to help us address this issue? I’d be happy to support, just want to know how. Thanks.

  • Tony C March 1, 2009, 8:59 pm

    Wow, this is some news. Thanks for filling me in! Guess I won’t be moving there.

  • Melanie March 2, 2009, 7:24 am

    Thanks Peter, we all need to get the word out on this so that we are not as unprepared as we were last year.

    Drivelocity, nice job on your post. I will read it a more carefully but looks good. The more people talk about this issue the better it will be. The legislation will be better and created by educated lawmakers.

    Thanks Ayako, the more coverage the better.

    Yes, Tony a move to California will not solve our problems lol pick another state, and then another. Funny only because I know you were thinking about it.

  • Melanie March 2, 2009, 7:37 am

    Leo, the core problem is that the tax is due anyway; states with sales tax have actually what is called a use tax. Tax is due on items you buy out of state and bring in. Currently most states require residents to remit the tax; since most don’t they want to require merchants who have a nexus (substantial presence) to collect and remit. You can’t really fight the tax, but might be able to argue the collection method.

    Forcing the collection was upheld by NY courts. Five or more states now have “download tax”, also upheld in courts. Requiring merchants who have over $10,000 in the previous 4 quarters is logical. States need the revenue, brick and mortar owners are screaming to level the field, and other reasons make passage of similar legislation very likely in dozens of other states. The last I heard there are strong rumblings by many states. It is going to steamroll.

    My opinion the best choice for merchants is to start collecting the taxes. A pain for sure but will ensure that business is safe.

    Push for the streamlined sales tax is the best answer. A huge movement to utilize a unified streamlined multistate sales tax based on destination. More on that in another post.

    Leo, this legislation and those like will complicate affiliate marketing, just like the NY “Amazon tax”, so you really need to prepare your business. My next post, http://nyaffiliatevoice.com/2009/03/how-california-affiliates-can-prepare/ talks about how affiliates can ready their business. It applies to affiliates in any state, just swap your state’s name with California.

  • peter bordes March 3, 2009, 5:53 pm

    Melanie
    You are doing a great job helping get this info out. i will keep you up to speed from the IAB side in DC.

    Please let me know what you need from MediaTrust to help you. Lets all work together to support you better and work as a community. I am working on getting more info from the top law firm in the direct response space. I connected with them at the ERA show and asked if they would like a segment on our blog and RelevantlySpeaking show.They are ! and would like to know what are the issues everyone needs info on.

    SO please please let me know what topics are needing to be addressed so i can get the info out to all ASAP :) you can DM me on Twitter http://twitter.com/mediatrustpete or email me

  • peter bordes March 4, 2009, 12:35 pm

    Melanie we just published this http://blog.mediatrust.com/2009/03/relevantly-speaking-030409/ on the show. would you like to be on the show re the tax issues?

  • Karen Garcia March 4, 2009, 1:58 pm

    If you would like to send comments on AB 178 directly to the California Assembly, you can do so via their online form: http://www.assembly.ca.gov/acs/legcomment/legcomment.asp?bill_number=ab_178&author=skinner

  • Arthur Stopes, III. July 14, 2009, 9:52 pm

    Dear Melanie Seery:

    Cheer up!

    With all respect – and much concern about the
    so-called “Sales Tax” on Internet sales – you are
    all being taken in…

    I am a Legislative Analyst and Writer (L.A.W.),
    and can thus READ the statutory language of the
    amendment to Revenue and Taxation Code,
    Section 6203, which is “AB 178″. None of this is
    what you think. But (as you should know),
    “Don’t believe what you think!”

    Have You read the Amendment? The legal
    phrase “in this state”* appears eleven (11) times
    in the amendment. WHY?

    If the California Legislature can only legislate
    for California state (where I live), it is hardly
    necessary to mention that phrase “in this state”*
    even one time. But, 11 times? Think about it…

    The phrase does NOT mean California state;
    it means a “Federal Area” within California,
    which is the title of the implementing regulation
    (18:1616) to the “State of” CaliforniaRevenue
    and Taxation Code, Section 6017, which legally
    defines the phrases “in the state” and “in this
    state”. Do look them up. Especially, Sec. 6017.

    This is enough, for now.
    IF you want to know more, send me an e-mail at
    , or call Me at
    (510) 548-5238.

    You/the “businesses” CANNOT be required to
    sign (enter into contract), with the de facto
    “State of” California “Board of Equalization” – or
    any other entity. Only IF you/the “businesses”
    SIGN their “Forms”, will you be jeopardized and
    obliged to collect “Sales Taxes”. It’s Contractual.

    By the way, certain enterprises at Berkeley DO
    NOT attempt to collect “Sales Taxes”, from Me.

    Sincerely, Arthur Stopes, III.
    Director, Center for Unalienable Rights
    Education.

    N.B.:
    1.) Pursuant to the Rev. & Tax Code and the
    Civil Code, the Purchaser must “agree” to pay
    the “Sales Tax”. I do NOT agree!
    2.) Further, if the Retailer/Seller is NOT “in this
    state” (i.e., located on a Federal Area), the “Sales
    Tax” cannot be imposed upon them, either.

    Please write or call. Thank you.

    Note:
    Congress RE-defined the word “State” on July
    20, 1868. Most “attorneys” don’t know this…
    And the people still think it means “California”?
    BEWARE.

  • Leo Ramos January 6, 2010, 9:07 am

    Melanie, It’s been a while since I posted my comment and didn’t realize anyone had answered it (until today). So first of all, thank you!

    Second, if I enter into an affiliate agreement, can they hide this type of agreement in their TOS? What do I look for to see if I’ve unknowingly entered into such an agreement? And if so, what would be my recourse?

    Thanks,
    Leo

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